Peripherals

PC growth will drive peripherals space

After a not-so-great 2002, the year 2003 seems to hold better tidings for the Indian peripherals market. Shipra Arora finds out where the market is headed

One indicator of growth is the projected rise in the ‘attachment ratio’, i.e., number of PCs sold, divided by number of peripherals sold. The attachment ratio in fact gives a picture of the state of IT peripheral penetration in the country. According to an industry expert, the attachment ratio is presently estimated to be around 33 percent, i.e., one-third of the PCs sold, which means that almost 66 percent of the pie is not being addressed. According to Alok Bharadwaj, director & genral manager, consumer imaging & information division and value products, Canon India, this potential 66 percent market is an indication of the opportunity that can grow in the coming years. However, the ratio is never likely to touch 100 percent; in the developed countries it is around 70 percent and in India it is likely to improve to around 50 percent from the current 33 percent in the next couple of years.

Anand Iyer, country general manager, APC India is quite hopeful of the market reaching and hopefully surpassing year 2000 IT-spend levels.

Better times will see increased spending and expansion exercises by vendors. According to Bharadwaj, in the year 2003, MNC companies will increase their budgets with China and India getting the maximum share of the spend. Companies who had kept a low profile last year are likely to up the ante as far as investments are concerned. Companies like Samsung, LG, Canon and HP, who continued to invest last year will give a further boost to their investments. For instance, LG plans to spend a good proportion of its overall (both IT and consumer electronics) advertising and promotion budget of Rs 100 crore on IT products.

The emerging MFD segment is not hampering inkjet printer sales but is a value addition, says Alok Bharadwaj

Canon, while revving up investments further in 2003 ,will be shifting its investment focus towards channels as compared to the greater emphasis on brand pull and consumerisation in 2002. Similarly, at HP, investments last year were more focused on marketing for creating end-user awareness and to some extent on channels for inkjet printers. At HP, 2003 will see increased investments on promoting all-in-ones and scanners. In fact multi-functional devices (MFDs) will take a huge chunk of the overall investments by vendors in 2003.

For Epson, even as it increases investments in 2003 the strategy will continue to remain in line with that of last year, i.e. channels and visibility. “In FY 2003-2004, we are going to manage both, as both are important. While the brand drives the customer, it is the channel that interacts with the customer,” says Suresh Govindachari, business manager, consumer inkjet, Epson India. On the other hand, for Wipro ePeriperals (WeP), the investment in advertising during the year 2003 will include development of the WeP, Emerge and Ace brands owned by the company. The focus for Sharp is on brand building for LCDs. For the company, the investment is more so on direct initiatives for the first half of 2003 and may continue till the market matures and the channel is more confident in stocking and pushing products.

The Indian peripherals market might well be on its way to a recovery in 2003 after the dismal 2002, but will there be any change in the market dynamics as far as vendors are concerned? Nowhere in the IT industry has the consolidation of power been so concentrated between the top two to three players, as it is in the peripherals market.

In the key peripheral segments—monitors, HDDs, printers and to some extent ODDs—the leader accounts for about 40-60 percent of the market. As a result, the peripherals market has been the least segmented pie of the Indian IT industry. In FY 2003-2004 the Indian peripheral market might well be moving towards more even distribution of power / marketshare among the top players, away from dominance by one player. The process has already been initiated in the last one-and-a-half years and the next year is likely to see the outcome of this process.

Though it is not easy to predict what marketshares respective players in each segments will have by the end of the year, one can indulge in crystal ball gazing on the basis of how these vendors have been moving since last year. In monitors, LG, ranked number two by IDC, is gaining prominence with a growing marketshare and is giving a tough fight to Samsung’s dominance; in HDDs, Samsung is gaining an increased share of the market. In inkjet printers, Canon is changing the marketshare equation. In laser printers, HP dominates but the competition from players like Samsung is heating up. While the top players might not relinquish their number one positions, they will have to part with some of their marketshare dominance, feel experts.

The segmentation does not necessarily mean more players are entering the market and that change in equations will be limited to the top four to five vendors within each of the segments. According to Bharadwaj, despite the changing equations the peripherals market will continue to remain in the hands of the organised sector as opposed to the PC market, which is dominated by the grey or unorganised market. Growing competition will have its ramifications on the market in terms of faster technology roll-out, improved service levels and more competitive offerings (not necessarily on the pricing front).

Trends
The year 2003 is not going to see any drastic shift as far as trends in peripherals are concerned. The trends that had started emerging in the last one-and-a-half years, will become even more apparent, stabilise and attain greater maturity levels. These include some generic trends like increasing focus on B & C class cities, growing consumerisation of IT peripherals, giving a push to the retail model; a consumer-centric marketing approach and bundling with PCs. However, there are likely to be some changes in pricing and demand from the home/SOHO and commercial market.

UPS prices are likely to fall by a marginal 10 percent this year as compared to almost 20 percent last year, says Anand Iyer

The focus on smaller cities will gain increased momentum in 2003, with more and more players targeting the emerging market potential in these segments to gain the extra edge over competition. For vendors like HP, Canon, Epson, Samsung, LG, Maxtor and Invensys Powerware, the smaller towns and non-metros figure well on top of their strategy list. Says Yogesh Kamat of Maxtor, “Category A cities or large enterprises are already witnessing an explosion in the use of technology. We will soon see a similar explosion in the other segments such as smaller towns, cities, home and SOHO as well.” Deepak Sharma, managing director, Powerware International, adds, “In the year 2002, the metros and A & B class cities were the prime focus. However, with the call centre and BPO industry looking at C class cities, the paradigm is shifting.” While the fastest growing segments in class B cities are going to be SME, SOHO and home, the major drivers in class C cities will be the SOHO and home segments. The major trend in the Indian peripherals segment will be a growing corporate market in 2003, with improvement in corporate IT spending. As opposed to this, the year 2002 saw greater volumes coming in from the home and SOHO segments.

With increasing demand prices are likely to somewhat stabilise, keeping the dynamics of the demand-supply gap in mind. As a result, price cuts will not be as aggressive a business model to drive business as it used to be. What actual products are likely to see are more features packed in at the same price points. According to Suresh, prices are already so aggressive that in some categories like entry-level inkjets there is no scope for a further fall. On the bundling front, peripherals like scanners and digital cameras are increasingly finding their way alongside printer and UPS solutions into the PC bundling market in India.

Since year 2002 was a year of minimal spending, a latent demand had been built up. This year will see the industry loosening their purse strings, resulting in greater spending on value adds, add-on features and smart peripherals. And peripherals might move away from the periphery of a customer’s IT requirements and closer towards becoming a necessity.

Monitors
According to IDC, the monitors market is expected to grow in 2003 at around 22-23 percent in unit terms and 17-18 percent in value terms. According to Ajay Sindhwani, senior analyst, peripherals research, IDC India, the price fall will continue as well, though not as sharp as in earlier years owing to market recovery. The Average Selling Value (ASV, which is total revenue divided by total shipments) of 17-inch and greater range of CRTs will fall by around 15-20 percent and that of 15 and 17-inch LCDs is expected to come down by 30 percent.

Last year, prices in the monitors market were falling continuously every quarter across all form factors. The ASV of 17-inch CRT monitors had fallen by almost 35 to 45 percent, 14- and 15-inch CRT by 20 percent and 15- and 17-inch LCD by around 60 percent in the last 15 months. The ASV of a 17-inch CRT, which was around Rs 10,000 to Rs 11,000 in the second quarter of 2001 came down to around Rs 6,000 to Rs 7,500 by November 2002 15-inch, which emerged as the dominant form factor last year, will continue to be the dominant form factor into the year 2003 as well with almost 60 percent share of the market. 17-inch, which till about two months back stood at over 20 percent share, is expected to become mainstream and take over from 15-inch as the standard form factor only towards the end of 2004. However, companies like Samsung are aggressively pitching 17-inch as the standard monitor size and are expecting a huge chunk of business from this form factor within 2003-04 itself. As the market sees an upswing in 2003, standalone sales will grow during the period, with 17-inch monitors benefiting most from this growth.

LCD monitors are also finding greater acceptance, emerging as the fastest growing sub-segment within the monitor sub-segment. This sub-segment is likely to increase its share of the total monitor segment from 1 percent to 2-4 percent in 2003. However, as Sindhwani points out, it will be another 3-4 years before LCD gains a significant share of the Indian monitor market. “LCDs are the future,” he reiterates.

Printers
The printer market showed marked signs of a slowdown in 2001 and 2002. However, IDC expects a revival in the Indian printer market in the next 2 years. While 2003 will see a nominal growth of around 11.5 percent over 2002, the major push will come in 2004 and 2005 with estimated growth of 22.6 and 24.2 percent respectively, over their previous years. By December 2002, the size of the inkjet printer market was around 5,29,000 units, laser was about 1,17,000 units and dot-matrix was at 3,15,000 units with the size of the total printer market being around 9,65,000 units. In 2002, overall printer market grew by around 6.8 percent with the inkjet market growing at around 20 percent.

Elaborating on market trends, Soumya Dalua, senior analyst, peripherals research, IDC India, explains that inkjets will continue to be the dominant force in the Indian printer market at least for the next 2-3 years, grossing maximum growth in 2003 and 2004. According to IDC, in 2002 inkjets were estimated to have closed with a share of 54.9 percent of the total Indian printer market and the number is likely to go up to 59.7 percent in 2003, eating into the share of dot-matrix printers (DMPs).

Bharadwaj expects the inkjet market to grow faster this year and the dot-matrix market to shrink. Presently, the inkjet printer segment is at the top of Canon’s priority list for 2003. On the other hand, Suresh of Epson terms inkjets as the sunrise segment of the Indian printer market in the coming years. The share of the laser sub-segment in 2003 is expected to remain stable at around 12 percent.

In terms of market trends, Suresh feels that entry-level inkjets addressing the home segment have been the main drivers of the market in 2002. It is to a large extent due to bundling offers. In 2003, the bundling market for printers will grow further and carry on last year’s momentum where it almost accounted for 25 percent of printer sales. Canon is now aggressively looking at targeting the bundling market for printers.

According to Dependra Mathur, chief marketing officer, WeP products, Wipro ePeripherals’ solution sales through the specialised value-added reseller (VAR) channel will grow as there is a need for customisation of DMPs for specific large customers, and the channel, which understands these customers’ needs, can win. “Consolidation in the peripherals channels and their growth at the expense of IT majors for peripherals sales will also emerge. We see customers preferring channels for specific needs,” he adds.

In terms of technology, speeds and resolution/photo quality will continue to rise up the ladder. While in 2002, 6 ppm (pages per minute) was the standard entry-level speed for inkjets, in 2003 it is likely to move up to 10 ppm. Despite rising speeds in inkjets, the focus will remain on photo quality and colour printing as compared to focus on speed for laser printers. There will be an addition of more colours as well. Till about last year large format printers boasted of 6 colours. This year this is likely to go up to 7-8 colours. Other major trends are Bluetooth versions of inkjet printers. On the other hand, the trend of digital photo printing will emerge as a growth driver for the printer players. Suresh estimates a market opportunity of around 1,00,000 small photo studios that can graduate to digital photo printing, owing to the lesser costs, as there is no need for a PC. A lot of players will be tapping this potential market segment.

While the price fall will continue in both inkjets (8-12 percent) and lasers (more than 12 percent) over the next 2-3 quarters, the dot-matrix prices will stabilise to a great extent. According to Dalua, the greater fall in the laser segment will be due to growing competition from MFDs. While the entry-level inkjet will go below the Rs 2,000 mark, entry-level lasers are likely to become more affordable with prices falling below Rs 10,000.

Hard Disk Drives (HDDs)
This market is slated for a revival in 2003 with an expected growth of around 17-18 percent. This will be further ramped up in 2004 with a close to 30 percent expected growth. The significant trend in the HDD market in the last one to one-and-a-half years has been the rapid growth in storage capacities from the standard 20 GB in 2001 to 40 GB being standard within a year. During the year, 40 GB HDD prices came down to almost Rs 4,000. IDC estimates the next level of 80 GB to follow suit and become the highest selling capacity by early 2004 as prices are expected to come down to below Rs 5,000. With technological advances such as increase in real density of up to 80 GB per platter, end-users will benefit substantially and the cost of ownership will decrease.

The prices of inkjet printers are already so aggressive that there is no scope for a further fall, says Suresh Govindachari

According to Sindhwani, one emerging trend in the Indian HDD market is an increase in the transition period for the market to move from one storage capacity to another in the coming years. This is because there is already an acceptance of high storage capacities, which are largely unutilised and will take some time to be exhausted. This will make the transition process in the next few years slower. This will consequently affect on the upgrade market for HDDs as well, which is generally 25 percent higher than that of monitors. “Systems dated till year 2000 had lower capacities and will grow the upgradation market till 2003. However, most of the systems dated after 2000 have had larger capacities and will not require to be updated for a long time. As a result, the upgrade rate will start coming down drastically from 2004 onwards,” he explains.

Kamat of Maxtor points out that in the near future the possible scenario of digital lifestyles will explode the demand for storage in all forms. “We will see an increase in the demand for higher capacity drives with faster access time, as there will be an increase in the usage of Internet applications and a lot of digital content will be generated. We will also see hard drives being used in everyday consumer electronics items like set-top boxes, personal video recorders and gaming consoles,” he adds.

Another major trend in the growing market for data back-up is the increasing use of SCSI HDDs for back-up purposes in the audio-visual industry. This will lead to a spurt in the demand for SCSI HDDs in general as well as high-end IDE drives of around 80 GB.

UPS
After a negative performance in the JAS quarter of 2002 over the previous year, the market is likely to show a revival in 2003 with corporate spending expected to be back on track during the year. 2002 was to a great extent marred by a dearth of high-end corporate sales.

In terms of target verticals, the focus for vendors will be concentrated on targeting high growth segments like BPO and the ITES sector, telecom, financial as well as upcoming segments like textiles and healthcare, where mission-critical applications will fuel the need for stable and constant power requirements. In terms of technology, hardware platforms will stay stable but resident software will make it possible to deliver greater value to customers. More players will move to the sophisticated transformerless design, delivering higher efficiency to customers. Pricing on the whole will stabilise, as the Budget did not bring much benefits for the UPS industry. Iyer, however feels that prices are likely to fall by a marginal 10 percent this year as compared to almost 20 percent last year.

In 2003, a major emerging trend is the growing focus of larger players on low-end products. The next few quarters will see national and regional brands, which have traditionally been strong in large and mid-sized markets, targeting the low-end market more aggressively. As a result, the smaller players will start feeling the pinch. This will be further aggravated by the fact that features like battery life, warranty and servicing aspects will gain importance in the customer’s mind. These are the areas where local brands have not been strong. According to Dalua, while at the entry level the bigger players will have to compete more on price points, the battle at the higher levels will be fought on features and services. While eating into the local brands’ share at the entry level, the national and regional brands will continue to remain the dominant force when it comes to the 2 KVA-plus and above UPS range. With many regional brands making efforts to go national, the competition for national brands is going to be tougher in the coming quarters. Regional brands are providing competition to national brands in terms of service reach, pricing and customisation. On the other hand, IDC estimates some of the local brands to improve and reach regional brand levels in 2003. Meanwhile, the national brands are going to invest more money on upcoming cities and consolidate their presence there. On the whole, most of the vendors will be focusing heavily on smaller cities as maximum growth will come from the C class cities in the next two to three years.

Scanners
According to IDC in JAS 2002, the overall scanner market did not see much growth with a 13.9 percent growth in unit terms over the same period last year. Future growth estimates by IDC expect almost similar growth trends in volume terms for the year 2003 as well. IDC projects the scanner market will grow from 1,47,000 units in 2002 to 1,60,000 units in 2003, a marginal growth of around 10 percent. According to Bharadwaj, the scanner segment is a vulnerable market. It is to a great extent linked to the digital camera market. Internationally, the scanner market is shrinking, owing to the proliferation of digicams, which can be directly attached to the PC. However, since the digicam market is a very small and nascent market in India, there is a scope for growth in the scanner market. However, from a long-term perspective of around five years it will not be a big market as the digicam business picks up. Owing to the same reasons, scanners come lower down the priority list for Canon.
On the technology front, CIS is emerging as a growing category with Canon going aggressive in this segment. CIS scanners, which are slim and light, are being targeted at the home segment. CCDs, which are thick scanners and can scan 3D objects presently comprise more than 50-60 percent of the scanner market. The equation however, feel experts, is likely to change with the CIS market getting a boost from the increasing demand in the home segment.

In terms of market segments in 2003, the SOHO segment will keep up momentum with the SMEs, owing to a greater adoption of MFDs. With the scanner market, especially the entry-level and mid-level facing tough competition from MFDs in the coming months, ASVs are estimated to come down in the next one year. Some of the key vendors in this market segment are HP, Canon, Umax, Samsung and Epson.

Multi Functional Devices
Last year MFDs was the only market segment to cheer about, though that was to a large extent driven by the low base. In 2003, IDC estimates the market will almost double over last year. While in 2002 the size of inkjet and laser-based MFDs was around 10,000 units and 18,000 units respectively, in 2003 the market will leap to around 70,000 units and 30,000 units for inkjet and laser MFDs respectively.

While laser MFDs are likely to cannibalise the laser printer and traditional copier market, a part of the inkjet printers, faxes and low-end scanner market might be affected by MFDs too. However, as the price gap between the entry-level inkjet MFDs and entry-level laser printers is decreasing, there might be a cannibalisation of entry-level laser printers by entry-level inkjet MFDs. However vendors like HP, Canon and Epson refute any negative impact of inkjet MFDs on the inkjet printer market. Rather, they see their inkjet MFDs as an evolution of their overall inkjet strategy. Both Bharadwaj and Suresh do not see this emerging segment as hampering their inkjet printer sales but rather see it as a value addition. These players are bullish on this segment as the high growth driver in their product strategies. With the traditional copier, scanner, fax machine and printer players having entered this segment, competition will become more aggressive, leading to price falls, interesting offerings and better features.

Digital Cameras
The market for digital cameras in India is set for exciting activity in the coming years with both the IT and traditional camera players like Kodak, Samsung, Sony, Nikon, Canon, Fuji and Casio vying for honours. However, as Sindhwani points out, the digicam is currently half-way matured between being a niche or mass product and it will take time for digital cameras to become mass IT products.

One of the key trends in this segment is the increasing adoption of the IT channel to sell digicams which has resulted in growing bundling with PCs. More and more vendors will adopt a dual distribution model, comprising the IT channels as well as the traditional photographic channel. With the adoption of IT channels, the product is going to gain greater acceptance as an IT peripheral product. However, digicams will still retain their consumer product essence. The year 2003 will see a lot of activity by vendors in increasing customer awareness, relating to product applications like electricity billing, and for consumers like export houses, insurance companies and real estate in the corporate segment. The other emerging trends in this market are the growing acceptance within the home segment as well as proliferation of more organised players. The ASVs of individual models will continue to fall for the next 1-2 years by around 15-20 percent as compared to around an 25 percent drop last year.