Q2 figures for the Indian notebook market show that HP has overtaken IBM both in units and revenues—with the HP-Compaq merger playing a big role. In the past, IBM used to lead in revenues, while Compaq led in unit shipments. Prashant L Rao looks at how HP became the leader and finds out more on Big Blue’s plans to grab the crown back in coming quarters

According to Subin Joseph, the Evo and Presario brands will soon be sold through HP’s channel partners too

HP India has finally earned bragging rights over the Indian notebook market. It sold close to 4,000 notebooks in Q2 2002 to take the top slot in unit shipments. That isn’t surprising. Compaq used to be the leader in unit shipments all along and with Compaq sales being lumped with HP’s after the HP-Compaq merger this was a given. What is surprising is that HP has managed to take the revenue crown away from IBM.

Keeping the faith in Compaq’s brands
To engineer this upset, HP made a series of smart moves, not the least of which was to sideline its Omnibook brand, which had a minuscule market share, in favour of Compaq’s best-selling models—Evo and Presario—both of which were, and continue to be market leaders in India.

“The Omnibook was not a strong brand in India, Compaq’s Evo and Presario were strong brands,” says Subin Joseph who is the country manager for Mobile and Nextgen Technologies at HP India’s Personal Systems Group. That is why the new HP is marketing these two mega brands aggressively and intends to start selling them through HP’s channel partners in the coming months (currently these are shipping only through Compaq’s channel partners).

AMD—ace up HP’s sleeve
Another key factor contributing to HP’s success was the use of AMD’s mobile Athlon chip—20 percent of HP’s notebooks have AMD chips inside. Compaq (now HP) has one of the few sub-80,000 notebooks powerful enough to be a desktop replacement thanks to its use of the Athlon mobile processor.

An AMD Athlon 1.2 GHz mobile processor powers HP’s Presario 731 notebook that retails for Rs 74,990, plus tax and shipping. “HP is the only MNC vendor shipping AMD-based notebooks,” says Rahul Singh who is senior marketing specialist at AMD Far East (India).

Wireless networking to the fore
On the product front, HP recently launched a new range of Evo notebooks for corporates with integrated wireless networking by means of a device called the multiport that’s integrated into the top of the notebook. In a conventional wireless networking setup using a notebook, the antenna protrudes, giving uneven coverage.
HP claims that multiport-equipped models have 33 percent better coverage and throughput and lower packet loss (data loss over a network).

Of course, the path to wireless computing is strewn with thorns. Three licenses are required—one to stock wireless networking equipment, one to sell it, and a third to demonstrate it. “Companies need a license to deploy wireless equipped notebooks. It’s a fairly simple process that takes about two weeks,” says Joseph. Obviously Wi-Fi equipped models cost 8-10 percent more than their predecessors did. In 6-8 months, HP expects all notebooks to ship with built-in wireless capabilities.

Ajay Mittal expects IBM’s new initiatives in the notebook market to start paying off in Q3

The new Evos (N1000v, N200, N410c, N610c, N800C and N800V) are the first Pentium 4 mobile processor-based notebooks to be launched in the country. All these models use the 845 chipset, support IEEE 1394 (also known as FireWire, a high-speed port for video hardware), SVideo and USB 2. HP is also going to launch printers with USB 2 support. USB 2 is much faster than the earlier version—zipping along at 480 Mbps—which means that the
new Evos will be able to send print jobs faster than the older models, provided the printer also supports USB 2.

Growing the market
With the notebook market poised for 17 percent growth this year, and sales ramping up to 10,000-12,000 units per quarter, HP is looking to expand the market rather than fend off rivals, IBM and Toshiba.

The Indian market for notebooks and handhelds is still tiny when compared to that in other Asian countries. Notebook sales account for 10 percent of the computers sold in Thailand, 15 percent in Korea, and a whopping 20 percent in Australia—in India the number is a measly two percent.

HP looks at this as an opportunity, it wants to create a bigger pie, rather than fight for a slice of a smaller one. The company plans to tap self-employed professionals, post-graduate students and SMEs for fresh sales. IBM is unconvinced in this regard, citing the huge price-differential between desktops and notebooks, and the relatively small number of Indians who are on the move and require notebooks, as factors that will keep the notebook market from exploding. Still, it’s only a matter of time. The breakthrough could even come from Intel—the chip giant is seeding Genuine Intel Dealers (GIDs) with notebook kits and they could well lead to a flood of notebook sales. Until then, HP seems to be the champion of this segment’s prospects in the country.

A tale of two giants: IBM & HP
For a long time IBM and Compaq were head-to-head in the notebook segment. Now it is IBM and HP. Last year, IBM shipped 9,949 notebooks to finish a strong runner-up with 25.6 percent of unit shipments. Though IBM slipped behind Compaq in unit shipments it still led in revenues with a 34 percent share.

All along, IBM has done extremely well in the corporate notebook segment. Compaq (and now HP) has traditionally scored in the consumer notebook segment (portables going to home and SOHO users). The Compaq Presario is a brand for which IBM has no equivalent. IBM needs to come out with an attractive consumer model, but with the company’s focus being exclusively on the commercial market that may not happen.

That said, IBM is taking action to grab market share back. The company has come out with several initiatives from May 2002 onwards. It has extended warranties to three years on most models. Plus, IBM now offers insurance for damage and theft and hundreds of users (mostly SMEs and individuals) have taken advantage of this scheme. On the technology front IBM is touting a security chip that offers 256-bit encryption. This is available on several models, starting with an R series model priced at Rs 1.15 lakh. All this has contributed to better shipments in Q3. Ajay Mittal, the brand manager for the personal computing division at IBM India says, “We had a situation in Q1 this year when the channel was overstocked because of the post-9/11 situation. However, if you look at the number of customers who bought notebooks, the numbers were consistent with our normal 2,500-2,600 per quarter figures. Q3 is when our new measures will start paying off.”

There’s no doubt that IBM will do better in H2 2002 than in H1. That said, the company has some chunks in its armour. Most notably it lacks models using the AMD Athlon or the desktop P4 chip. This leaves a gap at the low-end of the market where HP has competitively priced notebooks. IBM does have a Celeron-based model in the same price range as HP’s Presario 731 (sub-80,000) but it isn’t aggressive in selling this model. In any case, the Celeron doesn’t really have the computing chops to take on the mobile Athlon.

Keeping the above factor in mind, HP is very likely to end this year as the undisputed leader in the notebook market. It promises to be a pitched battle, but until IBM or Toshiba comes out with a compelling entry-level notebook, HP is going to be raking in the bucks at the low-end.

The wildcard is HCL Infosystems that markets Toshiba in India. The company was runner-up in unit shipments in Q2. On revenue terms, it was behind both HP and IBM. Toshiba notebooks have a good reputation, but somehow HCL Insys has never managed to be the leader in either unit shipments or revenues. Still, the revenue gap between IBM and HCL (Toshiba) is just 12 percent. The gap between HP and IBM is more substantial at 37 percent. IBM will need to get aggressive to fight off the challenge from HCL Insys, while trying its best to unseat HP. The winner in all this will be the notebook buyer who will benefit from goodies such as wireless networking shipping as a standard feature.