The Hindu Business Line : Rebound in sight

For years together, PC offtake in the country has resisted a kickstart. PC penetration has just about groaned and squeaked its way to the 1.5 per cent mark. But it looks like a trigger point has been reached now - and the action is set to unfold on a livelier note.

THE last few months have seen a sudden burst of activity in the personal computer (PC) market in the country.

For years together, PC offtake in the country has refused to kickstart; according to analysts, PC penetration must have just about groaned and squeaked its way to the 1.5 per cent mark (teledensity has crossed the 10 per cent mark).

The reasons have been discussed ad nauseum — affordability, poor and unreliable electricity supply, lack of applications, and the like.

But somehow, a trigger point appears to have been touched now. The body of Indian hardware manufacturers, the Manufacturers Association for Information Technology (MAIT), announced this September that PC sales for the first quarter (April to June) of 2005 had crossed the one million-mark for the first time in India.

Stir in the air

The MAIT-IMRB quarterly review, which collates data from leading vendors and from 400 resellers and smaller vendors across more than a dozen cities in the country, said the industry appeared to have put behind the slowdown experienced in the Jan-Feb-March quarter of this year, that being on account of both confusion about the change in duty structure for IT products after the Union Budget and the introduction of Value-added Tax.

Even considering that the Jan-Feb-March quarter is when sales typically peak, the good demand in the first quarter of 2005-2006, cyclically not a very good quarter, bodes well for the industry.

MAIT has forecast desktop sales of 2 million PCs for the first half of the fiscal. Other research reports too paint a rosy picture. IDC's India Quarterly PC market tracker report too talked of Q1 2004-2005 reporting 31 per cent year-on-year growth, with over one million PCs sold. It also noted that the desktop segment, which is typically sluggish during the first quarter, continued to grow. Gartner India said the desktop market grew by 31.4 per cent in calendar year 2004, attributing this to the booming economy that led to demand from the commercial and other segments.

Apart from demand from the commercial quarter, lower taxes and a revival of financial schemes for repayment in instalments, more expendable income in the hands of younger people has led to this demand growth. And also very importantly, some marketing experts add, credit must be given to the PC vendors for innovative product development for niche segments, and the description of the PC as a helpful everyday tool rather than an indulgence for technologically-inclined people.

Market debuts

Look at the activity that is stirring up. PC vendors are now stretching themselves across a range of machines, ranging in cost from Rs 10,000 to Rs 1 lakh and more. The last quarter saw a lot of new introductions.

A regional player, the Kolkata-based Xenitis Group, launched a sub-Rs 10,000 PC, based on a Chinese chipset. Apna PC from the Xenitis group announced a plant in West Bengal in joint venture with China Unitek Computer to manufacture PC casings and peripherals.

Taking the market completely by surprise, the leading vendor in India, HCL Infosystems itself quickly introduced a sub-Rs 10,000 PC. No stripped-down version, said HCL, but a fully functional one. This PC was launched by no less a person than the Minister for IT himself, Dayanidhi Maran, who had a word of praise for the new product which would be affordable for the `masses.' And, for just Rs 16,000 a P4 also available.

Ajai Chowdhry, Chairman and CEO, HCL Infosystems, says, "Most of the existing low-cost PCs are either stripped-down versions or of poor quality. For the first time, we are offering a PC in the sub-10K price bracket without compromising on quality and functionality."

Buying a 'components basket'

Local `branded' computers have made their mark in specific regions and sometimes, smaller localities. Analysts tend to club these local brands with assembled computers and seem to put them into the grey market segment.

The MAIT-IMRB study said that assembled computers, including the "smaller, lesser known regional brands and unbranded systems", accounted for 42 per cent of the PC sales in the first quarter of 2005-06, while the proportion of branded PCs was 58 per cent.

MNC brands accounted for 37 per cent of the market while Indian brands accounted for 21 per cent.

Although this `assembled segment' has diminished in proportion over the years, it is still significantly high. The `assemblers', in some localities, have proved themselves to be better at after-sales service than the branded PC vendors. It is not uncommon for consumers to point out that it can take days to get an HP or Zenith guy to service your computer at home, but the assembler is just a phone call away and usually buzzing around at work in your locality itself.

Nearly every city, and in some metros, every suburb and locality has spawned its own `assembler'. With this happening, the PC appears to be fast becoming a commodity.

In fact, in places such as Lamington Road in Mumbai, IT hardware products sell like vegetables. Assemblers and often the end customer if he fancies himself a techie, buy themselves a `basket' of components, to assemble together themselves.

Whither profit margins?

With all this activity happening, analysts wonder just where the profit margins are headed for the larger, established players. These players get their margins from sales of higher-end computers, laptops and from selling PCs to the commercial segment and if they enter the `mass segment', volumes will have to be huge to make it worth it.

For example, Zenith Computers reported a hefty rise in net profit for 2004-2005 of over 200 per cent. It attributed this to rising sales in its laptop segment, which afforded it larger margins and shored up its bottomline. Zenith, of course, has a whole range of PCs and notebooks ranging in price from Rs 15,000 to Rs 80,000.

The competition is just going to increase and probably squeeze margins further and across every range from mass to premium, it appears.

Sahara Computers is going to offer PCs from Rs 10,000 (low range will run on Linux and AMD) onwards and notebooks costing up to Rs 1.5 lakh.

LG Electronics has also entered the market with a range of premium PCs and says it is targeting the No: 3 slot in the Indian PC market by the end of 2006.

With the Rs 15,000-20,000 range of PCs garnering a higher and higher market share, things are going to be tough for vendors in India as their pricing becomes more and more aggressive. But sales volumes show potential promise.

Many market analysts are not sure whether the sub-Rs 10,000 PC will help the industry breach the home segment. A person who comes to see the product out of curiosity might be willing to spend a little more for the complete basic configuration, says an official with an Indian PC manufacturer.

Expanding presence

Vendors are voraciously expanding their presence. HCL has aggressive plans to establish its sales and support network in B and C class cities. A company that is not in the lower segment, Acer India expanded retail presence in the west, opening six new exclusive Acer malls in Mumbai. The new malls have been opened in partnership with some of the leading names in the IT hardware channel such as Silicon Valley, Suresh Computers, Smile Compuware, Pooja Trades, Infoworld and Sainath Associates. These stores are the first exclusive brand stores of Acer in Mumbai and are part of the initiative to increase the number of Acer retail outlets to over 250 by end 2005, says the company, which wants to move from No: 3 to No: 2 position in the notebook segment in India.

"Retail is the way forward for the PC industry in India. Our retail business has been growing at over 50 per cent quarter on quarter, with each of the product categories, which we address through retail, contributing to growth," says S. Rajendran, General Manager, Sales & Marketing, Consumer Product Group, Acer India.

Acer's retail stores fall into two categories. The first is a full shop or `Acer Mall' that will comprise Acer products and non-competing products. In the second category, known as `Acer Points', only a section of the store will display Acer products. Presently, there are over 50 Acer Malls & 135 Acer Points across the country.

Zenith has over 800 points of presence in the country. Linux operating systems, Chinese chips, Taiwanese components, anything to reach the PC to the hinterland.

And HCL has even come out with a product to solve the poor electricity supply problem that its consumers would face, lest that be a deterrent to their purchase plans. The company has come up with RP2, a solution to tackle erratic power situations.

kripram@thehindu.co.in

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