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The Five Million Mark: Outgrowing the Little League

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DQI Bureau
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A long journey–16 years to be precise. A landmark

 achievement–the five millionth PC to be exact. What started out in 1984

with the launch of Minicomp’s Neptune PC has grown to be a five million-strong

installed base. From a PC shipment of 1,200 in 1984–the average PC then cost

Rs 5 lakh–the industry saw the million mark in 1996 with shipments touching

four lakh in that year. It took 12 years to reach the first million but the next

four years saw a million PCs shipped annually. Comments Jyoti Satyanathan,

business manager, personal systems group, IBM India, "From the figures

perspective, it feels wonderful to touch the five million mark."

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En route this journey, the industry has seen many companies

and brands rising and falling. Erstwhile important market players like DCM DP,

Usha, PCL and Sterling today only have history by their side. In 1986, HCL, DCM

DP and Zenith accounted for 87% of the total PC market share. Today, they make

up less than 15% with DCM DP being an insignificant player in the PC market.

Among the other Indian players, HCL is still the market leader, followed by

Wipro and Zenith in the top five club.

Also, in the swadeshi-videshi debate, the market is still

very much in the hands of Indian players as the unbranded segments still make

about 70—75% of the market. They have been giving the branded players a run

for their money, and their market share.

Also, interesting case studies have been created with the

foremost being of how a single wrong strategy can lead a company to its ruin.

PCL’s aggressive strategy of late 1997–to bring the PC to the common man

with its "dhamaka" offer of Rs 24,000–backfired badly as it could

not successfully execute its promises. Today, PCL is known only for that

mistake. Another interesting case study has been Intel’s successful promotion

of the gray market with its genuine Intel dealer (GID) scheme. The chip giant

supported gray market players through the scheme, providing respectability and

dependability to them.

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The best yet to come

That’s been the past; now a little about the future.

Statistically, the advantage of a large population like India is that the per

capita consumption remains low and when compared to other countries with higher

per capita indicates a huge potential. In India’s case this seems to be true.

Yet another case study would be the IT task force recommendation of converting

STD/ISD PCOs into public teleinfo centers. The industry could see about 6 lakh

PCs being mopped up by such centers. Also, various government departments are

budgeting about 3% of the overall budget for IT, a major part of which is

expected to be in hardware. No wonder, IDC projects a heady CAGR of about 47%

till 2003-04, compared to China’s 25%. IDC expects shipments in India to jump

to 7.5 million compared to just over a million today. Presently, all the top

global vendors are in India with Dell joining recently with its international

model.

What 5 million means to India?

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Well, five million is certainly no big news when compared

with other countries and even with the Asian neighbors. (See box: Where Does

India Stand) Aditya Pant, research head, IDC India, says, "China’s annual

shipment is higher than the installed base of India." Agrees Satyanathan,

"No doubt five million is a big number but we needed to grow faster."

Says KV Saichandrasekhar, head, product marketing, commercial PC group, Compaq

India, "It would have been better if it had happened a couple of years

back."

Nevertheless, the industry experts agree that with the five

million installed base and the one million-plus annual shipment, India is

definitely hot. In fact, these numbers would be the key reason for further

growth and interest by vendors. The first example, Dell’s announcement of its

direct selling model in India. Though Dell has been in India since the

mid-nineties, interest remained low. Unlike India, Dell has a manufacturing base

in China where annual shipments are over five million. Though Dell has no

immediate plans to set up a manufacturing base in India, with the announcement

of its direct business model, it will only be a matter of time before Dell takes

up setting a base in the country. Also, MNCs like IBM and Compaq have already

set up their assembling units in the country, and others are expected to follow

soon. Unlike in the past, it will not be import duties but logistic necessities

that will drive assembly or manufacturing units. Says Vinnie Mehta, director,

MAIT, "With zero duties coming in by 2003, I don’t see why people should

set up manufacturing units in India." Says Satyanathan, "The decision

to set up assembly or manufacturing units in the country will be purely driven

by logistics."

To take care of the potentially high growth, experts point

out that the import model may not work very well with PC vendors. So, most of

the players will have to set up assembly or manufacturing units with higher

capacity. Also, the installed base will become a good opportunity in other

related segments like peripherals to seriously think about setting up operations

in the country. Adds Saichandrasekhar, "I think in the next couple of years

few manufacturing centers will come up in India." Samsung has already taken

the initiative with its intention of setting up a monitor plant in India. It has

estimated a budget of $35 million over a five-year period to cater to the

growing needs of the Indian market.

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Home: Sweet spot

Another impact of the growth of the PC industry will be the

increased focus by all vendors on the home segment. While the thin-versus-fat

client debate will continue in the corporate segment, in the homes fat clients

will be the clear winners. According to IDC, by 2004, consumer desktops will

grow at a CAGR of over 57% compared to 40.7% for corporate desktops. Also, the

vendors will be looking aggressively at this market as in the wafer-thin

margin-driven business, this could be nirvana. At the corporate level, there is

a bigger requirement for functional PCs and this is one of the key reasons why

the debate of thin clients is gaining prominence among corporate users.

According to an IDC study of 175 US businesses about the use

and planned use of thin clients, almost 75% respondents said thin clients are an

acceptable alternative for some PC users. In fact, more than 50% of respondents

have replaced PCs with thin clients. Also, thin client shipments have increased

by 90% in 1999. In the corporate segment, to beef up the margins, vendors will

increasingly look at services. This is already happening with services forming

an important part of all PC vendors. For IBM, services form a high 40% and for

Compaq, 16%. So, the sweet spot for the vendors will be the home users as specs

continue moving upward without respite. Even the margins for vendors increase.

And much of the advertisement focus by the vendors will be to lure home users

towards their respective brands.

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Info appliances

Another debate rages on: whether the PC will survive in its

current form in view of the increasing penetration of information appliances.

And whether vendors will have to change their strategies in India. So far, info

appliances have not deterred PC growth globally and one does not see anything

different happening in India either. PCs will continue to be the number one

computing device for Indians. They will continue to have a heady growth–information

appliances are not seen as eating into the PC market share. Agrees Satyanathan,

"Information appliances will not lead to cannibalization of the PC. They

will complement each other."

However, with India touching the five million PC installed

base and good growth foreseen in the coming years, software companies will focus

on meeting local domestic market demands. Also, the installed base coupled with

the Internet growth will see the Indian landscape changing. More of locally

focused content will be in Indian languages. Such content will also be located

in an Indian data center rather than be based out of the US. Pant says,

"PCs will bring in a lot of changes in the dynamics of other related

industries."

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Over the past 16 years, the Indian PC industry has seen both

success and failure. The future too will see its ups and downs. Though India,

compared to other countries, has been a little late in crossing the

five-millionth mark, the best is yet to come. The country has growth rates and

potential that vendors love to see. After 12 years for the first million and

four years for the fifth million, we expect the tenth million in only two years.

It'ss growth unlimited for the industry.

The Top Five in the Five Million

YOGRAJ VARMA



In New Delhi

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The Top Five in the Five Million

MNCs are emerging as the top brands in India. Of the Indian troika of HCL,

Zenith and Wipro, only HCL maintained its top spot while Compaq and HP moved

lower. A look at the top five players in the Indian PC market

HCL

The

undisputed Indian market leader so far. The only question is how long it can

retain its #1 position. Growth has been slow compared to industry and

competition. In 1997-98, it shipped close to one lakh PCs, which included pieces

manufactured through HCL’s alliance with HP. It reached 101,500 in 1999-00,

growing at a CAGR of only 6% during the two years. Also, HCL has not been able

to maintain its significant lead in numbers it had earlier. HCL’s PCs were 50%

more than its nearest rival but after the HCL-HP combine broke up, an aggressive

positioning by the competition has seen the gap reduce. The difference between

HCL and Compaq, the #2, was only 20,000 pieces in 1999-00; much lower than the

50,000-plus gap in 1998-99.

The strategy seems to be to move towards the higher-margin services and HCL

is concentrating on becoming an end-to-end solution provider leveraging on its

installed hardware base. Also, it seems to focus its PCs more for homes. HCL is

using such marketing tactics as road shows and carnivals across the country to

build brand share in a market increasingly dominated by MNCs. It remains to be

seen whether all this can help HCL, the #1 Indian PC company, retain its

position.

E-4/5/6, Sector XI, Noida 201301



Tel: 4555219, Fax: 4550923


Web site: www.hclinfosystems.com


Chairman and CEO: Ajai Chowdhary


Revenue (1999—00): Rs 996 crore


Compaq

Compaq

reclaimed its #2 spot in 1999-2000 from Zenith, which shipped 1,000 PCs more

than Compaq in 1998-99. Compaq saw strong growth in the home segment where,

according to our estimates, it grew by over 200%, from 7,214 in 1998-99 to

21,784 in 1999-2000. However, at the corporate desktop level, it seems that it

is yet to get the top-of-the-mind recall that HP’s Brio enjoys. Compaq plans

to address this with its Deskpro EP range of PCs. However, its clear focus seems

to be the home and this is where the company hopes to get the maximum market

share, both in value and volume terms.

Also, according to IDC, Compaq could emerge as the top player in the Indian

market–the September PC channel sales figure puts the company in the top

position. The report pegs Compaq’s market share at 7.9% with September sales

at 9,297 units. However, the company is going to face the heat from HP on the

home and corporate front and from IBM, which looks strong on the corporate

front.

92, Industrial Suburb, II Stage



Yeshawanthpur, Bangalore 560022


Tel: 3374785, Fax: 3374395


Web site: www.compaq.com


Managing director: Balu Doraiswamy


Revenue (1999—00): Rs 1,085 crore



HP

Still

recognized more as a printer company, HP has been doing a great job in the PC

market. At #3, it has been able to give "value for money" with its

low-priced Brio. It upstaged Zenith’s highly successful "MNC value at

Indian price" proposition. So successful has been the pricing that nearly a

third of HP’s PCs probably goes to the consumer market competing head on with

its own Pavilion brand, which targets homes. The Brio has been the single reason

for the plus 100% growth in HP PC numbers, more than doubling its 1999-2000

numbers to 63,000 from the earlier 25,000. In the home market, it’s trying to

replicate its international success with the Pavilion range. However, with

Compaq betting on the home segment,and with IBM getting aggressive in the

corporate segment, it will be interesting to see where HP places its bet.

Chandiwala Estate



Maa Anandmai Marg


Kalkaji


New Delhi 110019


Tel: 6826000, Fax: 6826059


Web site: www.hp.com


President: Ganesh Ayyar


Revenue (1999—00): Rs 1,137.8 crore





Zenith

Zenith’s

only value proposition–"MNC value at Indian prices"–was taken over

by HP a long time ago and this has reflected in the poor growth in Zenith’s PC

numbers. Compared to the 1998-99 growth of 52% in numbers and 34% in revenues,

Zenith grew a meager 3.6% in numbers and 5.7% in volume in 1999-00.

Zenith projected its PCs as a branded product at shades above the assembled

PC prices for the home; while it pushed its value proposition of "MNC value

at Indian prices" for the corporate. The home and corporate segments, both

key for Zenith, seem to have lost interest among buyers. This is partly due to

an aggressive strategy by HP and Compaq on the home and the low-priced MNC PC.

But a bigger problem for Zenith has been the lone brand for every user.

Zenith House



29, MIDC Central Road


Andheri (East)


Mumbai 400093


Tel: 8377300, 8366030


Fax: 8377297


Web site: www.zenith-india.com


Chairman and managing director: Raj Saraf


Revenue (1999—00): Rs 250.2 crore






Wipro

Known

more for its software division and Asim Premji, Wipro has been in the top league

for a number of years. Of course, it’s no longer an equal to HCL. More

importantly, with the phenomenal success in the software business, the question

that keeps popping up is whether Wipro can regain its earlier glory or continue

to be an important player in the PC market. In 1999-2000 Wipro did reasonably

well with sales doubling to 49,000 units from 23,800 in 1998-99 as average

realization crossed the Rs 40, 000 mark to be in the top 5 league. Wipro has

been focusing on the corporate segment more than the home segment. However in

the last one year, the company is focusing its various brands on the home

segment.

Doddakennelli, Sarjapur Road



Bangalore 560035


Tel: 8440011, Fax: 8440056


Web site: www.wipro.com


Chairman: Azim H Premji


Revenue (1999—00): Rs 2,035.7 crore



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