The fortunes of the overall peripherals industry are inevitably linked to those of the PC industry. While most peripheral segments have been forced to plod on alongside sluggish PC growth, others are seeing pretty good times. Vineet Joshi examines the diverse market dynamics operational in the various segments of the peripherals industry and takes a look at what the coming financial year holds for the major players.

Peripherals: Top Trends

• Overall peripherals market expected to grow at a slow 5 to 10 percent.
• Linked to the PC industry, complete recovery expected only by JFM 2003.
• Market for networking products and UPS will grow at much faster clip of at least 20 percent.
• Multifunction devices will emerge as major category.
• Move to B and C category cities will be more pronounced.

Strange but true: Here’s a business segment that has precious little control over its own growth! That’s ‘peripherals’ for you, by very nomenclature something that’s not at the core, but secondary to (and dependant on) the main product usually the main computer device or PC. So if the PC market is in the doldrums, Mr Peripheral often has no option but to wait in the wings, twiddling his thumbs.

Not surprisingly, almost 90 percent of sales in the peripherals segment are dependent on PC sales. The rest is the replacement market, which comes into the picture for peripherals like the monitor, printer and scanner. Since the PC market is not expected to record more than 5 to 10 percent growth in the year 2002-03 (combining the projections of erudite research agencies such as IDC, MAIT and Skoch), the peripherals market growth would also hover in that space. But keeping in mind the negative growth projections of 10 percent for the year 2001-02 over the previous year (2000-01), even a 10 percent growth would be something to cheer about.

While conceptually simple, the trends leading to the growth projections for the subsequent year are fairly complex. On the face of it there seems to be considerable ambiguity in projections. While the research agencies project a 5-10 percent growth, most companies involved in the business are very hopeful of touching 20-25 percent growth levels. Whatever be the case, almost everyone has confirmed the fact that we would not witness the robust annual growth of 45 percent achieved year-on-year till the year 2000-01, in coming years.

Market dynamics

The Manufacturers Associa-tion for Information Technology (MAIT) estimates the total size of the current peripherals market at around Rs 1,500 crore. There are eight different items which fall under this category: the printer, monitor, UPS, scanner, modem, some networking products, keyboard, mouse all with different technology concepts, distribution angles and market dynamics. A minor shift in any of these factors leads to a major dip or rise in market size, and hence the growth variations. With an average 8 percent increase, the total peripherals market for the year 2002-03 is expected to be in the region of Rs 1,700 crore. Optimistically, some players feel this figure might cross Rs 2,000 crore.

Taking the hardware market as a whole, experts believe that India has never delivered on promise and potential, and there is nothing to cheer about for the year 2002-03 as well. Indian statistics showing an estimated installed base of around 7-8 million PCs and penetration figures of 6 per 1,000 people, are dwarfed before corresponding statistics for China, which boasts of an installed base of over 22 million PCs.

“When the PC market which is believed to be a little glamourous and high-flying is reeling under pressure because of limited size and policy bottlenecks, what ‘good’ you can foretell for the peripherals market?” questions Sameer Kochhar, MD, Skoch Consultancy. “We were expecting some organised IT retail selling to happen which could have pushed immediate sales but that also didn’t happen. I do not see it happening in year 2002-03 either.”

Kochhar’s views reflect the stark reality of a low-key IT retail market in the country, generally restricted to the distribution channels/showrooms of a few of the players. “All-under-one-roof showrooms are a must to spur sales, as in countries like Singapore and Malaysia. But with the kind of wafer-thin margins existing today there is not much space for any player to open retail showroom unless they can withstand high gestation periods,” says Kochhar.

Hope ahead

Experts predict that the following year will offer more hope and stability for both the PC as well as the peripherals industry. Says Vinnie Mehta, director, MAIT, “We are not expecting too much of activity for the peripherals industry for the year 2002-03 except for the fact that it will go up by a small margin. No drastic change in technology, very little reduction in prices and no new sops from the government. Rather than increased investments by respective companies, we will see more of optimisation of current investments in the channel network, product range and strategy.”

Though the just-concluding JFM quarter of 2002 is providing slight signals that the market may look up in the year 2002-03, and peripheral sales have gone up a few percentage points, MAIT says it’s too early to call that a trend. Kochhar concurs: “JFM has been traditionally good for hardware sales so we cannot term it as a sign of growth for 2002-03.”

The industry too is cautious in its optimism. Says Pradeep Tognatta, vice president-sales & marketing, LG Electronics India, “The market does have a chance of recovery this fiscal with the first signs emerging by the second quarter of 2002-03. However, complete recovery is expected to happen only by JFM 2003.”

Adds L N Jayanty, VP, Emerson Network Power India, “We have seen a big slump in the market this year. Considering the continued sluggishness, we expect the downturn to continue for another two quarters and hope for a turnaround in the third quarter of 2002-03 by 4-5 percent.”

One significant development to affect the fortunes of the hardware segment, peripherals included, is, finally, the culmination of long-standing efforts by all players and the government to perk up the market in smaller cities and towns. It is believed that a large chunk of growth expected in 2002-03 will take place due to increased consumption in the B and C category cities. “The consumption in these cities is expected to double. Though this still would be a small absolute number, it would be enough to alter the strategies of vendors in the peripherals segment,” says Mehta.

Skewed success

It is not that every category in the peripherals segment will grow equally and at the same pace. Industry experts safely bet on networking products and UPS as future growth areas. The sale of networking products fortunately does not entirely depend on PC sales; and, thanks to frequent power cuts and increased awareness of data security needs among consumers, UPS sales are going up. Networking products like routers, switches, hubs will experience a growth rate of as high as 20 percent. This is basically because of the opening up of the telecom market, growth in the ATM segment, banking and finance, and an overall increased realisation of networking for optimising output.

“This networking is at the heart of Internet. Year 2002-03 will mark the beginning of the convergence era, stabilisation of the Internet era and boom time for the telecom era. With all this, demand for networking products will pick up tremendously. We expect the market to grow by 15-20 percent,” says Manoj Chug, president-India & SAARC, Cisco Systems India.

The UPS market, as predicted by analysts, will also touch growth levels of 15-20 percent. “UPSs have emerged as the must-have product for customers to protect their investments in PCs, software and data. Unreliable power conditions provide an immense market opportunity for us. We expect the market to grow at 15-25 percent in the coming fiscal,” says Anand Iyer, country general manager, APC India.

Multifunction peripherals

Multifunction devices, i.e. a printer, scanner, copier and fax machine all-in-one, will emerge as a major product category in the next fiscal. Companies like Canon, Modi Xerox and Hewlett-Packard have already launched their offerings in this category and are likely to push them aggressively in the next fiscal.

Canon has already gone ahead with its plans and is confident of touching 30-40 percent growth levels by end 2002-03. “We are already selling 200-250 units of our MultiPass model every month. Our product, which has a printer, scanner, fax machine and a copier, sells at half the price (Rs 27,000) than all standalone machines combined (approx. Rs 55,000),” says Magesh S, marketing manager, office imaging products, Canon India.

R Manikandan, DGM-IT products division, LG Electronics India, is of the opinion that the concept of all functions integrated in one machine does find utility in the corporate segment, though penetration levels are slowing owing to high running cost and print speed limitations.

Not everyone is optimistic about this category: Says Kochhar: “The concept was introduced many years ago but failed to take off. The coming fiscal will primarily see their market building rather than growing.” It is primarily the SME and SOHO segments that will drive growth of multifunction devices, since large corporates with heavy-duty usage usually prefer standalone devices.

Monitors

The year 2002-03 will see 15” monitors gaining acceptance as a standard buy, though the 14” category will still reign, especially in smaller towns and price-conscious markets. This trend is likely to prevail till the end of 2002. “By the end of the fiscal, 15” will gain easy acceptance primarily in the metro and semi-metro market, but in B and C category cities, 14” will sell due to price points. 17” monitors will remain a high-end product,” says Manikandan of LG.

With the decline in the price gap between 15” and 17” monitors, a steady increase will be seen in the market share of 17” monitors. The industry is now expecting a faster rollover from 15” to 17” as compared to that from 14” to 15”. An increase in demand will also be witnessed in the flat-screen, colour monitor segment because of convergence and emergence of heavy-duty video and graphics content.

The replacement market in monitors will remain small, with a 15 percent share. The replacement market is more applicable to corporates who wish to migrate to bigger-sized monitors.

Printers

The year 2001-02 has seen a remarkable change of trends in the inkjet printer segment. As against steady growth for several years, the inkjet printer suddenly lost its charm and its market share went down by 32 percent mid-year. With the laser printer becoming more affordable and the dot matrix printer still holding its own in the small- and medium-sized market, the inkjet printer might not show substantial recovery in 2002-03.

Most large players, including HP, Modi Xerox and Canon are working on high-end printing products. While HP initiatives for the coming fiscal focus primarily on educating customers on the economics of laser printing, Modi Xerox expects significant growth rates in the networked colour laser printer market. With a number of organisations going in for workgroup printing, the network printer will also see a spurt in sales in 2002-03.

As far as manufacturing is concerned, we have only dot matrix printers being manufactured in India and experts do not foresee any manufacturing for other printer categories happening here in view of low volumes and government policies.

UPS

Almost 75-80 percent of the volumes in the UPS segment comes from the grey market and this is unlikely to change anytime soon. A growth rate of 15-20 percent the highest in the peripherals segment justifies an increased presence of the organised sector, which in fact is expected to absorb all the additional growth, as a fallout of better quality and service. The larger players in this segment are trying to differentiate their offerings with solutions marketing.

The internal UPS concept has been talked about for some time now but has not been able to attract much attention from either customers or vendors. Analysts do not point to any major increase in the internal UPS market. Although the grey market thrives up-country, with major players like APC, Powerware and Emerson now concentrating on the B and C cities, experts expect this trend to reverse in the near future.

UPS has already started becoming a standard peripheral, with increased awareness of the need for data security amongst consumers. Hence, the bundling of a UPS with a PC is becoming increasingly popular. Major OEMs like IBM and Compaq include UPS as an integral part of their offerings to the customer. “The trend of PC manufacturers offering UPS as a standard peripheral, has affected the business plans of power conditioning solution providers like us. However, our ability to offer a large basket of choice to the customer and continuous introduction of new technology gives an edge to our business,” says Deepak Sharma, MD, Powerware.