Cover Story

Brands rule in PCdom

Assembled computers are losing out to their branded competitors in the race to dominate the Indian PC market. Akhtar Pasha reports on how rationalisation of duty structures accompanied by aggressive pricing and instalment schemes from branded players is driving the change

Statistics from market analysts IDC and MAIT-IMRB show that assemblers are losing out to branded players in the race to dominate the Indian PC market. Piyush Pushkal, Senior Analyst, Computing Products & Channels Research, IDC says, “There has been a marked decline in the marketshare of assembled PCs during the past five quarters. We have seen their [assemblers] marketshare tumble from 50.2 percent in JAS 2002 to 41.3 percent in JAS 2005.” MAIT-IMRB’s data supports this. According to them, the lesser-known regional brands and unbranded systems witnessed a decline in marketshare, and accounted for 34 percent of the PC sales in H1 2005-06.

According to Pushkal, “One of the reasons for a decline in the assemblers’ marketshare is the price gap that has narrowed down. Branded players [MNCs and Indian brands] are aggressively offering their PCs at lower price points, thus increasing the affordability and working on the visibility of the brand. The price gap between an assembled PC and a branded PC is under Rs 3,000 now ”

"The perception that branded PCs are expensive has changed, and the need for PCs has shifted from useful to essential " - Anil Joseph Philip Director, Marketing & Strategy Lenovo (India)

Anil Joseph Philip, Director, Marketing & Strategy, Lenovo (India) agrees, “The perception that branded PCs are expensive has changed, and the need for PCs has shifted from useful to essential. Further, the price drop and duty rationalisation over the past years have resulted in branded PCs becoming popular. People are buying peace of mind by investing in branded PCs.”

Rationalisation of duties

The Indian PC hardware market witnessed two rounds of duty revision in 2004. In January the government reduced the basic customs duty from 15 percent to 10 percent on a range of IT products, and halved the excise duty on fully-built PCs to 8 percent. The additional duty of 4 percent was also abolished; this gave a fillip to the branded players. Subsequently, the July 2004 union budget abolished the excise duty on fully-built PCs.

Narrowing price gaps

The average selling price of PCs in 2000-01 was about Rs 65,000, which fell to Rs 22,000 in 2005-06. George Paul, Executive Vice-president, Marketing, HCL Infosystems says, “The biggest incentive for assemblers in the desktop market—the price point—has been taken away by the rationalisation of duties on PCs. This has narrowed the price gap—from the 37-40 percent that assemblers enjoyed in 2000-01, to under 14 percent in 2005. Similarly, duties have been reduced from 40 percent in 2000 to 12-14 percent in 2005. Today, an average branded PC in India is priced in the range of Rs 22K to Rs 25K.”

Assemblers’ lose ground

Industry pundits and analysts feel that the assemblers’ marketshare will slide to stabilise at around 30 percent. However, assemblers will survive and find new avenues to develop their business. Mukund Ramaratnam, Director, Marketing & Business Development, AMD Far East (India) explains, “Today, AMD assembled sales are more than the branded ones.” Sandeep Arora, Channels and Distribution Manager, South Asia, Intel India adds, “MNC brands [OEMs] are growing at 30 percent faster than the overall PC market. But though the assemblers’ market growth has slowed down, you cannot ignore these players—their marketing strategy is different from that of branded players. They are never short of innovative bundling programmes that branded players cannot match.”

Many market followers and assemblers themselves felt that they can continue their business unaffected because of the sourcing pattern. Harish Kohli, General Manager, Sales & Marketing, Enterprises Product Group, Acer India admits, “The price gap of Rs 2,500 to Rs 3,000 between a branded PC and an assembled PC will continue to be there. This is because branded players need to invest in channels and marketing, and have to pay entry tax in some states. Approximately 2 percent of the PC cost goes into logistics, another 2 percent for tier-II costs [channels], 1 percent for transportation, and a small percentage towards duties and entry tax as applicable. Then there is a price gap in the components which assemblers use to their advantage. For example, a 128 MB RAM is available from $11.5 to $17.” Thus, the price gap will continue to play a major role in the market for a long time.

IDC feels that the assemblers’ share will continue to erode, Pushkal points out a key trend—players such as Xentis in Kolkata or Sogo Computers in Bangalore emerging as strong regional brands. Philip of Lenovo is of the opinion that the assemblers’ marketshare will slide further down, and that if there is another round of duty rationalisation, we could see consolidation in the market and branded PCs getting stronger. But he believes that branded players will not eat into the assemblers’ marketshare; rather, they will look at the total market opportunity and new vistas (such as the upcountry market) to increase their share.

To strengthen its market position, AMD is working on a campaign that will help assemblers offer standard [enterprise-class] products to corporate buyers. States Ramaratnam, “We are still working on the configuration for the enterprise-class [features that large companies want] machines for assemblers. The configuration will be ready by Q2 2006. The campaign called ‘Empower’ will open more avenues for assemblers to cater to the organised sector as well as AMD partners.”

Attractive offers from assemblers

Pushkal of IDC admits that the service provided by assemblers and the one-to-one relationship that they enjoy with their customers cannot be ignored. Further, they will have the advantage of pricing and flexibility. They offer customised machines [processors, motherboards, graphics cards, hard discs or chassis] at a price of Rs 2.5K to Rs 3K less than branded players do. At the price of a fully-loaded PC from an MNC, the assembler can give more to a customer—PCs bundled with additional features such as computer tables, chairs, higher memory, hard disc, Web camera and UPS. Another advantage is that assemblers offer upgrades to customers.

According to analysts, assemblers typically have an edge over branded PC vendors because of their faster customer service, larger configurations offered, and basement prices. An assembler operating from Bangalore’s S P Road (a big market for assembled PCs) informs, “We can offer chassis at a price-point starting from Rs 800 to Rs 2,000. There are different price-points for components such as memory, CPU, DVD combo and patch cards. Additionally, we are offering various system configurations ranging from Celeron to Pentium IV to AMD Athlon 64-bit with hard disc, memory and system built as per the customer’s requirements.”

One such bundling by a local assembler had on offer a Pentium IV machine with 2.66 GHz processor, 256 MB RAM, 80 GB HDD and standard components along with loads of freebies such as computer table, chair, printer, UPS and DVD combo priced at Rs 29,000. In comparison, a branded player will offer just the PC at the same price-point. “If we know the customer’s requirement, we can change the freebies to a desired configuration,” the Bangalore assembler added.

Nitin Choudhary, Country Manager, Commercial Desktops, HP India says, “The biggest advantage assemblers enjoy is their value offering—all-in-one, under-one-roof [PCs bundled with other offers] and at aggressive price-points.” He believes that the marketshare of assemblers will not go down further, and that a ‘do it yourself’ trend will catch up in India as has been the trend globally.

Branded players begin focussing on TCO

Choudhary of HP points out an interesting study done by Gartner, which revealed that 75 percent of the amount spent on a PC in its lifespan is spent after purchase. “Though in India the percentage may not be that high, the fact is that consumers are paying more during the lifecycle of the PC on deployment, maintenance and components. But by investing in branded PCs, consumers can buy peace of mind. Further, this 75 percent can be brought down to 40 percent.”

For this reason, HP is focussing on lowering the TCO for the benefit of end-customers. Paul says that even branded players such as HCL are offering flexibility in the configuration by making it available at different price points. His company has tied up with BSNL and MTNL to offer broadband-ready PCs. This is an added advantage as the masses look for Internet connectivity as a major feature. Moreover, the PCs are available on loans from banks at easy instalments of as low as Rs 500 per month.

70:30 Branded:Assembled

Choudhary says that the marketshare of branded PCs vis-à-vis assembled PCs is 70:30. Branded players face stiff competition for the 70 percent share as some 10 vendors are in the fray. Competition is driving vendors to look at expanding the market, reaching upcountry markets with aggressive price-points.

However, branded players are not going to eat into the assemblers’ market. According to an Acer study, 60 percent of the under-35 population will be living in metros and B- and C-class cities in 2010. Since an average user in these areas is fairly educated about PCs, most branded vendors are focussing on them.

Notes Paul, “The demand for PCs is shifting to non-metros because telecom infrastructure for Internet access, new shops in the service industry and [higher] education are being given top priority there. We have seen as high as 40 percent of our installed base in non-metros.” AMD is also looking at upcoming markets in B- & C-class cities .

akhtar@expresscomputeronline.com