PCs & DESKTOPS: Only Shaken, Not Stirred

DQI Bureau
New Update

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.

HCL regained the #1 PC vendor slot with 150,366 PCs, unseating last year’s leader Compaq (140,126 units)
In a year marked by reversals, HCL Insys, IBM and PCS were the only ones that managed positive growth 
Desktops grew by 7% in units, but slipped 5% in value

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.


Desktops Lineup

Desktops 2000-01



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

and assembled*
1,129,681 1,309,426
Total 1,880,254 2,008,083
* The assembled market

has been readjusted

Last year, Compaq

wore the PC crown, unseating HCL Infosystems. In fiscal 2001-02, HCL

stole back the top slot with what it called "clear customer


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.

The Poor Man’s PC, Finally
VIA Technologies has come up with a proposition to provide multi-media branded PCs at Rs 15,000, which PC vendors just can’t refuse. The company intends to leverage its ability to source components from the right sources at the right prices. VIA expects to hit the market with its low-cost branded PCs targeted at the home and the small offices segment by September 2002. Is this feasible? Via believes that high-speed processors as advocated by the Intels and the AMDs are really not essential for ordinary home use. Home users still do not use graphic intensive applications and the usage is most often restricted to email, surfing the Internet and office applications with a little bit of multimedia games and educational matter thrown in. So cut out the high-speed processors like 1 GHz and effectively slash a substantial component of the price of a desktop. The ideal specs according to Via for this segment -733 MHz processors, 128-256 RAM and 20 GB hard disk. Also, it intends to take the product to where the action is — B and C class cities with over 100 road shows. Gains for the smaller player…but pain for the branded players.


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.


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.


Portables Lineup


2000-01Units 2001-02

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

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.



Year BEst Forgotten:

sales were flat. Even where they went up marginally, pressure

on prices brought revenues down. Compaq stayed ahead in the

home PC segment, but lost the #1 position in the overall

numbers to HCL. IBM did well, though, posting nearly 10%

numbers growth and 7% revenue growth


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.


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



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



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