Getting Back On Track

vspace="2" align="right" width="397" height="227">The PC

market (including desktops, notebooks, and Macs) grew 32.75 percent in unit shipments but

only 9.63 percent in value terms (only box and operating system price included). The

average selling price for a PC dropped by 17.42 percent to Rs 40,000 as the sub-Rs 40,000

mark became increasingly popular as the year unfolded. The Home and Small and Medium

Enterprise (SME) segments were active, but corporate and government buying was lackluster.

To their joy, the assemblers and GIDs found themselves ideally positioned to address the

sub-Rs 40,000 market. Leading brands dithered about this market, with the exception of HCL

which opened a huge lead over the pack with Compaq and Wipro following in the pecking

order.

The enigma about PC market in India contin-ued in 1997-98.

A large number of promises, but all falling just short of expectations. Projected to be a

market with one of the highest growth rates in Asia, and perhaps even in the world, the

Indian PC market had a mixed year in 1997-98. In spite of being a tough year, in which PC

marketeers had to revise their projections downward, the Indian PC market showed signs of

new-found maturity and grit. Reflecting this is 32.75 percent growth in unit terms, almost

12 percent higher than the previous year.

Looking at the growth patterns of the PC market over the

last few years, the year 1996-97 stands out like a sore thumb. In 1994-95, the PC market

grew by over 60 percent in unit terms over 1993-94 and this trend continued in 1995-96

when the market grew by over 50 percent over 1994-95. However, in 1996-97, the PC market

grew only by 22 percent, casting doubts about the long-term potential of the Indian

market.

The improved performance in 1997-98 has belied such doubts

to an extent. The growth last year can be described as a comeback of sorts for the Indian

PC market. What makes it a comeback is the fact that the growth has been achieved in a

situation not different from what existed in 1996-97. In 1996-97 the country witnessed a

political and economic instability, and in the overall analysis the situation was no

better in 1997-98.

Political instability continued throughout last year

and the sentiments on the economic situation were dull. Both the GDP and the industrial

growth were less than what was projected. In other words, in an almost unchanged scenario

the PC unit shipments grew from 4,67,387 to 6,20,493. From this level, the one million

unit shipments milestone seems closer, although it may still be over a year away. The

derailment that happened in 1996-97, in the journey to reach the one-million mark, has

been put behind with the performance last year.

Desktop Drama



The battle for supremacy in the PC marketplace is won or lost on the desktop. It is a
number-driven battle in which tactics change often and only the nimble survive. This is

best illustrated in a statement made by a vice president who was in charge of worldwide

sales of an MNC PC vendor. He said, "We can't argue, we have to lead. We can't

debate, we have to decide. Numbers are numbers. Get on with it." Couldn't be truer.

There is no time to argue and debate. In the desktop market, decisions have to be taken

quickly if the numbers have to come in.

Unit shipments or numbers did come in very well for HCL

Infosolutions. With a total shipment of 90,880 units, HCL has the highest marketshare of

15.5 percent. In fact the company sold more than the combined total of the second-placed

Compaq and Zenith, which finished third. A tremendous achievement for HCL, which in the

previous year smarted under the PCL onslaught. To get to such an enviable marketshare HCL

had to sell the 90,880 units at an average price of just over Rs 33,000 which includes the

price of the box and operating system only.

face="Arial" size="2">  DESKTOPS

bordercolordark="#FFFFFF">

Top

Vendors And Market Size (1997-98)

Vendor Units Value (Rs

Crore) Share

Unit(%) HCL* 90,880 441.60 15.54 Compaq 39,962 188.14 6.83 Zenith 37,800 126.27 6.46 Wipro 34,874 207.70 5.96 Unicorp 33,499 199.52 5.73 Tata IBM 23,785 130.66 4.07 Digital 17,041 124.10 2.91 HP 14,826 94.24 2.53 PCS Industries 10,342 78.09 1.77 Vintron 10,075 24.74 1.7 Total Market 5,84,947 2,145.17 100 *Includes Hewlett

Packard, Packard Bell

HCL was able to sell large numbers because it had a focus

on the segments which mattered at the end of the year, the Home and SME. The company was

proactive in creating a lot of action for the Home and SME segments by holding computer

carnivals in many cities. Other factors which went in favor of HCL were the absence of PCL

from the market and the lack of a suitable product in the lower price band from Wipro.

Leading the MNC bandwagon and climbing into the second

place was Compaq, with total shipments of 39,962 units. Considering that corporate buying

was below expectations, Compaq has done well to finish where it has. During the year,

Compaq set up the Indian subsidiary and also signed Godrej Pacific as a distributor. This

enabled Compaq to penetrate beyond its stronghold in the metros. In the corporate sector,

the company was able to increase its penetration in public sector and banking.

The year also saw a definite movement by Compaq to address

the lower range of the PC market. The average selling price for a Compaq box dropped below

the Rs 50,000 mark and, with the introduction of the Deskpro 1000, it joined the battle

for the lower end. In the price wars of the JFM'98 quarter, Compaq was an active

participant alongwith HCL and Digital, though it did not pay off as well as it did for

HCL. In the OND'97 quarter, Compaq not only did well, but was also above HCL. But there

could have been some amount of channel stuffing and that could have boosted the numbers.

Zenith stormed into the Top 5 PC desktop class by its sheer

marketing prowess. Breathing down Wipro's neck, Zenith is proving to be its formidable

competitor. With 37,800 desktops sold in 1997-98, the 'One-Up PC' vendor garnered a share

of 6.5 percent. In terms of value, however, the share was 5.9 percent, at desktop sales of

Rs 112.2 crore. This is a clear indicator of Zenith's price

competitiveness. The company launched a marketing blitzkrieg when it announced a

multimedia PC at Rs 33,500, the lowest among the branded vendors, triggering off an

avalanche of price cuts. The charm is that the sales were mostly to the SOHO/home and SME

segments, where Zenith is a strong player. In fact, the company claimed sales of 7,000

units in just two weeks after the much-acclaimed launch. Aiming to double the number of

its dealers (it believed in direct selling till 1996), the company expects to pierce

further into the PC market.

In spite of an unclear positioning in the mind of the

buyer, Wipro finished fourth in the desktop drama. Although the buyer did acknowledge Acer

as an MNC and that the quality and reliability of MNC products is good, he also thought

that US MNCs are more equal than Taiwanese MNCs. While the buyer debated the pros and cons

of the Taiwanese angle, HCL gobbled up the market for national brands and Compaq did well

in the MNC segment. During the year, Wipro's USP was that of fresh technology, and so it

did not join the price wars in a major way. This tactic did help the company in the server

and portable segments but did not do the trick as far as desktops were concerned.

HP India has done well with shipments growing from 10,560

units to 25,000 units. The 136-percent growth has been largely possible because the

company got its distribution act in place. Unicorp grew marginally, while PCS and CMS

shipped less than the previous year's shipments. PCS seems to have been affected by the

lack of AST's strong presence, which had helped it in the previous year. Similarly,

Tata-IBM, which had exhibited more than 100-percent growth in 1996-97, found the going

tough with the corporate buying drying up, and shipped 500 units less than last year.

Digital on the other hand had a handsome growth of 70 percent because of revamping of

their distribution strategy.

Distributor for Digital, Compaq, and IBM, Godrej Pacific

was a rising star of 1997-98. Its shipments grew 493 percent to finish the year at 17,570

units. The excellent performance of Godrej does give a definite indication that large

distributors have an increasingly important role to play in the Indian PC market. The

likes of Godrej and Redington may soon be joined by other large worldwide distributors who

have been eyeing the Indian market, waiting for the right time.

The desktop shipments from the Top 10 club were 2,92,862

units-a little over 50 percent of the overall desktop market. This is more or less in tune

with the marketshare that Top 10 brands have worldwide. The exclusive Top 5 group has a

marketshare of 37.1 percent in which HCL alone contributes 15.5 percent. The total

shipments in the desktops segment were 5,84,947, a 31.32-percent growth over the previous

year. The average selling price for desktops dropped to Rs 36,670 from the previous year's

figure of Rs 43,920 which is a considerable drop of 16.5 percent. Apple Macs did better

than the previous year, with an estimated shipment of 10,000 units for Rs 80 crore.

An interesting aspect is that beyond the Top 10 club lies a

50 percent marketshare. Even after accounting for other branded products there still lies

a 40-45 percent marketshare that is controlled by the assemblers and the GIDs. The price

band addressed by these players is sub-Rs 40,000, which is where the bulk of shipments

have been. To address this price band, the better-known brands need to get their pricing

acts together. Tough prospect, but not impossible, as has been demonstrated by HCL.

Giddying GIDs



The huge market that is currently being addressed by the assemblers and the GIDs would
make any market analyst get giddy with the latitude available. Factor into this the growth

potential, and the Indian market gets transformed into a goldmine that is waiting to be

tapped. Intel, for one, has realized this and has been working closely with this group of

players for the last couple of years with success that has been apparent so far.

face="Arial" size="2">DESKTOPS Growth Table

   1995-1996 1996-97 1997-98    Units Growth % Units Growth % Units Growth % Units shipped 3,58,677 53.3 4,45,424 24.2 5,84,947 31.3 Value (Rs Crore) 1,714 53.9 1,956 14.1 2,145 9.6 ASV (Rs) 47,790 - 43,920 - 36,670  

 

size="2">Desktops Marketshare (1997-98)
 Â	Units %	Value %
Top 5 brands	37	37
Next 5 brands	13	12
Top 10 brands	50	49
Other brands	50	51

 

Processor Growth (Desktop Units)
Â	1995-	1996-97	1997-98
Â	(%)	(%)	(%)
Pentium Pro/PII	-	0.2	14.6
Pentiums/MMX	14.8	62.3	75.4
486	74.7	37.5	10.0
386	10.5	-	-

 

bordercolorlight="#FFFFFF" bordercolordark="#FFFFFF"> 

face="Arial" size="2">   NOTEBOOKS
Top Vendors And Market Size
Vendor		Units	Value (Rs Lakh)	Share Units (%)	Share Value (%)
Tata IBM		4157	5725	16.27	22.23
Compaq		4500	4800	15.66	18.64
Toshiba		2100	2940	8.22	11.42
Acer		1480	1620	5.79	6.29
Digital		472	712	1.85	2.76
Top 5 total		12209	15797	48.00	61.03
Market Total		25546	25751	–	–
Avg. selling price		Â	1,01,000	Â	Â

 

Portable Penetration In Overall PC Market
	94-95	95-96	96-97	97-98
Portable (Units)	4,500	11,329	15,960	25,546
Overall PC's (Units)	2,44,800	3,83,006	4,67,387	6,20,493
Portable/PC Penetration (%)	1.84	2.95	3.41	4.11

 

  Notebooks
color="#000000">Notebooks Growth Table
Notebooks			1995-1996		1996-1997		1997-1998
			Unit	Growth (%)	Unit	Growth (%)	Unit	Growth (%)
Nos.			11329	152	15960	40	25546	60
Value (Rs Crore)			124	191	191	54	258	35
ASV			1,09,000		1,19,000		1,01,000

For starters, Intel identified that the Indian PC market is

price-sensitive and that new market segments can be created, provided the price is

attractive enough. Next was the reckoning that the players best suited to address the

lower price band market are the assemblers, because of their low overheads. The assemblers

also had the option to choose from an Intel, AMD, or a Cyrix chip. Into this scenario came

the GID scheme which, from Intel's point of view, can be classified as a brilliant piece

of strategy.

Legitimacy was what the assembler lacked and that is what

Intel provided in the GID scheme, apart from the chip itself. The company spent a large

amount of money convincing the buying public that it had approved the erstwhile assembler

by making him into a GID. It was a victory for Intel as it ensured the company more than

90 percent marketshare and a victory for the assembler as he had got legitimized.

The GIDs and the assemblers never had it so good as in

1997-98 with their marketshare increasing to about 40-45 percent of the total market.

Contributing to this increased share was the near-total absence of PCL in the marketplace.

PCL was addressing the price-sensitive buyer and this market space has been grabbed by HCL

and a motley group of GIDs. Now that GIDs are controlling a huge slice of the market and

since many brands have plans to address the low-price brand market, a few issues have

cropped up.

By appointing GID, Intel is in a manner vouching for the

genuineness of the dealer and his operations. But in reality, Intel has no bandwidth,

whatsoever, to ensure that Intel-approved (or quality) components are used in a GID PC.

Murmurs have started amongst the branded vendors as to why Intel should provide a

legitimacy cover to players who are operating on the fringes of the gray market.

Portable Paradox



In 1997-98, the portables or the notebooks market grew by 60 percent over the previous
year with shipments of 25,546 units. The growth rate is 19 percent higher than that

achieved in previous year. The penetration of notebooks as a percentage of the overall PC

market is now 4.11 percent, up from the previous year's penetration of 3.41 percent. The

average selling price of notebooks in 1997-98 was Rs 1.01 lakh, a reduction from previous

year's average price of Rs 1.19 lakh.

Winning the numbers game was Compaq, which has dislodged

IBM from the pedestal. Compaq, in fact, has outgrown the market by a significant factor

with the Armada range of notebooks. The company's performance is significant, since in the

previous year it was placed well behind IBM and Wipro-Acer. Compaq had a strategy of

focusing all resources behind a few models and a narrow price band where the volumes were,

and this has paid off handsomely. While IBM has sold 400-odd units more than the previous

year, the sales of Wipro-Acer have come down.

In value terms, IBM continues its leadership position with

Rs 57.25 crore compared to Rs 48 crore grossed by Compaq. However, it is lower than IBM's

revenue of Rs 70 crore for the previous year. Toshiba has done well, to get the third

position. The Top 5 club also included Acer and Digital. The club contributed 50 percent

of the overall marketshare in unit shipments and 61 percent in value terms. That the

notebook market is in the hands of a few vendors is clear when a comparison is made to the

desktop market where it takes the contribution of the Top 10 to reach the 50-percent mark.

Compared to 1996-97, portables have done well in 1997-98 on

many counts. The number of units sold has increased by 60 percent, the penetration of

portables has gone up and the average selling price has come down. But still, a notebook

remains more than twice as costly as a desktop. This is the paradox facing the portables

segment. Affordability remains a major issue, and in tight market conditions and a

price-sensitive market like India, requests for notebook purchases are invariably going to

get rejected in favor of desktops.

Winning Ways



One of the most important trends, particularly in desktops, is the fast and continuous
blurring of buying segments based on brand-sensitive, brand- and price-sensitive, and

purely price-sensitive. Traditionally, MNC brands have been addressing the brand-sensitive

market, national brands like HCL and Zenith represent the brand- and price-sensitive

market, and the assemblers and GIDS the purely price-sensitive market.

With the volumes market being in the sub-Rs 40,000 price

range, some branded players-MNC and national-have realized that if they have to grab

marketshare then they would have to address this segment, from which they have been shying

away so far. In 1997-98, HCL has already done it and Compaq has stated its intentions of

doing so clearly. What this means is that the PC market can no longer be segmented

distinctly into purely price-sensitive, brand-sensitive etc. The ball has been set in

motion with a few well-known brands having decided that the way to win is to move

downstream into the price-sensitive segment and thereby address the entire spectrum of the

PC market.

There are, of course, doubts as to whether the purely

price-sensitive segment is a viable market in terms of profitability. The experience of

PCL is an indicator that it is not. On the other hand, some vendors are trying to learn

from the PCL example and come out on top in addressing this volatile market. A parallel

can be drawn with the PC market in China, where branded products have been positioned to

compete with the assembled products. The kind of volume shipments that China has would not

have been possible had the branded products stayed away from lower price points. In India,

the start has been made in 1997-98 and the trend of branded products addressing lower

price should gain momentum this year.

Supply Chain Situation



Distribution is the key in the PC game. The players who have done well in 1997-98 are
those who have been successful in their supply chain management. The overall movement in

the channels has increased in 1997-98 and is poised for further growth this year. Movement

for MNC vendors is almost 100 percent through the channels, while for the likes of Wipro,

HCL etc., it is in the range of 50 percent.

While the performance of the channels in terms of unit

shipments has been good in 1997-98, the strain of the tough market conditions is beginning

to show. There is a lack of financial resources in the channels due to the cash flow

problems which most dealers and distributors have been facing. Added to this is the fact

that in the face of increased competition the profit margins of the dealers have eroded

further than in the previous year. As a result of this, 1997-98 saw some dealers pack

their bags and head for products with better margins. This trend could continue if the

economic situation does not improve this year.

There is also a thought that the supply chain management in

India needs an overall improvement. The practices being currently followed have been

adequate thus far, with shipments below half a million mark. But now, with 0.62 million

units having been shipped in 1997-98 and the market gearing up for the one-million mark,

there appears to be a need for more professional practices, credit discipline, fresh

injection of funds, logistics control etc. This is where large international distributors

like Ingram Micro, Merisell, Inacom etc. could fit in.

Small Surprises



Small is beautiful. PC marketeers realized this factor in 1997-98. The small buyer,
typified by the Home and small and medium establishments saved the PC industry. The growth

in unit shipments (32.75 percent) has come almost entirely from these segments. After

remaining in wilderness till now, the small buyer is currently in the limelight in no

uncertain manner.

Today, he has plenty to choose from, what with almost all

PC players trying to woo him with their wares.

The disappointment was, of course, the corporate and

government segments. The leading brands expected the corporate buying to improve as the

year went; however, it remained sluggish-almost throughout the year. This upset the plans

of some leading players and they could do little to change tracks mid-stream. In the

affected category were Wipro, Tata-IBM, PCS, CMS etc. Proving to be an exception was

Digital, which grew 70 percent even though the company had a fair bit of concentration on

the corporate market. Compaq of course moved to the SME segment in a big way and HCL went

all the way by addressing SME and Home effectively.

Overall Outlook



PCs being the fundamental building blocks for the IT industry, they drive the demand for a
spectrum of other products and services. The performance of the PC industry is seen as a

reasonably accurate barometer of how the domestic IT market is faring. A good performance

by the industry would invariably result in other products and services also doing well.

The outlook in 1998-99 for the PC market is, in all probability, likely to be better.

However, it is also clear that it will not be a spectacular year, but probably just about

better.

Though the potential is there for the Indian PC market, it

is far too heavily dependent on the economic and political situation, both of which are

still waiting for a turn for the better. The 1998-99 budget helped in no way.

So the process of getting back on track could take a little

longer than what was initially thought.