The silver lining has given way to dark clouds. In the last quarter of
financial year 2000-01, India was the only country to re-
port positive double-digit growth. The slowdown, which raised its ugly head last
year, has manifested itself in the figures that emerged this year. The growth in
PC numbers has fallen from a peak of 67% to 7%, while in value terms, the
segment has posted a negative growth of 5%, compared to a heady 61% growth in
FY2000-01. Part of this steep growth was also due to IDC India’s readjustment
of assembled market figures. While the component industry sales figures,
especially those of Intel, have been much higher than the total PC market, it
was felt that there was a likelihood of the Indian desktop segment being
underestimated. Since one could easily track the vendor numbers, the
underestimation was clearly a result of the huge assembled market which
continues to dominate the Indian desktop space. Following the IDC India
announcement, DQ readjusted its numbers to reflect these market realities in the
desktop segment.
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So what was the year like? Bad for most, flat for only a few! As per the DQ
Top 20 survey, most desktop vendors showed negative growth. The notable
exceptions–IBM and HCL and PCS. Barring these, it was a bad year for all. Most
vendors continued to focus on the metros and ‘A’ class cities. But the
market here, especially in the corporate segment, was already saturated. Vendors
were aggressively targeting the home and SOSB (small office, small business)
market, but these markets will take time to crack, and the problem only
increases in a slowdown year as buying decisions are postponed. Today, existing
players are strongly dependent on the contribution of six metros and every
player is targeting the same set of customers. The result? Heavy undercutting as
the desktop market has been commoditized. Vendors across the board had to resort
to offering bundling deals, innovative financing schemes, exchange schemes and
warranty extensions, apart from price cuts. The only way out for any vendor in a
commodity driven segment is to cash on the lure of the brand. And that’s what
the vendors did–they tried their best to become household names in the desktop
space. Thus came the huge ads by IBM, Dell, Compaq and Zenith in national
dailies or the road shows by HCL and Compaq? So brand-building was the key
highlight of FY 2001-02.
The |
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Desktops | 2000-01 Units |
2001-02 Units |
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HCL Insys |
149,500 | 150,366 | ||
Compaq | 151,568 | 140,126 | ||
IBM | 67,664 | 74,035 | ||
HP | 91,200 | 62,791 | ||
Zenith | 60,646 | 58,124 | ||
Wipro | 66,699 | 56,325 | ||
PCS | 36,350 | 45,403 | ||
Dell | 38,000 | 32,187 | ||
Vintron | 30,575 | 27,961 | ||
Minicomp | 29,271 | 27,430 | ||
Acer | 22,100 | 18,056 | ||
Accel | 7,000 | 5,853 | ||
Others and assembled* |
1,129,681 | 1,309,426 | ||
Total | 1,880,254 | 2,008,083 | ||
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Second was the increasing reliance on the channel network. Today, channels
account for over 85% of all desktop sales of vendors. Given such a strong
dominance of the channels in desktop sales, vendors went out of their way to ‘pamper’
the channel players. Schemes like foreign visits, bundling, joint marketing and
road shows were the order of the day. But all these could not lift the spirit of
the market as most of the vendors showed negative growth in the last year. The
surprise of the lot seems to be the Mumbai based PCS Industries, which increased
unit sales by 25%, thanks to some aggressive marketing and the increase in its
reseller outlets from 280 to over 400 and cheap price desktops. Another gainer
in the downturn yeas has been IBM, thanks to its focus on call centers and
netting some deals in the software segment. But after a gap of one year, HCL
upstaged Compaq in regaining its number one crown thanks to the government and
large reach. HP faced the biggest setback as its golden goose, Brio, which had
led HP’s charge in the commercial space found few takers. Upto FY00-01, Brios
had not only found huge acceptance in the corporate segment but also saw cross
selling in the home segment. However, by late FY00-01, Brios had started losing
the charm as other vendors like Compaq and IBM quickly moved in this space with
their clones. Also, one did not see much activity on the home front.
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Drivers
Who drove the market? There is no disputing the fact that the home segment
was the focal point for all vendors. Even vendors like IBM with low focus on the
home segment made efforts to be visible in this space. Of course, Compaq led the
way in the segment thanks to its huge retailer base. HP, which had build up a
commendable retail network in FY00-01, could not make much headway in the home
segment. As per rough estimates, the home segment accounted for over 30% of the
total desktop sales, followed by SOSB with another 30%. The government sector,
which remained inactive for a major part of the year, brought in some relief to
vendors in the last quarter of the financial year. Barring a few vendors, the
assemblers had a field run in the home and SOSB segment due to their large reach
and still control over 75% of the market. In the commercial desktop space,
banking and insurance continued to be the sweet spots for most vendors. However,
companies like IBM found their growth in the mushrooming contact center market.
Thanks to the ever-growing number of contact centers, IBM’s focus on the same
helped it gain points even in a gloomy scenario.
Did component prices have any impact on the overall desktop market? Unlike
last year, when memory prices forced vendors to hike prices, the last fiscal saw
no such effect. But due to the long drawn Micron-Hynix merger talks, memory
prices have been fluctuating and bottomed out in October — November. While it
did not have much bearing on the market, one saw a high rate of memory upgrades
especially in the notebook segment.
Notebooks
Another victim of the slowdown, the notebook market went down by a quarter
in unit terms to touch 32,141 units. IBM and Toshiba were the big casualties
while Compaq and Dell gained in this lackluster market. A year ago, there was a
sizable market in the plus Rs1.5 L space and IBM was a strong player in this
segment. Just a year down the line, the sub lakh category has seen all the
action with very few deals happening in the plus Rs 1.5 lakh category. To add to
the vendors’ woes was the tightening of corporate IT budgets. Adversely
affected corporate deals and companies like IBM with high dependence on the same
were the first ones to be hit. On the other hand, as the buyer profile changed
from corporate to professionals, Compaq could leverage its vast channel
infrastructure to remain on top. While the year saw the launch of the sub 75K
portables by Wipro and Acer, they did not see much success and the preferred
price band continued to be in the 75K to 1 lakh spectrum.
The |
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PCs Portables |
2000-01Units | 2001-02 Units |
Compaq | 11,216 | 12,796 |
IBM | 10,790 | 8,878 |
Toshiba | 8,758 | 4,280 |
Dell | 1,350 | 3,000 |
Acer | 5,100 | 1,202 |
Zenith | 250 | 476 |
HP | 750 | 459 |
Apple | 150 | 50 |
Others | 4,500 | 1,000 |
Total | 42,864 | 32,141 |
NO SURPRISES: Compaq continued to rule the notebooks space in 2001-02, well ahead of the second-placed IBM |
The market movers
HCL Infosystems
Last year, HCL Insys lost its # 1 slot to Compaq thanks to the latter’s
aggressive drive in the home segment. While the drive continued thanks to the
slowdown and HCL’s huge reach, it recaptured its lost position. Thanks to its
over 1000 plus reseller network, HCL was able to expand its reach well beyond
competition numbers. No radical shift in strategy as HCL aggressively moved into
the B and C class cities with its tactical marketing roadshows and traditional
carnivals. While Compaq remained the undisputed leader in the home segment, HCL
maintained its dominance in the other high growth area — small business. It
also notched up gains in other segments like government, banking and insurance.
Another key strategy which helped HCL regain marketshare is that it has been
projecting itself as the first company to introduce the latest product in India.
For example, it was the first to launch and ship Pentium 4 powered PCs under the
Rs 40,000 price barrier simultaneously with the global launch. The company was
also the first to launch the Pentium 4 powered PCs and followed it with the
launch of the DDR-SDRAM based desktop PCs. Th net effect — unit sales up by
866 units, no mean feat in a slowdown year, compared to last year’s 149,500
units. Will it retain the # 1 tiara in the current fiscal? Seems a little
unlikely given the HP-Compaq merger and that the new entity is likely to usurp
the number one status for the next couple of years…unless of course, HCL has
an ace up its sleeve.
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Compaq
The king of the home segment amongst branded players. While Compaq lost its
#1 position to HCL, it continues to march ahead in the home segment. Compaq
continued on its strategy of increasing the channel network, and increased the
number of its retail outlets from last year’s 350 to 750 this year. While this
did not help it retain its # 1 position in the desktop segment, the network
proved a big help on the notebook side. Since corporate deals were nearly dead,
and the key buyers were the professionals, a wide reach helped Compaq increase
its lead over IBM. Compaq’s success in the desktop segment has ensured that it
continues to exist even after the merger. And now with the might of the
HP-Compaq combine, it could be a long time before any other players even think
of the number one slot.
IBM
While IBM grew in the desktops segment, it slipped in the notebook space.
However, the last fiscal saw IBM initiating lot of activities like full-page
promotional campaigns in national newspapers and aggressively building channel
partnerships. The net result has been that IBM has grown by 9% in units terms.
Unlike the previous years, where IBM had no clear home strategy and had launched
Aptiva and then subsequently discontinued it, it made inroads with its NetVista
home desktops. While other vendors follow the two-brand strategy for the home
and commercial segments, IBM continued with its single mother brand NetVista. So
far it seems that the strong IBM brand seems to be pulling in the home
consumers.
Also, thanks to the strong channel partnership with top distributors, IBM saw
increased sales. For example, data from both Redington and Tech Pacific
indicates that sales of IBM desktops have doubled for these channel players.
Redington saw a 71% increase in units terms to 7200 desktops while Tech Pacific
had a 98% growth in units at about 11000 units. IBM intends to continue every
player is targeting the same set of customers. The result? Heavy undercutting as
the desktop market has been commoditizedspending in building its NetVista brand
and is now looking at the ‘B’ and ‘C’ class cities with the help of its
strong channel partners. But the number one or two slots will continue to elude
IBM for a long long time. On the commercial side, IBM saw success in the call
center market and notched a few deals in the software side to emerge as the # 3
player.
Assemblers
The biggest gainers of them all, assemblers form the faceless side of the
desktop segment. Last fiscal, these players increased their stranglehold in the
Indian desktop market by over 10%. Unlike the previous year, MNCs and Indian
players have been nibbling away marketshare from the assembler segment, but in
the last fiscal, the trend was totally reversed and the assemblers and small
players hit back with vengeance. No guesses for the reason behind the success of
the small players–wider reach and cheaper price.
Also, with component players keen to make their presence felt in the market,
the smaller players will reap the biggest advantage in terms of offering more
cheaper products (see box).
And since the component vendors would be looking at the fastest-growing
segment–home and SOSB, that’s more bad news in the offing for the branded
players. Looking ahead, the vendors are focusing on the ‘B’ and ‘C’
class cities which will be the key growth d rivers. Also in the metros and
‘A’ class cities, growth will come from the home and small office and small
business segment, if they can outplay the local/small players. So far, price has
been the key driver here and this will continue. Vendors have no option but to
play the price game with heavy bundling schemes and cheap financing options to
lure these buyers.
Among the players, the new HP will be the giant and it remains to be seen
whether there emerges a giant killer among the others. For HP, having armed
itself with Compaq’s lineup, will be seling only the Presario line of personal
computers in the Indian market. Other domestic players like Wipro and Zenith
seem to be going nowhere and becoming more of ‘specialized segment’ players.
Wipro has been looking at the corporate segment while Zenith’s foray into the
corporate segment did not meet with much success and will continue to play in
the home segment. Given the situation in the first quarter of the current fiscal–and
the continued negative sentiments therein–vendors have no option but to come
up with innovative strategies in order to be able to hold their own. As one of
the top brains in the PC space said recently, it is only going to be acute
customer focus that will ensure victory or abject defeat in the Indian PC
segment.