Assembled Pcs: En Pass

Mobility devices like laptops, netbooks, and tablets seem to have eaten much into the share of the bulky traditional mode of the Personal Computer (PC) dominating the Indian scenario just a decade ago, though desktops still hold an estimated 6 mn share (in terms of units) in the gigantic 10 mn (units) size of the Indian IT market (source: IDC). Although the total unit in terms of shipment is much higher, estimated at around 14 mn units last calender year, the actual market continues to remain pretty low.

The change is quite phenomenal considering the rapid shift of the Indian consumers towards mobility with 'branded PCs and laptops' gaining huge market share in a very short time span. Just about 4 years ago, the assembled PC market was estimated to be around 57.5% of the overall desktop market. Considering the replacement market figures, another 18% could be added to the overall figure making assembled PCs feature at 24.5% of the total desktop market share.

Prolog

In the early 2000s, 'branded desktops' hardly accounted for much of a share with consumers preferring to opt for building their own PC in accordance to their own preferences and needs. At that time, the market condition was ripe for the retailers and assemblers who did a brisk business. Besides, branded players like LG, decided to quit the desktop business altogether during the era of the assemblers as it could hardly harness any market share or strike major deals.

Since then, India seems to have come a long way with the then 'major assemblers' themselves now focusing over selling branded PCs. The assembled PC market has taken a steep decline finally giving up to the 'branding efforts' put up by the likes of HCL, HP, Dell, Lenovo, and others amidst the backdrop of the rising prices and peripherals.

The growth percentage seems promising and the market share of both desktops and assembled PCs have fallen drastically over the last 3 years, particularly hitting the peripheral makers and retailers hard.

Over the years, with the steep decline of the traditional PC, factors like affordability of the consumers, price parity, design, availability of stocks, as well as aggressive branding efforts of the laptops have been cited as the primary culprits by most of the retailers as well as manufacturers.

"With the trend of mobility picking up and new form factor devices like tablets becoming popular, desktop demand has been affected to some extent. Also, with laptops becoming more affordable, desktops also face a stiff competition," says Shishir Singh, director, product marketing, CSMB, Dell India.

Hard Drive and the $ Onslaught

However in 2011, assembled PCs alongwith branded desktops took the hardest hit with prices of components increasing, the hard drive crisis resulting in hoarding by the vendors, and the shift of major peripheral companies like Logitech towards other product lines. Also, OEM tie-ups in the past with Intel, AMD, NVIDIA, WD, Nanya, and others did the trick for the 'branded PC' manufacturers in harnessing more market share.

"The key factors that had affected desktop sales in 2011 were rupee depreciation and hard drive crisis due to Thailand floods. Desktop sales were normal as projected till the end of Q2 after which there was a sharp decline," says Vinay Shetty, country head, component business, ASUS India.

"After the crisis there is no clear forecast of the pricing and availability of hard drives. I don't see any major change to take place in the near future about the pricing and all. Major vendors like Lenovo, Acer, and others are buying out the hard disk stocks in bulk, as a result of which consumer market will take time to attain normalcy," says Bimal Javeri, owner, Hard Track.

During the hard drive crisis, dealers in Karnataka revealed that a Seagate 500 GB hard disk cost around '4,800 (excluding tax) whereas in times of normalcy, the same product was priced at '1,675.

"The slowdown in demand comes on the back of robust growth in the JAS quarter. While we are seeing some softness in demand for PCs in India with the local currency's sharp fall, a shortage in the supply of hard disk drives in the wake of the severe floods and rains in Thailand has made matters worse.

Recently, the depreciation rate for the rupee has been quite high and with most PC components being imported, the costs have increased over time. "While we will not be able to absorb the full increase, we will minimize the hike that we pass on to the end customers," says Amar Babu, MD, Lenovo India. Similarly, ASUS too opined of the hard drive market recovery by February-March 2012.

"The impact is felt more in the entry-level segment and not so much in the mid- and high-end segment. Also, since last month we're seeing that buyers who were at the beginning of the impact cycle, postponing their purchases, are now slowly getting accustomed to the price hike and buying," adds Shetty.

Woes of the Assembled PC

Hard drive market recovery and a miraculous economic u-turn may do the trick for the ailing desktop market, but assembled PC woes are here to stay. Already reeling under aggressive pressures from the rising desktop sales, the assembled PC market has lost its last solace even in the hands of the home users.

Already the SMB and enterprise desktop space is captured by the likes of Compaq, HP, Dell, and Lenovo with the government space build up around HCL, Wipro, and their likes, assembled PCs have always been an outcast in these segments. Now with end-users too opting for the Lenovo ThinkCentre, Dell Inspirons, HP Pavilions, and their likes, the good old assembled PCs have now landed up either with a reverse logistics company or routed to the left-out class E cities.

As a clear indication, assembled PCs are nearing their end with the golden era of the assemblers already pass. However manufacturers are not quite pessimistic about the trend and the fall of the assembled PC market. Indeed, the loss of assembled PC market share has been replaced by the growth of the branded players.

Upcountry opportunity is always a concern for any hardware player or dealer and desktops are no exception. Although laptops have emerged as a preferred choice for upcountry consumers too (like the metros), desktop sale figures remain impressive; but only for the branded players.

"Branded PCs have clearly emerged as the preferred choice of the customers in the upcountry area. Laptops in some upcountry areas are recently commanding a higher market share in overall IT sales; however there are consumers who opt for an assembled PC," says Palash Maitra, owner, Matrix Solutions.

The Gaming Gamble

The gaming segment remains a brighter area for the assemblers as well as for the branded players. While the major assemblers and dealers are specifically offering product assimilation in the 'graphics rich experience' thereby creating specialized 'gaming zones' for the consumers, branded players too have started their penetration in these areas.

Dell, with its Alienware, has significantly performed well along with high-memory and graphic card bundles by other manufacturers, but so far assemblers had the last laugh when it came to gaming.

Even this area seems to be targeted not only from players within the desktop category, but by mobility devices as well. Laptops like XPS, Studio, Pavilion, and others have already put into question the need for a specialized gaming device by incorporating high-capacity graphic cards and an improvised cooling system and tablets may soon challenge laptops for a share in the gaming segment as well.

Emergence of a 'Branded' India

As of now, assembled PCs are surely losing their hold with Gartner stating that this PC segment accounts for 42.5% (excluding replacement market figures) of the desktop market share as of May 2011, as the manufacturers are seemingly having a brighter smile with their market shares eating into the assembled counterparts. India is moving towards branded PCs and this move is poised to continue for the coming years.

The overall desktop market has shrunk compared to the growth rates from the mobility devices (taken together), major vendors are quite optimist about the ongoing demand for desktops.

"Upgradability, cost of spares, operating times, service support, and pricing are some of the reasons why enterprise and consumer segments would still continue to go for desktops. There is still a large pie for the first-time PC buyers in the country who prefer desktops over laptops," says Shetty.

Lenovo admitted that mobility devices may overtake desktop usages in the long-run. "The Indian market is large enough to accommodate both the demand and growth of traditional PCs as well as tablets." states Babu.

For now, branding efforts by the global players have indeed paid off well with the old-time assemblers gradually taking up sub-distribution and branded retail as the natural evolution of their business.