PCs & Notebooks: Hard Numbers

The PC industry in India pulled through another year, and a closer look at
the year gone by reveals that the customer has indeed become the king. If the
desktop performance growth was good at 21%, one look at the notebook landscape
says it all. It's been a glorious year for the notebooks with the volumes
soaring. Notebooks registered a growth of around 168% in unit terms. According
to IDC India, the overall desktop market grew 4% in value terms to clock
revenues of Rs 10,929 crore, as against Rs 10,506 crore in FY 2004-05. The
overall notebooks segment posted a massive 93% growth to close books with Rs
3,550 crore versus Rs 1,838 crore in FY 2004-05

Over the last two years, it's been a tight ropewalk for the vendors on the
desktop side with margins getting tighter by the day. Hence, more the volumes,
the merrier, that's what exactly happened during the year, with vendors trying
out all options and lured the customers with offers such as bundling TFT screens
to MFDs with their desktop PCs. Volume pushing approach, culminated with HCL
launching a sub Rs 10K desktop, followed by other players such as Xenitis. The
sub 10K PC despite its lukewarm response, on the other hand, accelerated the
thought-PC as commodity on the minds of potential buyers.

Desktops: Staying Power

Desktop PC business continues to be characterized by the cut-throat
competition with numerous vendors (branded and un-branded) constituting this
space. HCL and HP continue to dominate the desktop PC business, and HCL has
retained its number one position this year, also with a market share of 15%. It
was a year in which HCL grabbed media attention with itsÂ
sub 10K PC in 2H 05 opened up a new market, which even assemblers had
ignored till now.  HCL Infosystems continues to lead the Indian PC industry in
terms of total annual shipments of desktop PCs. The company posted an impressive
33% growth in unit terms, as compared to the previous year. According to the
vendors in the fray, the key growth drivers during the year came from verticals
such as telecom, banking, retail, and ITeS. Meanwhile on the sub Rs 10K PC, HCL
did not divulge the total shipment; instead termed the response so farÂ
as “very encouraging.”

Over the years, it's been a big fight between HCL and HP in the desktop PC
arena. This time around, it's a  neck
to neck battle, and HP sold 608,899 desktop units. Its Pavilion and Presario
range of desktops saw good growth over the year with home users driving the
sales. Meanwhile, HP also upped its ante by launching Pavilion Media Center
desktops, targeted at the high-end home consumers, who view PC as a form ofÂ
entertainment.

With this trend in the back drop, the desktop purchasing decisions in the
home segment took a two-pronged route. One, the first time desktop buyers looked
at desktops that had multimedia and a modem powered by processors like P4 HT.
Typically these consumers went in for desktops in the sub Rs 20 K range that
appealed to them. Meanwhile, users who looked at additional features like DVD
drive, 17-inch monitor etc went in for high end systems priced at Rs 25 K and
above.  Clearly over the year the
market segmented across three definite lines-low, mid and high end. While this
segmentation was there, it got more defined over the year.

Acer, one of the companies ramping up fast in the systems space did very well
by registering a growth of 39% in desktops in unit terms. Over 2005-2006, Acer
saw a huge growth in its retail initiative. The number of Acer retail stores
grew to over 225 outlets in over 96 locations in India. Acer also made major
inroads to the B and C class cities. It also undertook corporate restructuring
in early 2006 to align it more closely with its business goals. 

Giving tough competition to Acer is Zenith, which has become one of the
leading Indian systems players in the country. The company, over the year, has
made significant initiatives that have strengthened its overall PC business. A
look at the other players in the desktop business during the year shows good
traction for vendors such as PCS and LG. When LG forayed into the desktop
business, many doubted its success, but the company registered massive growth in
the desktop space. Meanwhile, Dell attacked the desktop segment with its
OptiPlex range, with configurations ranging from P4 HT to Pentium D. On the
high-end models, Dell also offered flat panel displays. Dell's OptiPlex range
was characterized by very small form factor that made it ideal for segments such
as BPO and ITeS.

If we look at the leading trends in the desktop space last year, it shows the
burgeoning home market. The home segment growth was very impressive. This growth
has encouraged some of the vendors to take a closer look and work towards
increasing their visibility and share of the pie in the home market. Meanwhile,
the price difference between branded and un-branded PCs narrowed substantially.
Along with the lure of EMI options, more home consumers went in for branded PCs.
The home segment is further expected to react positively to desktops with good
entertainment features. To lure the home consumers, the vendors roped in
Bollywood celebrities to promote their offerings. For instance, players such as
Lenovo resorted to this route.

Notebooks: The Bull Run

Here comes the best part of the PC business-Notebooks. Notebooks recorded
a spectacular growth of 168% during FY 2005-06. No longer it is a high value low
volumes game, as one saw a deluge of offerings from vendors catering to the low-
and high-end segments. With the escalation of the affordability factor, one also
saw the lines between a desktop and a notebook get blur. For instance, a medium
end desktop vended at Rs 25K in comparison to a low-end Celeron or Sempron based
notebook retailed at Rs 33K. Looking at the impressive growth, the low-end
notebooks escalated up the popularity charts, with students, educational
institutions and SMBs taking advantage of affordable price points, and buying
notebooks instead of desktops.

The leading trends in the desktop space was a burgeoning home market and a narrowing price difference between branded and non-branded PCs

JFM 06 witnessed a key development in the notebook space, with Intel
launching its Centrino Duo processors called Core Duo. This development created
a lot of excitement in the notebook space, as it led to the 'performance per
watt' game. When Intel launched Centrino, it ushered in a new premise in
mobile computing, similarly Core Duo is expected to create new performance
benchmarks. AMD, which started the 64-bit market movement in the systems space
has been waging a battle with Intel in the notebook space. AMD came out with its
Turion 64 processors and players such as HP started shipping Turion 64 based
notebooks in the sub Rs 45K price range. Then Intel launched its Core Duo inÂ
Q1 06, and the battle for 'performance per watt' began.

Fiscal 2005-06 is the year of mobility. Notebooks right across all buying
segments shipped with wireless functionality and consumers saw the best deals
coming their way. A fully functional Centrino notebook hit the sub Rs 45K and
Core Duo based machines vended at Rs 49K and above. A look at the fiscal
revealed the overall 64-bit mood among the processor vendors. And yet again, AMD
has taken the lead in announcing 64-bit dual core Turion processors designed for
thin and light notebook PCs. With the impending launch of Microsoft's Vista
early next year, vendors such as AMD are pitching hard that the future of
computing revolves around 64-bit.

Intel also pitched on 64-bit, but during the launch of its Core Duo processor
one saw a guarded optimism from Intel supporters. Critics aver that right now
there are not enough 64-bit apps and hence, 64-bit notebooks are not really
needed at this point of time. But opinions were divided here with strong
statements both for and against doing the rounds during 2005-06.

A look at the traction vendors in fray had over the year put HP at the pole
position. HP had a spectacular year with notebook volumes shipments growing by
207%. HP took on a highly segmented approach and classified its notebooks on
distinct buyer segments. For instance, its business notebooks products are
spread across three categories-balanced mobility, high performance, and
ultra-light. It offered a slew of machines across configurations and price bands
and customers across various segments from SMB to high-end corporate-they
found a HP machine fitting their bill. On the home segment, HP positioned its
notebooks as a connectivity and entertainment system. Its Pavilion range caters
the HP home notebook offerings, while the business range comes under the HP
Compaq brand name.  An extremely
focused and 'a go to market strategy' and its indepth understanding of the
buyer segments, has made HP an undisputed king in the notebook space.

Battling HP on the Indian turf was Lenovo, the closest competitor that can
match HP in size and scale. The company over the year effectively absorbed IBM
product folios and created brand identities on the ThinkPad and its own brand.
Lenovo was able to double up its notebook shipments.

Dell breached the price performance barrier by launching Intel Core Duo based
Inspiron notebooks and attractively priced between Rs 47K to Rs 66K with XP Home
edition. This was indeed a very tempting deal in the notebook space.

Meanwhile Toshiba notebooks continued to do well, bagging orders from a
number of corporate customers. A number of new models such as Quosmio were
launched recently. A unique blend of entertainment and IT, the model works as a
17-inch TV and a DVD recorder, PC and music system and targets high-end
segments. Toshiba also rolled out other models such as Portege R 200, a 1.1 kg
model and a range of products in the Satellite series.  

LG also ended the fiscal with a bang with huge growth as compared to last
year. LG which has its 'X' `note range of notebooks attacked the market with
a slew of offerings from low end Celeron machines to high end Centrino
offerings. The company introduced several value adds in its notebooks like 5.1
Dolby surround sound and larger viewing angle through a technology called
In-Plane switching that improved the viewing angle by 36% as compared to
conventional notebook screen. LG also pitched on bigger battery life by using a
technology called “battery miser' that enabled notebook batteries to last up
to seven hours.

Let's look at some of the Indian vendors in the fray. Zenith, during the
last fiscal launched a slew of notebooks. Since the last two years, the company
underwent an impressive shift from being a predominantly desktop company to a
one offering a whole lot of IT hardware. With low-end to ultra portables, Zenith
posted an impressive 270% growth in notebooks during 2004-06 in unit terms.
Meanwhile, for HCL it has been an eventful year. It launched its laptops and
christened it 'HCL Leaptops'-a range of laptops, each with features to
particularly suit the requirements of specific customer segments, with prices
starting from Rs 27K. Other vendors such as PCS, and Sony also had a good growth
year.

Outlook

In the ongoing year, desktops are expected to notch up an overall growth of
25% to 28% for FY 2006-07. Meanwhile, in the last two years, the notebooks
shipments volumes have grown at amazing rates, and this escalation will
continue. Moreover, vendors have tied up with financial institutions and are
offering attractive EMI options for notebooks that will further lead to more
volumes. On the technology side of things, one will see AMD positioning its
64-bit dual core processors very aggressively. Intel Celeron M will continue to
gain traction at the entry-level notebook offering, while the mid-to-high
segments will be Core Duo, Centrino and AMD's 64-bit processors. On the
desktop side, machines with Media Center editions will see good volumes, as home
users will increasingly look at the entertainment value of the desktops they are
buying. The outlook for the PC industry remains bullish.

Shrikanth G

shrikanthg@cybermedia.co.in