Buoyant economy propels peripherals sector to new highs

The feel good factor that’s all over the Indian economy is making an impact on the IT peripherals space too. Vendors are introducing new products almost every week and buyers are lapping them up at prices they would not have dreamt of a few years ago.

Though opinions differ on how much of the ‘India Shining’ campaign is fact and how much is hype, the recently released Manufacturers Association of Information Technology (MAIT) industry report proves beyond doubt that the Indian IT hardware sector is definitely shining. The mini-Budget of sorts announced last week has only served to add more bounce to already buoyant market sentiments.

Growth in the computer peripherals sector has traditionally been directly proportional to higher personal computer penetration, which received a major boost thanks to the duty and excise cuts announced in the mini-Budget. With PC prices expected to come down by as much as 14 percent, peripheral vendors have reason to cheer. PC vendors expect the basic PC cost to fall below the Rs 15,000 psychological barrier, which could send sales soaring across the country, and especially so in the highly price-sensitive B and C class cities. MAIT, the apex body representing the IT hardware industry, had earlier estimated PC sales for this fiscal at around three million units. But the expected fall in prices could now push PC sales up by 5-10 percent. This is a huge upturn as compared to 2002, when sluggish PC growth affected the peripherals segment. What’s more, this bull run is expected to continue through most of 2004.

Even prior to the announcement of the mini-Budget, prices of entry-level PCs had dropped to as low as Rs 20,000, while entry-level notebooks were available for less than Rs 50,000. This has led to an increase in consumption in the small and medium enterprise (SME), SOHO (small office/home office) and the home user markets. The B and C class cities, and smaller towns also contribute vastly to growth in this segment. The fall in PC prices was also reflected in a similar fall in prices of peripherals as well. The emergence of the PC as a complete home entertainment system saw a gradual rise in the sale of monitors of 17” and above. Even LCD monitor sales have picked up, but continue to cater to a niche market.

Monitors screen an euphoric future

According to P G Kamath, the Indian inkjet printer market size is close to six lakh units annually whereas the laser printer market is close to 1,50,000 units annually

Prohibitive costs restrain many users from investing in state-of-the-art gizmos featuring the latest advances in technology. Though most vendors offer both CRT and LCD monitors starting from 15” CRT and LCD to 32” LCD monitors, the most common choice continues to remain the 15” CRT monitor thanks to the low price tags. During the first half of 2003, 15” CRTs accounted for around 68 percent of the market, whereas 17” accounted for around 24 percent. But the 17” monitor has been slowly gaining momentum, and according to experts, the market is expected to move over from 15” to 17” by 2006. Vendors have also been devising strategies to speed up the process of upgrades to 19” and 21” screens.

According to Sanjay Maheshwari, manager-all India distribution for Philips India, the 17” CRT has contributed the maximum in terms of absolute volumes while LCD has contributed in terms of value. He estimates the overall market for monitors at around 2.4 million units in the last calendar year, with trade taking around 1.7 million units and the balance going into the OEM space.
Though LCD monitors continue to cater to a niche market the segment has been witnessing steady growth thanks to the keen interest shown by corporates. An IDC report predicts that LCD monitors will account for 5.8 percent of the total market. The total LCD monitor market in Q3 2003 was 37,288 units, showing a sequential growth of around 65 percent and year-on-year growth of over 435 percent.

A major area of concern for most vendors has been the emergence of the sub-Rs 50,000 notebook market. But Maheshwari predicts that the CRT monitor will continue to grow at a steady rate as the focus shifts towards the highly price-sensitive B and C class cities. The new Exim policy is expected to provide a boost to this segment. Maheshwari expects the business to grow by around 30 percent annually over the next couple of years. IDC provides more conservative figures. The market research firm estimates the total PC monitor market in India to grow at a CAGR of around 23 percent. But it may revise its predictions with the announcement of the new policy.

The replacement market is another area where most vendors see good growth potential. But, according to Maheshwari, the replacement market promises very low margins. The major shift has been from 15” inch to 17” inch CRTs, as price continues to play a deterring role in moving from CRT to LCD.

However, according to an IDC report, the replacement market has been growing significantly over the past couple of years, mainly in the metros and major cities, thanks to rising demand for upgradation. The corporate segment, especially call centres and BPO organisations, have contributed significantly to growth in this sector. The replacement market accounted for 5 percent of Samsung’s revenues in the last fiscal and this number is expected to go up to 15 percent in 2004.

Printing a bright future

Unlike other peripherals, printers don’t enjoy a one-on-one connect with PC sales numbers and may never will, thanks to networked printing. 2003 saw the launch of several faster models incorporating better features. The year also saw the launch of entry-level laser printer models by the likes of Lexmark, HP, Canon, etc.

The replacement market contributed in a big way to growth in this segment with larger corporates replacing individual lasers with network lasers. The year also saw corporates replacing inkjets with entry-level lasers. A similar trend was visible even in the SME and SOHO segment. Home users on the other hand are replacing their old inkjet printers with inkjet-based multi-functional devices. But in terms of volumes the inkjet printer still rules. According to P G Kamath, general manager, Lexmark International (India), the inkjet printer market size is close to six lakh units annually whereas the laser printer market is close to 1,50,000 units annually.

IDC predicts that the inkjet printer market will grow at 13 percent in 2004-05 whereas the laser printer market will see a slower rate of adoption at 5-7 percent. The DMP market has been stagnating over the year with a growth of around 6 percent. This may take a further dip this year.

MFDs are expected to see a huge growth spurt in the coming fiscal. IDC estimates the total market for MFDs in Q3 2003 at 40,188 units. In 2004-05, the inkjet MFD market is expected to grow at more than 100 percent in unit terms and around 45 percent in value terms. The laser MFD market on the other hand is expected to grow at a CAGR of around 43 percent. Vendors have been trying to integrate as many functionalities as possible into the MFD. Lexmark’s Camera Direct P3150 AIO, for instance, boasts a digital camera card reader, enabling users to print pictures directly from their camera without the need for a PC. Scalability is another issue that vendors are focusing on. According to Kamath, all of Lexmark’s printers from mid-mono onwards are scalable to MFD formats, and encompass features such as duplex printing, network and workflow management. Users are becoming more and more aware of the versatility of new printing technologies. And with falling prices and better technologies the consumer only stands to win in the long run.

Scanning through the market

Industry analysts believe that the scanner market has matured over time and is now ready to adopt the latest technology trends. Overall, the segment has evolved from 300 dpi (dots per inch) to 600 dpi today. Anish Kurup, business manager for Neoteric (exclusive distributors for UMAX scanners) feels that in a year’s time 1200-2400 dpi is likely to become the industry standard thanks to falling prices. The key trend observed in the market is the shift from parallel to USB connectivity.

A scanner is not high on the priority list of the end-consumer. First comes a PC, then a printer, then a multimedia kit with speakers, modem and then a scanner. The demand for standard 600 dpi scanners is coming from the small business segment while the demand for scanners suitable for photo-prints having a density range of 3.4 is coming from professional users in media companies and ad agencies, etc. As far as the home segment is concerned, with the availability of digicams at reasonable prices, the market for scanners has not seen much improvement. However, the scanner market is expected to grow in tune with increasing PC penetration. In the ultimate analysis, the competition between major players UMAX and HP continues in the scanner market. Even players like Canon, BenQ and Microtek are looking at active PC bundling strategies to boost their market share.

Storage gets portable

The personal storage space has undergone a huge paradigm shift in recent years with various new high-capacity portable devices emerging as alternatives to the ubiquitous floppy disk. Rapidly falling prices saw the emergence of the CD as the primary storage medium. But Rajiv Bapna, managing director for Amkette feels that though prices of CDs have dipped even below floppies it will be another two to three years before we see the back of floppy disks. According to a spokesperson from Moser Baer, though the floppy is still seen as a hassle-free medium this is likely to change with the CD-Writer emerging as a standard component in many assembled as well as branded PCs.

In the hard disk space 80 GB HDDs have been slowly emerging as the industry standard. Till recently parallel ATA (PATA) was the industry norm, but now serial ATA (SATA) technology is making significant inroads. The prime reason for this shift is that PATA technology can have a maximum data transfer rate of 133 Mbps while the first generation of SATA technology is capable of achieving a data transfer rate of 150 Mbps. In the next three to four years SATA is likely to go up to 600 Mbps.

Another significant trend in the personal storage space has been the mass adoption of USB drives (also called pen drives)—plug-and-play devices that do not need a separate drive to assess its contents. Also, almost all PCs today come with one or more universal serial bus (USB) connectors. These ports can let the user attach anything from printers to monitors and also support flash memory devices like pen drives. Falling prices saw a surge in demand for these devices. Sanjeev Gupta, senior business development manager, Asia South at Iomega feels that this trend is likely to continue in 2004, where ease of use and affordability is expected to push the market. Additionally, there is lot of convenience attached to these portable drives, especially for users who need to store huge amounts of data—from 64 MB to 8 GB—and best of all, these devices do not require a battery, software or cables and can be carried around anywhere.

ODDs redefine storage

Optical disk drives or ODDs have become an integral part of the PC experience. Thanks to a steep decline in prices, coupled with the increasing popularity of CDs as storage or back-up devices, OEMs bundle at least a basic ODD with their PCs. Speeds have also been increasing over the years and the current favourite seems to be 52x CD-Writers.

Currently, CD-ROMs continue to dominate the market, followed by CD-RW and DVD drives. But with CR-Writers now available for as low as Rs 2,200 most vendors expect it to eat into the market share of CD-ROMs. Says Ashish Gupta, product manager, optical media solutions group, Samsung, “If global trends are anything to go by, CD-Writers will account for 65-70 percent of the ODD market.”

Experts feel that the SOHO and the SME segment will drive the growth of CD-Writers, because in the corporate segment the concept of shared resources and a networked environment eliminates large-scale usage. Players like Samsung, LG and BenQ are all the more optimistic as the average PC user replaces his ODD at least once during the life cycle of a PC. Another factor contributing to rapid adoption of ODDs has been the growing consumption of CD-R media in India, including audio CDs, video CDs, CD-ROMs for software, storage and games. Combo drives have also grabbed market interest in a big way. A decline in prices should see these devices emerge as a device of mass appeal.

But DVD drives continue to dawdle. The prohibitive cost of DVD-ROM media has played a negative role in its mass acceptance. Currently, DVDs are seen as an entertainment media. We should see market picking up once the cost of DVD-Writers fall to sub-Rs 5,000 levels. The DVD’s obvious advantage as an enhanced storage device should also serve to boost growth in this segment.

Channel players predict that CD-ROM drives will continue to witness a decline in growth while CD-Writers will grow between 35-40 percent in 2004. Segments like combo drives and DVD drives are also estimated to grow at a rate of 15-20 percent.

Modems still running strong

This is one segment that has been written off time and again but continues to hold its own despite increasing competition from other more recent Internet access technologies. Almost all modem manufacturers predicted a negative growth in this segment in 2003. On the contrary, unit sales actually increased by 25 percent. In fact, a MAIT report estimates that in H1 2003-04 the total number of modems sold stood at 3,42,191 units, up from 2,05,399 units in the same period the previous year. The home user segment accounts for almost 70 percent of this market, mainly because dial up Internet access continues to remain the technology of choice, accounting for more than 65 percent of the market.

But though in terms of volumes dial-up continues to hold sway, in terms of revenue generated it has taken a beating. According to Sujit Singh, country manager- Dax Networks, the dial-up segment earned revenue of just Rs 179 crore in 2002-03, down from Rs 252 crore during 2001-02. The fall in revenue has mainly been attributed to a sharp decline in per-unit price.
The market for external modems has dwindled to almost negligible numbers over the last few years, mainly due the increasing preference for cost-effective internal modems. According to Raj Jadhav, GM–pre sales/tech support, D-Link India, today almost all notebooks and PCs come bundled with internal or soft modems. This is because most PC users in India have access only to analogue phone lines.

But new technologies in this space have been slow to take off. Last year, the International Telecommunications Union (ITU) has introduced the V.92 modem specification, with the intent of phasing out the popular v.90 technology. According to Jadhav, today almost 80 percent of PCs and 95 percent of notebooks ship with v.92 modems. But in India the technology has not picked off as expected. Jadhav feels that this is due to the expected decline in the growth of dial-up modems over the next two years. According to him, even cable modems are likely to lose out to DSL modems in the long run.

According to C S Ramakrishnan, vice president for marketing at MRO-TEK, this has been a common phenomenon in other parts of the world as well. “The adoption of V.92 has been low the world over since all the central office equipment would have to support the protocol/standard for end-users to actually benefit from it,” he says. Though dial-up modems will continue to rule in the next few years DSL technology is expected to win the battle in the long run. The integration of other technologies like wireless/firewall-VPN into ADSL will also happen in the coming years since service providers will start providing more value-added services rather than traditional Internet access services. Also applications over the Internet, like VoIP, enterprise access, etc, is also expected to fuel growth of value-added services in the DSL segment.

Old is gold

A PC without a keyboard or mouse? It’s unimaginable today. Scientists have been working arduously on voice-based input devices for quite some time. But as of now their efforts are a long way off from fruition. Till then, even the most ardent propagator of new technology will have to stick to good old keyboards and mice.

But a quiet revolution has been taking place in this segment, traditionally seen as data entry devices. Players like Logitech, Microsoft, Apple, Amkette, Best IT World, etc, have been focusing on ergonomically designed wireless multimedia keyboards and wireless optical mice. Rajiv Bapna, managing director for Amkette feels that there has been a perceptible shift in perception and buying behaviour of Indian consumers. According to him, there has been an increasing willingness to adopt advancements in technology, resulting in the emergence of a market for high-end input devices like wireless keyboards, multimedia and Internet keyboards. Increasing health concerns due to prolonged usage of input devices has also seen an increasing demand for ergonomically designed input devices.

Sandeep Parasrampuria of Best IT World says that the keyboard and mouse market has been growing at a rate of 200,000 units month-on-month, taking into account both the branded as well as the assembled PC market. He further estimates that replacements account for 15 to 20 percent of this market. The SOHO and SME segment are seen as the main drivers in this space, and are expected to grow at least 20 percent more than the IT sector.

The market is currently divided into value-range and the high-end range with the value range constituting 85 percent and the latter accounting for the remaining 15 percent of the market. But, according to Parasrampuria, the optical sensor mouse and Office technology keyboards are emerging as de facto choices compared to other products in this segment. Players in this segment are currently focusing on developing the markets in B and C class cities by increasing awareness through road shows, exhibitions, seminars and symposiums.

Amkette also plans to launch new products in the digital lifestyle segment, which will be targeted at the SME and SOHO segment. Best has already launched the iBall e-mail mouse, which sends alerts on receipt of an e-mail.

According to Bapna, government initiatives to bring in foreign investment in areas like hardware and component manufacturing and hardware assembly is expected to provide a much needed boost to growth in this segment in the coming years. And with PC penetration increasing the input devices market seems set for some exciting times ahead.

More power

According to IDC estimates, the Indian UPS market is worth Rs 700 to 800 crore with the SOHO and the SME segment accounting for nearly 70 percent, followed by large enterprises. The industry is growing at around 20 percent year-on-year. Tejas Sheth of Asia Powercom adds that the alternate power source industry in India is really huge—around Rs 58,000 crore.

Of this the 500 VA to 5 KVA range accounts for Rs 580 crore. Though local players boast of a lion’s share of the market national players like Emerson Network Power, American Power Conversion (APC), GE Digital Energy, TVS-E and WeP Peripherals have been slowly gaining market share by offering feature-rich models at competitive rates. Their market share figures are expected to rise with players devising various strategies to bridge the gap between PC penetration and adoption of UPS systems.

Though most players offer both online as well as line interactive UPS systems the latter has seen the highest growth. The emergence of India as a BPO destination has contributed significantly to growth in this space. The setting up of data centres promising zero downtime is also expected to provide a major thrust to this market. Enterprises too have realised the implications of downtime costs the hard way, and are now looking at adoption of UPS devices. But the major growth in terms of volumes is expected to come from the home user segment. Most users have realised the dual importance of UPS systems, both as back-up devices as well as a layer of protection against frequent outages. Like most other players in the peripherals sector, UPS vendors too are looking at tapping the latent potential in B and C class cities.

The unorganised sector continues to be a pain area for most vendors, as they are able to offer systems at dirt-cheap rates thank to their ability to evade taxation. Service is another major issue. Most vendors are now setting up service centres across the country. Almost all vendors are also looking at widening their distribution networks through their channel partners. Prices are expected to fall in the near future. Awareness has also been on the rise. There has been increased adoption in B and C class cities, smaller towns and rural areas. The smaller players may continue to cater to the market for a few more years but national vendors are confident that better technology at cost-effective rates will win the day for them.

Clicking digitally

The arrival of digital cameras revolutionised the Indian photography market. Though the prices of traditional cameras have come down to affordable rates the high cost of film and the processing charges involved hindered growth in this space. But digitisation has done away with such constraints. Also, the quality of photographs taken using digital cameras have improved over the last couple of years with three and four megapixel cameras now becoming the standard.

Market research conducted by IDC India verifies this. The report states that 75,600 digicams were sold in 2002-03, a growth of 148 percent over 2001-02. In terms of value, the market grew significantly from Rs 77 crore in 2001-02 to Rs 122 crore in 2002-03. PC penetration has contributed in a large way towards this positive trend. Falling prices are further fuelling demand. Prices have come down by as much as 30-40 percent over the last two years. IDC expects this market to grow further to 163,000 units with a value of Rs 194 crore in 2003-04.

According to Rajshekhar Bhatt, sales and marketing manager—India, Creative Technology, factors such as ease of use/print, transferability of digital photos, increasing affordability of digital cameras, better features/benefits of newer models being launched are the key factors contributing to growth in this segment. G Shyam Sunder, manager—Digicam products, Canon India adds that the need for digicams rose due to the proliferation of PCs and the increasing usage of the Internet.

But awareness also brought with it an increasing demand for higher resolution cameras. In the next year it is anticipated that cameras with three megapixel and above resolution will account for 50 percent of the market.

Webcams too saw significant growth in 2003-03 with around 1,30,000 units being sold in 2002-03. But the grey market continues to dominate this space thanks to heavy customs duties. Cameras attract 38 percent duty and an additional sales tax of about 8 to 16 percent is charged as per the rate prevalent in that particular state.

In developed economies digicams account for 50 percent of the camera market. But vendors feel that it would take at least another three to four years before we see a similar trend unfold in India. Manisha Sood, business manager for digital and applied imaging in India for Kodak feels that both analogue cameras and digicams will co-exist for quite some time to come. But this equation is bound to change once prices come down, of which there is a strong possibility in the current year. Till then vendors will have to contend with cheaper offerings from the grey market.

Sound rules

Rajiv Bapna feels there has been a perceptible shift in perception and buying behaviour of Indian consumers, with an increasing willingness to adopt advancements in technology, resulting in the emergence of a market for high-end input devices

Today, speakers and sound cards have become an integral part of most PCs. In fact, motherboards now come bundled with integrated sound cards, thus doing away with the need to buy separate cards. Vendors like Creative, Altec Lansing, etc, are now focusing on marketing their vast range of speakers than their sound card business. This is not to say that we have seen the last of the sound card.
Sound cards, according to Piyush Sheth, all India sales and marketing head of Philip’s Sound Solutions, continue to cater to a niche segment and are increasingly gaining popularity among gaming enthusiasts. According to him, it is highly inconvenient to fit some high-end cards (for example, Philip’s Aurillium 805) on the motherboard. In such cases the external sound card has been gaining in popularity.

With the PC emerging as a complete home entertainment system the demand for a better listening experience is only going to rise. Already, the demand for high-power 100 WRMS (watts root mean square) has been on the rise. In the natural progression of things users are bound to demand more out of their speaker systems and will expect speakers to deliver an excellent movie, gaming and music experience on the PC. According to Rajshekhar Bhatt, Creative’s new high performance speakers in the GigaWork and MegaWork series have been gaining popularity in the India market, especially in the consumer electronics space.

5.1 speakers have been emerging as entry-level speakers, especially in the metros and major cities. However entry-level two piece speakers still lead in terms of volume. According to Sheth, there has been an increasing awareness and understanding among customers about the differences between a real 5.1 and dummy 5.1. Even at the entry level 2.0 piece and 2.1 channel speaker consumers are looking at good quality sound. The increasing acceptance of multi-functionality speakers—a common sound source for TV, MP3 players, portable stereos, DVD players and PC—has contributed significantly towards the emancipation of the listener. Though multi-channel active speakers have gained in popularity, wireless audio has also been gaining strength. USB speakers are also expected to pose a threat to the current offerings in the near future.