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In
what comes as a big blow for the PC industry, industry association
MAIT has just released disappointing figures for H1 2001-02
and has predicted that PC sales will see a negative 12 percent
growth this fiscal. Rajneesh De and Srikanth RP
analyse the real reasons behind this sharp fall, and try to
figure the road ahead for India’s PC industry
IN
THE NEWS
 The
Indian PC industry has never had it so bad. After IDC India
revised PC sales growth downward to 9 percent this year, industry
body MAIT’s mid-year review has come as a double whammy.
MAIT says PC sales during the first half of fiscal 2001-02
showed a decline of 4 percent over the corresponding period
in fiscal 2000-01. What’s worse is that MAIT is projecting
a decline of 12.5 percent in PC sales over FY 2000-01.
The total number of PCs sold during H1/01-02 stood at 803,055,
down from 834,650 in H1/00-01. The corresponding figure for
H1/99-00 stood at 662,885, which translates into a 26 percent
growth between 1999 and 2000. But whereas one would have expected
a 26 percent growth to be followed by at least a closer figure
the next year, the industry has unfortunately ended up with
4 percent negative growth. Certainly, the dot com boom had
led to an increasing demand for Internet connections which
subsequently boosted PC sales last year, but was it only the
dot com debacle that led to negative growth in 2001?
Vinnie Mehta, director, MAIT, asserts that the decline in
PC sales is a reflection of the economic situation in the
country. Though the effects of the slowdown were already seen
during the first quarter, the second quarter worsened the
condition. And with the current warlike situation prevalent,
he feels this effect will continue till the next year. Which
is reflected in the MAIT projection of a 12.5 percent decline
in sales to 16,50,000 units, as compared to 18,80,000 units
sold last year. But Mehta adds that all hope is not lost as
traditionally Q4 has always shown a higher growth than other
quarters.
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Swaminathan
says Compaq will continue to introduce new products in
a move to get closer to the market |
Sameer
Kochhar of Skoch Consultancy is not surprised by this negative
growth, as unlike MAIT and IDC, he has been predicting it
from the beginning of 2001. In fact, he feels that MAIT’s
4 percent negative growth is a conservative figure. Instead,
he feels it would be somewhere closer to negative 10 percent,
and this downward trend is likely to continue till the middle
of next quarter. But he does feel a slight revival in the
last quarter might result in a figure a little better than
MAIT’s projection of a 12.5 percent decline for the entire
year.
According to Kochhar, it would be unwise to blame the PC industry’s
woes on the economic slowdown and 9/11. The top 11 cities
already had high PC penetration levels and hence a climb-down
from earlier levels was imminent. The WTC attacks only gave
a downward push to an industry that was already on its way
down. This logic gains credence when results indicate that
PC sales decreased by 18 percent in the top 4 metros and by
37 percent in the next four largest cities, while it increased
by 69 percent in the SEC B and SEC C class cities.
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IBM’s
MAL says the PC slowdown has not hit IBM because
of their focus on corporates and new sectors |
Kochhar
feels that branded vendors are to blame for not pushing aggressively
enough into SEC B and SEC C cities. However, not all vendors
are willing to buy this argument and even the study figures
show that things are not so simple. While in H1/2001-02, the
market share of Indian brands came down from 21 percent to
17 percent, MNC brands increased share from 22 percent to
24 percent. In fact, Indian brands have seen their share of
the market shrinking significantly in the past two years from
25 percent in 1998-99 to the current 17 percent. Therefore,
it comes as no surprise when Ravi Swaminathan, director-access
business group, Compaq India, reiterates that they have already
targeted B & C class cities which have been witnessing
a higher rate of growth than the main metros. But it’s
not that Class B & C cities alone can be saviours for
the PC industry. PC vendors might have started actively targeting
B & C class cities but, P G Kamath, vice president, Ingram
Micro, one of India’s biggest national distributors,
the metros still remain the focus areas in terms of value.
But all this does not mean the economic slowdown had no role
to play in the decline of PC sales. The negative growth of
4 percent is in line with the economic situation prevailing
in the US and in India, and the near term too does not look
very certain for the industry. The Indian software and IT
enabled services industry, heavily dependent on the US for
business, saw significant chunks of business vanish overnight
in the wake of the US slowdown and the WTC attacks. The frenzy
built up during the dot com boom and the subsequent fallout
too contributed to this negative growth. Moreover large contributors
like the financial and manufacturing sectors slowed down purchases
as their performances were below par.
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Skoch’s
Kochhar says it would be unwise to blame the downturn
in PC sales on the slowdown alone |
That
the economic slowdown has impacted India’s price sensitive
market is evident from the fact that even the assembled PC
market has seen a southward growth of 28 percent in H1/2001-02.
While this segment accounted for 59 percent of PCs sold in
the corresponding period last year, the numbers have dwindled
down to 44 percent this year. And nothing illustrates this
better than the fact that sales in the consumer segment (i.e.
SOHO) came down by 11 percent, whereas despite the slowdown
the corporate segment saw an increase of 1.5 percent. Vendors
like IBM and Acer, in fact, argue that their bottomline was
not significantly impacted since they were catering mainly
to the business sector.
Shashi Mal, country manager, personal computing division,
IBM India, feels that from Big Blue’s perspective, it
has been a gain since they re-entered the consumer business
only six months ago. And going forward, IBM plans to continue
to focus on growth areas like the corporate segment besides
looking at new sectors like IT enabled services, education
and the SOHO segment. Even S Rajendran, GM, marketing, Acer
India, feels that since they have not focused much on the
home and SME segment, Acer has not been hit hard by the slowdown
in sales. Though the recession has spread across all sectors,
there are still some select sectors like finance and banking,
education and government, which Rajendran feels have continued
to show an upward trend.
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Ingram
Micro’s Kamath says that metropolitan markets will
still be a focus area for PC vendors |
While
little can be done about the market downturn, the industry
on its part is trying its best to kick-start growth. MAIT
has been pleading with the finance ministry for tax cuts,
while the finance ministry is looking at hiking taxes. In
such a situation, the only realistic way to go forward is
ask the government for 100 percent depreciation on PCs. This
would create a whole new market for second hand PCs and also
bring the grey market under the tax bracket. The government
would surely look into this demand if a focused approach is
placed on ‘100 percent depreciation’. Currently,
due to low depreciation rates, organisations do not upgrade
their PCs but simply replace them that too after a considerable
amount of time. Though the government has been approached
many a time on this issue, due to the dilution of this demand
with other irrelevant demands, the core issue has lost focus.
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Acer’s
Rajendran says there is scope for growth in sectors such
as banking, government and education |
Even
Swaminathan feels that the decline will continue unless the
government introduces some measures to bring down duties.
Though PC sales are sluggish, Swaminathan feels that Compaq
will continue to introduce new products and advertise heavily
as the current situation gives it an excellent opportunity
to stay close to the market. Mal predicts that one more trend
that will occur in the next year is that PC prices instead
of going down will go up slightly. The last year saw a massive
fall in component prices as vendors had more production capacity
than sales capacity. This led to a fall in prices. This year
the prices have stabilised and have reached realistic levels.
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