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Dell bids for desktop dominance

Dell's direct selling model has found some success in the commercial desktop market. The company’s manufacturing plant in Sriperumbadur will start shipping PCs in H2 2007 cutting delivery lead time by 50 percent and helping the company become price competitive. Dell has to deliver consistent results and enter the run rate business to put pressure on market leaders HP and HCL. By Akhtar Pasha

Dell has been the number one PC maker globally with a direct sales model that seems at odds with the Indian market where the channel is the primary means of distribution. Dell’s market share in the Indian desktop PC market has been so miniscule that analysts have told us that the Indian desktop market is growing without Dell. That said, the company has shown positive growth in the commercial desktop market. Its market share growth Quarter-on-Quarter (in unit shipments) in this market segment over the course of 2006 was 5.6 percent in Q1, 11 percent in Q2, 7.3 percent in Q3 and 7.7 percent in Q4. According to a leading market analyst, “Dell’s recent success in Q3 and Q4 2006 has helped it move up to the fourth position from the fifth. The company has also gained some key pockets of growths—in the government and BFSI segment and the SOHO market. Market sources tell us that the government deals have come from the Indian Railways and Indian Oil Ltd. However, Dell has been riding on the success of its global contracts, dollar billing many MNCs and IT/ITeS companies. Dell’s YoY growth has been 29 percent. The positive side of Dell gaining ground on the commercial desktop is that it’s slowly moving away from dollar billing to rupee billing.”

Rajan Anandan, vice president and general manager, Dell India Pvt Ltd says, “Dell India, with Rs 1,800 crores in revenues, is growing at 73 percent YoY. What is significant is the fact that we are growing [at this rate] without a factory in India. We have broken into government deals and the banking vertical for the first time. The central government deal currently accounts for five percent of our local revenues and that percentage is expected to grow very fast. We have also seen traction in state governments and PSUs. With commercial manufacturing in place in H2 2007 we want to be number one in the overall Indian PC market.”

Made in India = Faster delivery

Dell’s first manufacturing plant in India, which is coming up in Sriperumbadur in Tamil Nadu will commence commercial shipments in H2 2007 with a capacity to manufacture 4 lakh units annually. Anandan says, “We have been importing PCs from our overseas facility at Penang in Malaysia to cater to the Indian PC market. Typically it used to take 12 to 15 days to ship PCs to India. Once commercial manufacturing in India commences, we expect to reduce the lead time for delivering a PC to customers by 50 percent. Additionally we will save on air freight charges and import duty, which is significant and this will be passed on to our customers.” Analysts feel that a 50 percent cut in Dell’s delivery lead time is a ‘good factor’ as it will help Dell to be ‘more price competitive’ in the commercial desktop segment.

Given the fact that the enterprise market is directly addressed by vendors such as HP, HCL and Lenovo—Dell’s direct model could work here. But Dell has to show consistent growth in the commercial desktop market to put pressure on market leaders HP and HCL. Anandan adds, “It will dramatically speed up delivery.” Dell plans to use the manufacturing facility to manufacture other products—notebooks, servers and consumer products—in a phased manner.

That said, Dell’s manufacturing capability looks small when compared to the competition. HP and HCL along with Lenovo are the market leaders in the commercial desktop segment in that order. HCL’s new manufacturing plant in Pantnagar in Rudrapur (Uttranchal) and the existing plant in Pondicherry have a combined annual capacity of two million PCs per annum. According to George Paul, executive vice president, HCL Infosystems Ltd, “In addition to enabling us to manufacture a wide spectrum of ICT products, these facilities will also allow us to offer enhanced value to our customers through better logistics, lower time to market as well as de-risk our complete manufacturing portfolio. We have pioneered the build-to-order model in India with the widest range of commercial desktop PCs and being industry veterans we understand the requirements of large businesses better than the competition.”

HP has also ramped up its manufacturing capabilities. Its second plant in Pantnagar, Uttaranchal significantly adds to the company’s existing capacity. This plant is expected to produce 3,00,000 computers a month from March 2007 onwards. The focus will be on manufacturing HP’s latest range of desktop computers, workstations, notebooks and servers for the local market. The Yeshwanthpur manufacturing plant in Bangalore has a capacity of 80,000 desktops per month. Rajnish Gupta, country category manager, Business PC, PSG, HP India says, “India is an emerging market and a high growth opportunity. Our focus is to offer a value proposition and connect that to wide coverage in terms of support and sales points. In the commercial desktop market, we have a very strong focus in government, BFSI, manufacturing, pharmaceuticals, ITeS and software development. In the Q1 to Q3 06 period we had an average market share of 17.6 percent.”

Dell has done well in the x86 server market where its market share has improved. Dell’s market share rose to 15.8 percent in CY 2006 from 11 percent in the previous year totting up to 67 percent growth. (Source: IDC India). Q4 2006 found the company introducing its first AMD-based x86 servers. The PowerEdge 6950 is an AMD Opteron four-socket server designed for enterprise applications such as database, server consolidation and virtualisation and consumes up to 20 percent less power than previous generation of four-socket PowerEdge servers. The PowerEdge SC1435 is a two-socket, rack-dense server optimised for high-performance compute clusters, distributed Web serving and small- to medium-sized businesses that require leading price-performance ratio and energy conservation features. The AMD Opteron processor-based PowerEdge SC1435 can deliver performance gains of up to 128 percent and performance-per-watt improvements of up to 138 percent.

Rajesh Dhar, country manager-ISS, Technology Solutions Group, HP India sales says, “The competition cannot catch up with the rest of server vendors as they lack innovation. Businesses want server-centric solutions to reduce their IT infrastructure cost and are not counting the number of servers required by them alone. They are looking at reducing costs and are increasingly looking at creative ways to reduce TCO. We have won many customers who used to buy servers in bulk from our competitors. They have dumped them to use our C class Xeon blade servers.” Dell’s direct model may be hard pressed to work in the server market.

Anandan counters with a reference to Dell’s success in the x86 server market, “We have gained market points sequentially. We had 19 percent market share in Q3 06 as compared to 9 percent in Q3 05.”

Tapping new areas

Dell wants to capitalise on the burgeoning LCD/TFT monitor market and it has introduced new products in the 15, 17 and 19 inch category. As per IDC India LCD/TFT monitor shipments have grown by over 200 percent on a yearly basis in 2006 for branded desktop PC players. Dell wants to get its foot in the door. Anandan says, “We are running some exciting exchange programmes for businesses that want to replace their CRT monitors to LCD/TFT monitors. There is a huge opportunity for CRT replacement.” Dell announced its foray into projectors in December 2006.

In the commercial desktop PC market Dell has made an important beginning. Analysts concur that the company need to show growth to put pressure on HP or HCL as the gap between the leaders and the challenger is a vast 10 points.