PCs AND DESKTOPS: A New Year, a New King

IT was the year in which people asked, "Is the PC dead?"… And the

question reverberated across the world. Much to the dismay of vendors, the US

answered in the affirmative, and so did Europe and other prominent geography.

The APAC region came to the rescue, offering a buoyant demand. However, in the

last quarter of 2000-01, even this market exhibited a decline. China, the ‘Big

Daddy’ of Asia, also slowed down to post a negative growth.

The PC Numbers Game
Company	1999-00 Units	2000-01 Units
Compaq	79,484	151,568
HCL	101,500	149,500
HP	63,000	91,200
IBM	40,534	67,664
Wipro	49,000	66,699
Zenith	59,685	60,646
DELL	15,500	38,000
PCS	17,500	36,350
Vintron	20,598	30,575
Minicomp	27,260	29,271
Visualan	16,570	23,746
Acer	18,000	22,100
Apple	9,000	12,000
SNI	10,000	10,000
CMS	5,000	8,000
Computech	5,893	8,000
Accel	6,480	7,000
Others and Assembled	580,231	892,736
Total	1,125,235	1,705,355
COMPAQ ALL THE WAY: The clear winner, Compaq set a record of sorts with its superlative jump this year

The silver lining was India, and it promised to stay. According to IDC, India

was the only country in the region to post a positive double-digit growth rate

in the last quarter of fiscal 2000-01, over the previous quarter of the year.

The market continued its northbound march with a growth of over 50% in unit

terms and over 40% in value terms. Although the growth in revenues was lower as

compared to previous year’s 94%, it fared better in unit terms as against the

previous year’s 45%.

So what happened in the last one year? The drivers of the previous year

continued to take the market forward. The home and the

small-office-small-business (SOSB) segments had been driving the Indian PC

market since 1999, and the trend only strengthened in the last fiscal. All major

vendors, barring Dell, focussed aggressively on this fast-growing market. As

competition hot up, it also pulled down the prices. Vendors resorted to playing

on the price point to drive sales. Earlier, one could not have asked for an MNC

brand for anything less than Rs 50,000. But today all top MNC vendors have come

up with desktops priced in the sub-Rs 40,000 range. Vendors also offered

innovative finance schemes to lure the home users–they could have a high-end

PC at a monthly installment as low as Rs 2,500.

The year also saw vendors beefing up their channel infrastructure, which was

imperative to capture the SOSB segment. HCL, for instance, has already built an

enviable network of over 1,000 dealers. Compaq and H-P were also busy expanding

their channel network. Today, H-P has a presence in over 100 cities while Compaq

has covered over 75 cities, with about 730 dealer outlets. However, IBM with a

presence in only 47 cities, was not as active.

Improved channel network, coupled with competitive pricing, helped PC brands

increase their penetration in the home segment, but the gray market continued to

rule the roost. According to estimates, assemblers still hold over 70% of the

market in this segment.

In the commercial desktop space, apart from the SOSB segment, banks and

financial institutions generated huge demand. The RBI directive of

computerization weighed heavily on public sector banks. Private banks, driven by

their expansion plans, also ensured ample demand for PC vendors. The insurance

sector, which played a relatively smaller part in boosting the overall demand,

is expected to be an important driver in the ensuing fiscal. With private

insurance companies entering the scene, it will become imperative for players to

beef up their IT act. Training and education companies constituted another hot

market and will continue to do so in the current fiscal as well. Once again,

lowering of prices was adopted as a key strategy to push consumption. Vendors

priced their commercial desktops only a few thousand rupees above the assembled

ones. The assurance of services and quality associated with branded products

added to their advantage. However, the flip side was that the low prices for

commercial desktops led to a lot of cross sales to the home segment. And for

vendors pinning hopes on selling the high-end home PC, it was bad news as the

numbers did not match even their already pessimistic estimations.

Vendors had another ace up their sleeve–more features at the same price.

The 4.3 GB HDD was replaced with 8 GB and today 20 GB is the accepted standard.

The same was the case with processors, which moved from PII with 533 MHz to the

PIII 533-800 MHz range at the same price levels.

Market movers

The

Notebook Numbers Game Company 1999-00 Units 2000-01 Units Compaq 6,755 11,216 IBM 7,073 10,790 Toshiba 5,800 8,758 Acer - 5,100 Others 4,000 4,400 Dell 950 1,350 HP 650 750 Zenith 340 250 Apple 100 150 SNI 100 100 Total 25,768 42,864 SECOND HOME RUN: Compaq drove home its

superiority this year by sweeping the notebook market as well

Among the leading players, Compaq moved ahead of HCL to emerge as the top

desktop vendor in the country with a whopping growth rate of 91%. Among the

other big players, Zenith was the most unfortunate with a growth of a mere 2%.

It lost out on its USP of ‘MNC value at Indian price’ as MNCs started

offering their products at prices comparable to Indian brands. As its next move,

Zenith is taking on the assembler market with the tag line "Say no to

assemblers’. But whether it will actually make a dent in the market is

debatable. Among the top five, only Compaq and IBM have grown above the industry

average of 52%. Dell and PCS have also shown huge gains.

In the notebook market, Compaq upstaged last year’s leader IBM to emerge as

the top seller in the country. Toshiba, under HCL’s strong sales force managed

to grow by over 50%. But the notebook segment still has to combat the age-old

deterrent of high prices. Prices need to come down to a level where notebooks

can be mass purchased. No such trend was observed in this last fiscal! It

remains to be seen if any vendor will take the lead in the following year.

To sum up, overall, a good year for desktop vendors with Compaq taking the

top honors away from HCL. Also, the current year, though depressed, provides

scope for reasonable growth. The existing low penetration and lack of OC

awareness will make sure that India stays as one of the top growth PC economies

in the world, especially in the home segment.

Player Strategies

Compaq

It promises to be the new leader of the PC pack. With a phenomenal growth of

91% over its previous year, Compaq has taken the top slot from HCL. The company

headed towards the home segment for its kill. Aggressive tactics like retail

stores opened every three days and six PCs shipped every hour went a long way in

establishing Compaq well in the home segment. The company increased penetration

to over 350 retail outlets covering even smaller Indian towns. Other strategies

like innovative product design like the Presario color PCs and iPAQ legacy-free

desktops helped in raising its value in the home segment to become more than H-P’s

and HCL’s combined value. The result was there to see in the number finally

achieved. Recently, Compaq consolidated its consumer and commercial operations

under a single roof called the Access Business Group. This new group aims to

provide a single source for all access products, services and information

customers need, whether it’s for personal or business use.

This kind of focus would certainly lead to more gain in the current fiscal.

Also, it plans to increase its retail network to over 500 stores with the aim of

penetrating further into small B and C class cities. The battle lines are

clearly drawn between Compaq and HCL. The others would need colossal efforts to

reach out to Compaq and HCL.

HCL

We had mentioned last year that HCL needed to watch out for flanking attacks

from erstwhile partner H-P and new aggressive Compaq. And that’s is exactly

what happened. Though Compaq out-raced HCL for the number one rank, yet HCL

managed to catalogue a higher growth in units as compared to previous fiscal.

From just a 10% growth in 1999-00 to over 47% in 2000-01 is certainly a good

achievement for the company. In terms of value too, the company improved upon

its last year’s growth of 15% to post a 23% gain.

In terms of strategy, HCL continued its focus on the home market with the

help of its strong network of over 1,000 dealers and its tactical marketing with

road shows and carnivals. Also, the company’s achievements included

aggressively making inroads in the financial segment and winning major gains in

education and government. The company presently has a manufacturing capacity of

about 2.5 lakh units per annum and has plans to hike it to about 4 lakh PCs per

annum. But since more and more top vendors are attempting a similar exercise, it

remains to be seen whether this will give the company any benefits over its

competitors.

While the company is well positioned to exploit the booming home market with

its huge channel network, it will increasingly face competition with cash-rich

MNCs with high spending on brand-building and domestic vendors with price as

their sole advantage. So far, HCL seems to have continued its branding

activities like traditional carnivals and road-show activities, which could help

the company jump back to the number one slot.

HP

Since the commissioning of its assembly unit in Bangalore in 1999, there has

been no looking back for HP. With its objective of shipping out PCs as cheap as

the local brands, HP has firmly entrenched itself in the market. Its aggressive

pricing strategy–especially in the commercial desktop range with products like

HP Brio–has paid rich dividends. It was first among the MNCs to launch its

desktops under the Rs 50,000 pricing. Last year, the company had decided to beef

up the channel act. Today, HP’s desktops are available in over 107 cities

across the country including in unheard-of cities like Alappuzha to VV Nagar.

Very clearly, HP is focussed to cover more cities to gain marketshare. And to

add to its reach, HP has gained a huge advantage by bundling its varied range of

printers and scanners. This strategy has been used very effectively to increase

its marketshare and post a 45% growth, retaining its number three spot. On the

commercial side, HP with its Brio has also forced other vendors to launch

cheaper products. Interestingly, Brio has also seen a lot of cross sales to the

home segment. While the strategy and channels are firmly in place, in the last

fiscal, Compaq clearly took the lead leaving HP far behind. Can HP outpace its

global rival this year and counter IBM, who is moving aggressively into the

desktop domain with a firm home and commercial strategy? Time to wait and watch.

Interesting times ahead.

IBM

Quite like last year, in 2000-01 IBM seemed still confused about its focus

and its target segment. It had the option of launching brands for the home

segment or of continuing its focus on the commercial segment. Unlike other

players who normally have a combination of home and commercial sales, IBM only

targets the commercial segment. Last year, its key focus areas were the SME and

SOHO segments. The focus was clearly on servers and the company went in for

promotional offers like bundling low-end servers with a couple of desktops and

offering ThinkPads at attractive discounts.

Even in the current year, it is only now that the company has launched a home

PC under its commercial desktop brand–NetVista. These desktops were introduced

in the Rs 38,000 upward range. This is unlike the strategies of other MNCs of

introducing different brands for these markets. However, finally with a product

for the home segment, at least now IBM can enter into the home segment either

via its home PC NetVista or through Brio–with cross sales of its commercial

desktops into the home market.

IBM intends to continue communicating its marketing efforts to the SME and

SOHO segment and plans to introduce fresh products and marketing strategies to

address this space. Only time will tell whether it will succeed like HP or the

current leader Compaq.

Wipro

Wipro chugged on as usual. With a 36% growth rate Wipro managed to retain its

fifth position. Wipro’s problems seem to be similar to IBM’s. While the

company has two distinct brands–Voyager and Super Genius for the home and

commercial segment, but lack of branding activity for both continues the

confusion about the home and the commercial brands. The company has discontinued

its third brand Mentor. With a coverage of over 67 cities, Wipro has a fair

chance to move ahead on its desktops.

But so far, the results have been continuously disappointing. Wipro needs to

retain its fifth position against the fast-rising Dell in the next two-three

years.

The assemblers

A big market opportunity is there for the vendors to grab, if only they can

wipe out the assemblers. If only… Unfortunately, it appears that this will

remain a pipedream for a long time still. While multinationals and domestic

players have been slogging and cannibalizing the market space, the assemblers

have remained unscathed.

The year 2000-01 began badly for most of the players in this segment, as

India faced a shortage of components, but once this crisis was resolved, they

bounced back quickly. The assemblers have managed to retain their stranglehold,

cornering over 50% of the overall market and over 75% of the home market

segment. Short of a major push and price cutting by one of the larger players,

there seems to be little that can upset their applecart.

Summing Up

It’s been an interesting year for the PC industry. The top five continued

to retain their 30% share of the total industry. As compared to their commercial

strategy, the top three players had a very clear and focussed home strategy in

place and saw good results. The focus last year was clearly the home and the

SOSB market with a majority of the players pitching to grab a piece of the pie.

Barring HCL, the other Indian vendors seem to be falling out of the race. The

other major MNC left out but nevertheless growing rapidly is Dell, which tripled

its numbers in the last fiscal. Given its traditional strength and aggression in

the desktop space, one can bet Dell to be amongst the top 5 in the next year.

In terms of the smaller players, Mumbai-based PCS have done very well nearly

doubling its numbers over last year. Zenith seems to be floundering with no

clear strategy in place and could continue to see a flat or negative growth for

the current year. However, given the current numbers, the battle for the top

crown seems to be amongst the top two, Compaq and HCL. Can H-P or distant IBM

make any impact? Wait and watch.