Desktops: Slowdown, but Not Out!

The Desktop market in India finally got commoditized, a trend
that developed economies experienced some years ago. That means margin pressures
and slow growth for sure, and, consolidations possibly. It also means that India
no longer offers any special market characteristics, as was the case in the
past. What is true in America is now true in India as well. Well, almost.

The US happens to be the global epicenter of the PC battle, as
the two giantsDell and HPfight it out. The strategies they formulate are
felt across other geographies they operate in. Dell has been HPs arch rival,
and of late the former has been getting the better of HP. Carly Fiorina, the
erstwhile (and controversial) CEO of HP, never got it right. But that seems to
be changing. HP, under the stewardship of Mark Hurd, has started to gain lost
ground. As per a Gartner report in JFM 07, HP overtook Dell and secured the
top spot globally. HPs share of the PC market reached 17.6% while Dells
share fell to 13.9%. In India, HP enjoys an even stronger position.

Slow Growth, High Realization

The Indian desktop market grew 10.7% in volume terms to reach 4.5 mn in unit
shipments, according to IDC India. The overall market, based on end-user average
selling value (ASV), according to IDC India, grew 17.5% to reach Rs 12,839 crore.
According to DQ estimates, the market grew 13% to reach Rs 10,997 crore, from
the vendor ASV perspective.

Whether you take the end-user or the vendor price, the fact
remains that the average selling value actually increased in FY 07. This is
in contrast to the southward trend in prices that this market has witnessed for
years. This is part of the consumerization trend, whereby unlike laptops, the
prices have stabilized with respect to volumes. A larger off-take of high-end
PCs, along with a shift towards TFT monitors, means that the user actually ended
up paying a higher price to buy desktop PCs.

At the end of FY 07, the total installed base of PCs in the
country crossed 22 mn, as per IDC India. That is a PC for every 50 Indians.

HP Pips HCL to the Post

HP overtook HCL to take the top spot and managed to garner a 16.6% share in
volume terms. Over the year, it aggressively targeted the SMBs and kept gaining
mindshare. It also invested in channel enhancement programs to get the most out
of the addressable market for PC desktops. HP also got desktops of various form
factors to market cutting across microtower, minitower and the small form
factor.

On the consumer side, HP aggressively pitched digital lifestyle
PCs and launched products along its Fashiontronics concept. The companys
PC campaign was also quite focused last year with its tag line. The Computer
is Personal Again. HP with the right mix of products, an aggressive campaign
and a well defined go-to-market strategy, managed to secure a very good year for
its desktop business.

Inching very close to HP was HCL Infosystems which emerged as
the market leader in the commercial desktops space and secured an overall number
two position for FY 07 according to IDC India. HCL registered total unit
sales of 693,717 desktops. With the consumer space being the big opportunity for
extra volumes, HCL capitalized on the growing trendsconvergence and digital
lifestyle by launching its Beanstalk 2007 collection. It introduced Beanstalk
Nano, a desktop that introduced Mobile-on-Desktop-Technology (MoDT), Intel
ViiV and other innovative technology options for the first time in the Indian
marketplace.

Facing the onslaught of HCL and HP, Lenovos main focus last
year was on channels and retail business. Lenovo shipped 335,557 desktops, which
signifies an annual growth of 14.5%. As a follow-up on its partner alignment
initiatives, Lenovo ramped up its transactional partnership in tier-2 and tier-3
cities, as a result increasing its channel partner base. Some of the significant
desktop launches Lenovo did over the last year included the ThinkCentre A60the
first ThinkCentre desktop featuring an AMD processor.

The biggest gainer in terms of market share was Dell. Dell built
strong inroads into Indias growing IT-BPO industry and kept pace with the
industry growth rate. This is one vertical that is a real volume buyer and Dell
has been leveraging on its relationships. Dell also announced plans to set up
its manufacturing facility in Chennai, which is scheduled to be operational in
the latter part of the year. This facility will initially produce desktops, with
an initial planned capacity of 400,000 units per year. Dells share of the
Indian desktop market stood at 5.3% at the end of FY 07.

Acer meanwhile continued on its retail spree and made its
presence felt in the market. With 32% growth in desktop volumes Acer made some
significant inroads into certain segments. Its highly portable, the mini PC
offered up to 40% increase in performance. To improve affordability, Acer
announced a special collaboration with ICICI Bank to provide financing options
for purchase of IT solutions.

LGs gameplan of selling desktops along with consumer
electronics actually fell through. Its growth almost came to a grinding halt in
FY 07. It grew marginally at 0.8%.

HP overtook HCL to take the top slot, thanks to its aggressive SMB focus and improved mindshare. But the biggest gainer in market share was Dell, which kept pace with industry growth

Different Strokes

Consumer desktops encroaching into the home entertainment system space, was
among the key trends last fiscal. Consumers did not just look at processing
power; they looked for several other features in their desktops that comprised
TV tuner cards, DVD drives, surround sound and high-end graphic capabilities.
Clearly with the launch of Core 2 Duo by Intel, the age of bare minimum desktop
configurations has come to an end. Moreover Vista, and its multiple versions
ranging from Basic to Ultimate, appears to be the preferred OS at this point.
The combination of Core 2 Duo and Vista along with 64-bit personal computing
trend brought about a high degree of hardware changes in the desktop
environment. Ideally desktops running Vista should have either Intel or AMD
processors equipped with a power ecosystem, apart from 1GB RAM, good graphics
card and a minimum of 80 GB storage. This configuration could well be termed entry
level for desktops now.

In the enterprise desktop market segment, a key development was
the launch of vPro technology by Intel. vPro delivers hardware-based security
that does not require a functional OS.

The key verticals that drove the demand for desktops on the
commercial side were IT/ITeS, BFSI, manufacturing, government, education and
telecom. As IT companies ramped up on staffing, the demand for desktops grew in
tandem. On the BFSI front, expansions and branch automation drives led to good
spend on IT hardware and consequently this vertical absorbed a significant
number of desktops. Education as a segment also opened up. This was mainly in
the form of self financed large engineering colleges, which generated a good
deal of demand. Also, with every state jumping into the eGovernance bandwagon,
the year that went by saw demand for desktops by the state governments. Several
players, and particularly HCL, cashed in on the government opportunity.

Retail Push

FY 07 also saw a fair bit of experimentation in the retail space. Apart
from vendors like Acer that already have good retail presence; others joining
the fray were companies like Lenovo, HCL and Sahara. Lenovo significantly
expanded its retail network; it more than doubled its Lenovo Exclusive Stores
(LES), from 40 to 98, and more than tripled its multi-brand outlets (MBOs) from
148 to 564. HCL has over 30 Digilife retail stores all over the country, and
expects retail to emerge as a major marketing opportunity to drive consumer PC
sales in the future. Sahara in the meantime came out with multi brand IT product
stores under its IT Junction brand initiative.

Other similar efforts in this direction were in the form of
Pantaloons eZone and Big Bazaar. They are expected to ramp up the market for
consumer PCs in the coming quarters. "IT retail outlets of vendors such as
HP, HCL Infosystems and some others are already functional. The big Indian
retail players are expected to quickly follow suit, trying to reposition their
offerings to customers by segmentation and a competitive approach,"
according to Piyush Pushkal, manager, Computing Products Research, IDC India.
"This year will see IT vendors try out many new approaches and go-to-market
strategies for product retailing. These efforts will focus on wooing the SOHO
and individual/home user audience to convert them into impromptu buyers,"
he adds. Experimentation will also be seen in retail formats, in-store and
on-site promotions, product bundling, and alternate payment options.

Meanwhile bundling IT peripherals continued to be an effective
way to push more desktops. Last year consumers got excellent deals on UPS,
printers, thumb drives that were being offered along with PCs.

Shrikanth G

shrikanthg@cybermedia.co.in