Four million and still counting

The PC market did well in 2005. Branded PCs and Indian manufactured ones tasted good success, says Kusum Makhija

According to IDC, the Indian Client PC (desktops and notebooks) market witnessed a 26 percent year-on-year growth in unit shipments in 2005 over 2004 as of Q4 05. The commercial desktops category witnessed a 14 percent year-on-year growth with HCL maintaining the top rank in terms of unit shipments. In the overall Client PC market, the rankings remained unchanged from last year. HP retained the top slot with a market share of 17 percent, followed by HCL at 13 percent and Lenovo at 7 percent in terms of unit shipments. In terms of total desktop shipments HCL led the market, while in terms of total notebook shipments HP was the top vendor.

The consumer desktop category witnessed a 29 percent year-on-year growth in unit shipments in 2005 over 2004. HCL led this category in terms of unit shipments over HP, followed by LG in the third slot.  

There were some vendors like Sahara who made their debut in the market this year. Says George van der Merwe, COO, Sahara Computers, “We entered the market in north India in the middle of last year, and went pan-India in the latter half, hence it’s a little too early to comment on the market figures as of now. But by Q2 06 IDC will release a report showing our current marketshare.”

Informs S Rajendran, GM, Sales & Marketing, Acer India, “Our marketshare in 2004 was 12 percent, which grew to 14 percent in 2005. We are looking at securing 25 percent marketshare in 2006.”

"We recorded an impressive growth in terms of total unit shipments of 29.5 percent in 2005 over 2004, maintaining our leadership position in the Indian desktop market for the fifth consecutive year" -George Paul Executive VP HCL Infosystems

Quoting IDC, George Paul, Executive VP, HCL Infosystems states that HCL again shipped the largest number of desktop PCs in a year. “We recorded an impressive growth in terms of total unit shipments of 29.5 percent in 2005 over 2004, maintaining our leadership position in the Indian desktop market for the fifth consecutive year,” he says. The growth is attributed to the Rs 250 crore worth of large orders bagged by the company in the commercial space.

Says Milon Chakraborty, Managing Director, Syntech Group, “The Indian desktop PC market is likely to grow at a sustained pace in the coming years. Contrary to the apprehensions that sale of laptops will overshoot sale of desktop PCs, I think that the market of desktop PCs will grow substantially in the next five years. There are significant opportunities in Class B and C cities of the country. Besides, there is a huge potential in the first-time buyer segment.”

Post-budget

The recent budget is attracting mixed reaction from the computer industry. The additional customs duty of 6 percent and 7 percent imposed last year (July 26, 2004) on the CPU box and finished computer (CPU box plus monitor, mouse and keyboard) respectively have been abolished. But the budget imposed a 12 percent excise duty on computers, 8 percent on packaged software, and 4 percent countervailing duty on finished imported goods while exempting the 16 percent tax on DVD drives, flash drives and combo drives.

The 8 percent duty on packaged software does not apply to software downloaded from the Internet, or to application software which is custom-built.

Van der Merwe says, “This will result in an increase in prices of PCs, and will have an impact on the domestic hardware industry. The move hampers the southward spiral of prices...in an extremely price-sensitive and growing market like India, this might, in the short run, dampen the PC growth rate. As regards the 8 percent duty on packaged software, we fear that it may lead to an increase in the spread of software piracy at a time when India is becoming a mature market for legal software.”

"The excise duty increase has put the pressure back on brands especially in the context of prices. The total duty on notebooks has now gone up to 17 percent" -Ramanjeet Singh Country Manager Sales and Marketing Fujitsu India

Agrees Ramanjeet Singh, Country Manager, Sales and Marketing, Fujitsu India. “The excise duty increase has put the pressure back on brands especially in the context of prices. The total duty on notebooks has now gone up to 17 percent because they are CBU (completely built units) being imported from Japan. There will be some fallout on sales. This is a step back in the light of the duty exemption that the UPA government was moving towards. The Indian market today has higher duty as compared to any other country. With the inclusion of VAT, the prices vis-à-vis the international market will shoot up by 21 percent,” he says.

Vinnie Mehta, Executive Director, MAIT, sees things differently, “The introduction of the excise duty will have a minimal impact on computer prices which are expected to remain by and large stable since the excise duty concession has now been extended to DVD drives, flash drives and combo drives.” Nevertheless, vendors like Lenovo have already announced a price hike as a result of the budget announcements.

Says Tathagata Dutta, Managing Director, Xenitis Group of Companies, "The current growth rate in the domestic PC market is more than 30 percent, which is huge. Indian manufacturers in the coming years will dominate the market and make their presence felt in the laptop and server segment. As a result of the imposition of 12 percent excise duty, Indian IT hardware manufacturing industry is going to get a boost. Keeping this in view we aim at reaching every nook and corner of the country with full steam. We have also come up with a strategic alliance with Iris Computers to strengthen the availability and distribution network of Xenitis products nationally."

Local manufacturers can now offset the excise duty on import of spares and the service tax on services consumed for manufacturing. However, in cases where there could be a marginal price increase, it would be eventually neutralised over a period of time.

Earlier, while the computer attracted nil excise duty, a 16 percent duty was levied on input components as a result of which manufacturers were unable to offset the taxes on their input components. This discouraged local sourcing from the upstream industry.

Branded vs. assembled

According to IDC, branded PC vendors are increasing their channels’ reach and retail presence in upcountry markets (B, C & D class cities and towns) and metros respectively. The Indian consumer is becoming more receptive to purchasing branded PCs rather than unbranded or assembled PCs.

This can be seen from the recently released MAIT study on the IT hardware industry which revealed that over the last year, branded PC sales have increased manifold in comparison to unbranded ones. The change has been largely due to the better quality and after-sales support associated with a branded product. The price difference between a branded and unbranded machine, which has narrowed down substantially, is also one of the main factors that have contributed to this trend.

Says Piyush Pushkal, Senior Analyst, PC Research, IDC India, “The government, the IT services and financial services sectors were the prominent buyers contributing to the growth in the commercial desktops segment during 2005.”

As per MAIT’s half-yearly Industry Performance Review for the first half of FY 2005-06, smaller and lesser-known regional brands and unbranded systems witnessed a decline in marketshare, accounting for 34 percent of PC sales. The share of Indian brands grew to 31 percent of the market, while MNC brands accounted for the remaining 35 percent. In absolute terms, the proportion of Indian brands grew by 84 percent, MNC by 45 percent, and assembled by only 5 percent. Compare this to the first half of 2003-04, when assembled PCs commanded a 57 percent marketshare.

Sub-10k offering

According to the same MAIT report, the desktop PC market grossed 2.34 million units registering a growth of 36 percent over the same period in the last fiscal. With sound macro-economic condition and the buoyant buying sentiment in the market, PC sales are expected to touch 4.7 million units in fiscal 2005-06.

The high growth in PC sales can be attributed to increased consumption by industry verticals such as telecom, banking & financial services, manufacturing, education, retail and BPO as well as major e-governance initiatives of the central and state governments. The southward trend in pricing continued during the year due to technological reasons and other initiatives of the industry, including the sub-Rs 10,000 PC.

“We have launched a numbers of PCs of different ranges in the market starting from the Rs 9,999 desktop. The thought and strategy behind the same is to encourage a new set of customers to emerge in the market, who till now had to limited options to buy a PC,” says van der Merwe of Sahara.

“The introduction of sub-Rs 10,000 PCs in the Indian market and the resultant impact was a major event in the PC industry this year. Although it hasn’t been able to so far trouble the branded players, the spurt in the e-governance initiatives by the government may soon affect us,” says Rajendran.

"We have major plans for the consumer segment and are leveraging it to build up brand Lenovo since the IBM legacy brand is strong on the enterprise front. We are targeting this segment through a nationwide footprint " -Sanjeev Menon GM, Products Lenovo India

However, IDC data shows that the ‘sub-Rs 10,000’ PCs (as promoted by PC vendors) actually reach the customer premises at a landed cost of ‘sub-Rs 13,000’ after adding taxes, freight and handling. Not surprisingly, these ‘sub-Rs 10,000’ PCs have not sold large numbers since their launch in JAS 2005, contributing to just 2 percent of total desktop shipments during the July-December 2005 period, according to IDC’s India Quarterly PC Market report for Q4 05. Since the entry-level PCs usually come only with very basic features, at the point of final decision buyers tend to migrate to the next higher configuration, keeping in mind the life of the machine, technological obsolescence, and enhanced features.

“Nevertheless, the news coverage and media hype surrounding the introduction of ‘sub-Rs 10,000’ PCs will definitely help to expand the consumer base for PCs by bringing more middle-income families into the category of those considering a PC purchase for their homes. However, much remains to be done by the entire IT community to boost the relevance of owning a PC for a middle-class Indian home,” adds Pushkal. 

Agrees Sanjeev Menon, GM, Products, Lenovo India, “This was a huge demand generation activity, but the product does not seem to have taken off well.”

SMBs still rule the roost

According to IDC, on the commercial desktops front, all major vendors revealed an enhanced go-to-market spend on the SMB segment, which recorded a 21 percent year-on-year growth in unit shipment terms.

Mehta says, “Significant consumption in small and medium businesses added to the industry numbers. Further, the trend of increased PC purchases in smaller towns and cities as witnessed in previous quarters continued undiminished. This is despite the fact that there was a marginal slide in consumption in the home market.”

Menon of Lenovo states that, “Although the desktop still continues to see a strong pick-up from enterprises, especially BPO and BFSI, we haven’t seen the SMB lag behind either. Medium enterprises still have a lot of potential that has be tapped, especially in the upcountry. The SMB bubble hasn’t burst yet.”

As per MAIT, the business segment improved by 55 percent, accounting for 78 percent of the total PC consumption. In households, while sales were 5.10 lakh units, the sector witnessed a decline of 5 percent over the same period last year. Within businesses, sales to larger businesses (over 50 employees) grew by 62 percent; to medium business segments (between 10 and 50 employees) by another 61 percent, and to small enterprises by 33 percent. The larger businesses dominated the market accounting for 55 percent of total sales.

Chakraborty of Syntech said: "As per the latest findings of AMI Partners, the Indian SMB market comprises approximately 7.5 million businesses of which 21 percent currently utilise PCs. So the market has tremendous growth potential as a large section is still untapped."

Go retail to get consumers

Low prices and high availability have led to an upsurge in the consumer PC segment. Vendors are cashing in on the retail boom to capture that market. Players like Acer, HCL, HP, Lenovo and Zenith signed up new channel partners in upcountry markets besides launching branded retail stores in the major metro cities. Media centre PCs for the consumer and home markets have been a major trend this year.

Almost every vendor has an offering in this space. Lenovo recently announced its new line of products for the consumer segment with an innovative ‘jog dial’ for the triple-play media centre PC. Explains Menon, “We have major plans for the consumer segment and are leveraging it to build up brand Lenovo since the IBM legacy brand is already strong on the enterprise front. We are targeting this segment through a nationwide footprint by means of retail channels, showrooms and localised marketing.”

Retail will be a major initiative as the products now have a lifestyle appeal to masses. Vendors are looking at retail consumer education via different media to draw attention and sales. Says Devita Saraf, Director, Zenith Computers, “Retail is a major focus area for us and will continue to be so as we see a lot of potential in this segment. It is a great means to capture the market by offering attractive price-points and differentiated product offerings for the consumers.”

Rajendran says that Acer intends to “empower the Indian home consumer with complete computing technology at an affordable price-point. Further, we plan to increase our retail segment revenues from 25 percent to 40 percent by doubling the retail infrastructure to over 400 retail stores and increasing our spread to over 160 cities and towns across the country.”

Paul of HCL believes that PCs have suffered from lower prioritisation in the consumer buying basket with TV and other entertainment devices occupying higher places. The company is therefore trying to “push the PC up the desirability chain and this is resulting in increased penetration.” HCL is also exploring alternate channels by appointing consumer durable channel partners, training them, and creating new opportunities by custom-designing marketing solutions for them.

Moving ahead

High PC penetration in India has opened many avenues for vendors. With IT convergence happening, vendors are faced with the challenge of incorporating the latest technology at an affordable price for the consumer. Product robustness, after-sales support, security and total cost of ownership are the factors that consumers look for in a personal computing device.

The trend is not just limited to enterprise customers, but is picking up in consumer desktop markets as well. “In terms of technology upgradation, especially in the metros, the demand for media centre PCs, 512 MB RAM, 80 GB hard disk and the TFT monitor has steadily and significantly risen,” observes Merwe.  

Concludes Fujitsu’s Singh: “Users today need more battery back-up, increased processor performance, technology such as super multi-drives, more RAM, better graphics and so on, while security and encryption are standards which corporates stress on.”

kusum@expresscomputeronline.com
(With inputs from Joy Roy Choudhury, Kolkata)