With the latest IDC figures showing that the free fall in the PC market has surely been arrested, what does the future hold for India’s PC industry? Shipra Arora & Punita Jasrotia analyse the IDC numbers and also figure out where the market is headed

Sameer Kochhar says pent-up demand, attractive price points and economic stability propelled PC growth

IT market research and consulting firm IDC India’s Q3 2002 (July-August-September) numbers for the Indian PC market indicate that that the beleaguered PC market is finally in recovery mode. After a negative performance of -1 percent in Q2 2002 over Q1 2002, the July-August-September (JAS) quarter has registered a relatively substantial growth of 6.2 percent. According to IDC India, while Q2 2002 was more about talking and planning, activities really took shape during the third quarter. In terms of year-on-year (YOY) growth, the PC market has grown by around 9.6 percent, as compared to a YOY gain of 5 percent in Q2 this year over the same quarter last year. And IDC says the PC market will grow at 22.3 percent in 2003, over 2002, which should be great news for the industry.

Apart from government-funded projects in the education space, which helped in boosting the commercial segment space, the banking, financial services and insurance segment (BFSI), IT-enabled services (ITES) and telecom were the key growth drivers. However, the home market continues to perform below expectations.

According to Sameer Kochhar of Skoch Consultancy Services, the main reasons for the growth was release of pent-up demand, attractive price points of non-Intel CPUs, specifically AMD, which was very aggressive in price points, and the relative economic stability after a gruelling 2001 with 9/11, etc. Raj Saraf, chairman and managing director of Zenith Computers, says the replacement and peripheral market is also looking up, though this may not reflect in terms of finished PCs. Zenith is a key vendor in the upgradation space, where cost-conscious consumers can selectively upgrade only some key components in their PCs.

However, the industry is not celebrating yet, and is treading cautiously. Arun Narayan, senior manager at PCS Industries encapsulates the mood when he says, “The worst may be over, but the good times are yet to come.” Adds Satinder Juneja, senior marketing manager at HCL Infosystems, “I’m cautiously optimistic and I’ll not say there has been a rebound, but the efforts of the last 4-5 years of gestation have started paying off as more and more markets are exposed to technology.” Amar Babu, general manager for channels in South Asia at Intel adds, “While we are seeing some indications of growth in the market, a lot needs to be done. Unless we see consistent growth many IT vendors will find it challenging.”

Key highlights
According to the findings of the IDC survey, the basic growth driver in Q3 was the commercial desktop space, which grew from 3,28,000 units in Q2 2002 to 3,56,000 units in Q3 2002. In terms of YOY, this growth was around 6.3 percent over 2001. As compared to this, the consumer segment grew from 1,84,000 units in Q2 to 1,88,000 in Q3, translating into a growth of around 2.5 percent. However, on a YOY basis, the consumer market did slightly better recording a 7.5 percent growth, whereas the commercial segment witnessed a 6.3 percent growth over the third quarter last year.

There have been some interesting changes in the commercial segment with HCL Infosystems displacing HP from its leadership position. According to HCL sources, the company sold 28,062 units in this quarter as compared to HP’s 23,897 units. However, the significant aspect was that HCL was able to gain the No.1 slot despite its negative performance as compared to Q2 (28,802 units). To boost unit sales, the company put in extra work on faster time-to-market and started offering built-to-order machines.

However, HP continued to hold the numero uno position in both the consumer and overall PC market, comprising of consumer and commercial desktops, portable desktops and PC servers. What continued to be an area of concern for both Indian and MNC players was the local white box (assembler) market, which continued to grow during the quarter. This segment is expected to grow marginally in future. Though established brands like HCL, HP and Zenith would be affected only slightly, they will definitely feel the heat from local assemblers and smaller regional brands.
“The assembled market has done remarkably well in the JAS quarter, with customer confidence boosting efforts by several players. As a result, more and more corporates are opting for assembled PCs,” says Moninder Jain, national marketing manager at Samsung Electronics India Information and Telecommunication (SEIIT). According to IDC, their greater cost advantage and reach as compared to branded players fuelled growth of this segment.

Within the commercial desktop segment too, most of the growth came from the unbranded segment, say industry experts. “Out of the 80,000 additional units of commercial desktops shipped during Q3, almost 22,000 belonged to the non-branded space,” says Ajay Mittal, brand manager, Personal Computing Division at IBM India. According to his estimates, this year around 64-65 percent of the overall commercial market belonged to the white box segment, as compared to 59.6 percent in 2001.

As far as pricing strategies were concerned, there wasn’t much activity. “There has been some fluctuation due to component supply constraints, but the market in 2002 has witnessed a fall in prices over the previous year,” says Aman Munglani, head of computing products research at IDC India,. Experts predict that next year there will be some activity especially in the low-end, though not significant enough. However, Mittal tends to disagree. He points out that there has been a marginal increase in prices owing to the increase in memory prices. A 30 percent growth in memory price can impact PC cost to the tune of 2 percent or so. “In the coming year, the overall price scenario in the commercial desktop space is going to more or less stabilise. In fact it might go up slightly as Intel is likely to move processors to higher speeds,” he says.

Small towns have again come to the rescue of the PC brigade. Everyone agrees that the B&C class story is no longer hype built on an extremely small base. In fact Juneja of HCL, which was an early mover in this segment, says a significant portion of HCL’s PC sales already come from the B&C class cities.

Sai Chandrasekhar pegs PC growth at around 10-15 percent in 2003

Market future
Q4 is expected to witness further growth in the commercial segment. According to Munglani of IDC India, there will be a lot of pent up demand from medium and large businesses, which will lead to increased activity on the commercial desktop front. While Q1 2002 was largely deal based, Q2 was largely driven by run rate business (2-3 units kind of business). Though there was some action on the big deals front in Q3 2002, the quarter was again driven by run rate business. In Q4 2002, with an indication towards the pent up demand, the market is moving towards the big deals again.

While during Q4 2002 there was a likelihood of deals to the tune of around 1,000-2,000 units, as the market moves into the next year there would be bigger deals in the queue (to the tune of 2,000-3,000 units). According to IDC, the commercial segment is estimated to grow at 24 percent in the year 2003, over 2002, with the consumer market likely to gross a growth of 19.4 percent over 2002.

Other growth drivers
Says Sai Chandrasekhar, business manager, for commercial PCs, Personal Systems Group at HP India, “With India’s low PC penetration, there is a huge opportunity waiting to be tapped. For this we need to have applications that make PC usage more necessary, a much wider retail presence and more affordable PCs.” Arun Narayan of PCS and Juneja of HCL both say that the middle class increasingly going in for PCs at home will be a key driver. Says Narayan, “What needs to be done in this scenario is to offer segment-specific products at affordable prices. Generic product-selling days are passé. Today what is required is focused selling, not on a product feature platform but more on a need and fulfilment platform. Most folks want PCs to help them do some work, play music, surf the Net and not cause a dent in their pocket.”

And price warriors like Zenith plan to tap this need by continuously launching newer products at great price points, says Saraf. Babu of Intel says that with entry-level Intel Pentium 4-based PCs coming for around Rs 30,000 today, this factor too is bringing in the home consumer. HCL too plans to grow its home PC business. Says Juneja, “For us, the challenge is to keep our leading position in the enterprise, and to take the lead position in the home segment.” So, while HCL will continue to focus on its strongholds in the government sector, BFSI and education, it plans to take the pole position in the home segment too.

On the commercial front, Munglani feels that decision cycles are still slow, but there is a definite increase in queries and tenders. He feels that government funded projects need to increase, and points to the recent Andhra Pradesh schools project, which pulled in more than 5,000 units, as a good example of what government enthusiasm for IT can do.

In conclusion, going by what the industry feels and what the numbers reveal, recovery is definitely taking place in the industry, though caution is still the prevailing sentiment. However, the bottom line is that the days of super growth seem to be over. While IDC has predicted 22.3 percent growth in 2003, not everyone in the industry seems to be ready to join in the chorus. HP’s Sai Chandrasekhar says that their assessment is an expectation of 10-15 percent growth, which he feels is very realistic. “It is unlikely that the market will return to the heady days of 30 percent growth,” he explains. Kochhar of Skoch seconds that when he says, “We can no longer look at heady growth rates like 40 percent or 60 percent...the market has been growing more in single digit to low two digit growth rates.” And that seems to be the future that India’s PC brigade faces-but well, surely even low two digit growth rates are better than negative growth, and that’s the reason for the cautious smiles on the faces of PC vendors. Hopefully, the next quarter will bring even broader smiles.