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

THE KING IS DEAD. LONG LIVE THE KING!: Compaq not just showed a growth of 91%, it outran a giant like HCL tooIt 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

HANGING ON: A strong channels focus has seen HP hang on to its third position and increase its annual growth rate 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

SLOW AND STEADY: Having shown stronger growth, IBM has finally entered the home-user segment with NetVistaQuite 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

Product positioning continues to impede Wipro’s growth in the segment, and Dell is now fast catching upWipro 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.

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