PERIPHERALS: Past, Present and Future

Fiscal 2003-04 ushered in the much-needed relief for all the peripheral
segments, with all product categories recording good growth. As we take a closer
look, the Indian peripherals industry demonstrated a high degree of maturity
leading to adoption of newer technologies like USB 2.0, TFT monitors and MFDs.
While we saw these trends the previous year, this fiscal found these high-end
products more affordable and, as a result, hastened overall adoption.

Impacting the Market

On the Impact printer segment, apart from the traditional demand from BFSI
and government, retail is emerging as a major growth driver. So with unique
demands from across various verticals, the DMP vendors during the fiscal
indulged in strategic positioning of their products. For instance, in the retail
segment most of the vendors pitched heavily on their 9-pin, 80-column printers.
This is a significant shift from the earlier days, where the common 9-pin wide
was the most popular model. Today the 9-pin narrow has gone over to the retail
side, while the 9-pin wide has become a general category DMP printer. Meanwhile,
BFSI consumed 24-pin 80-column and 136-column printers. A major shift over the
year occurred in the government sector, which went in for 24-pin models as
against its earlier preference for 9-pin technology.

TFT/LCD panel prices remain high, thanks to demand outstripping supply. In India, front-office apps, retail and parts of BPO are driving the modest sales

Mid-life Crisis

Inkjets have been the volumes segment all these years and this trend
continues. But one of the biggest gyrations that this segment witnessed across
the world was the growing stature of the Multi Functional Peripheral device(MFD)
tightening its noose on the midrange Inkjet space. As an IDC research report
suggests, during 2003 around 2.48 million MFDs were consumed in the Asia—Pacific
region. This remarkable growth is mainly due to the cannibalization of
single-function inkjet printers by MFDs. This is as a result of the
faster-than-expected decline in the retail price of MFDs. With the
cannibalization effect escalating through 2003, 18% of inkjet printers shipped
in 2003 in the Asia—Pacific region were multifunctional, as against 8% in
2002. Given the big business opportunity in the MFD space, all the vendors are
investing their energies in order to gain more market share. Currently, there is
intense competition between HP, Epson, and Canon in the MFD space, but over the
last one year Lexmark has emerged as a dominant player in the MFD space, while
Japanese electronics major Brother International launched a slew of MFDs in the
first quarter of 2004 in India, priced between Rs 8,000 and Rs 41,000. With an
attractive pricing model, Brother intends to become at least the No. 2 player in
the MFD space in India two years down the line. These developments signal a good
growth in the MFD sector in FY 2004-05 in India, as established vendors like HP
and new companies emerging in this space will indulge in price wars. In the
bargain, two segments-single function inkjets and entry-level scanners-will
witness significant price cuts.

Where each single MFD product used to cost three times more than a
single-function inkjet printer in 2002, prices have declined significantly in
2003, and are now on par with a mid-to end-segment inkjet. According to IDC,
around 66% of inkjet MFDs shipped in the Asia—Pacific region during 2003 were
priced-below $200. This shows the cutthroat competition that is currently
reigning in this segment, and further price downslides are inevitable if vendors
want to retain their market share.

Consumer devices like Apple's iPod and Sony's new Walkman are consuming millions of HDDs

The Big Picture

VGA, SVGA, and now LCD/TFT: the Indian Monitor space has seen them all.
While the thin, flat panel display trend got entrenched a few years ago in
advanced geographies, it was only from 2003 that India started to show some
visible signs of taking to LCD monitors. According to IDC, the Asia—Pacific PC
Monitor market grew by 18%, with 30 million units sold in 2003. During the same
period, LCD monitors accounted for 27.8% with OND 2003 showing the highest
growth of 31%. It is estimated that in the Asia— Pacific region for 2004, LCD
monitors are expected to grow at about 38.5%. Samsung is the leader in the
monitor space in the region followed by LG in second place.

IDC, in the recently released Worldwide TFT—LCD Demand and Supply 2004-2007
forecast, says that the 17-inch flat panel size will become most popular on the
desktop side, and will account for 60% of the total PC LCD monitor demand. 14.1
and 15-inch LCD screen dimensions will, however, be the forte of notebooks. IDC
also predicts that by 2007, LCD monitor prices will see price erosions due to
oversupply. The TFT—LCD market, which includes LCD-TV panels, notebook LCD
panels, and desktop monitor LCD panels, will grow by a CAGR of 15% from $24
billion in 2003 to reach $42 billion in 2007.

Storage: HDD

As per Gartner estimates, the HDD market has grown by 19% globally in 2003.
This augurs well for the HDD industry, which was going through a lull period
over the last few years with single-digit growth rates. The 2003 growth rates
offer clear pointers of revival in the HDD market as a result of overall growth
in the PC market during the last one-year. Globally 3.5 inch HDDs constituted
around 80% of the shipments, while the adoption of 2.5 inch HDD products is on
the rise on the portable computer side. While Seagate has the leadership
globally, with multiple vendors like Quantum, Maxtor, Western Digital, and
Hitachi, the HDD space has become extremely competitive with each eyeing greater
market shares. 2004 will also see lots of technology enhancements that will
become the key selling point. Globally, the 7,200 rpm is the default for
entry-level disks, even in an emerging geography like India, with disk vendors
seeing demand for higher rotational speeds in recent times.

Since early 2000, most of the HDD vendors have had mandates in the consumer
electronics space, which is emerging as a secondary market. For instance,
storage is inbuilt in most new-age consumer devices like digital camcorders,
audio players and video game consoles among others. While the PC industry is
expected to drive the dominant HDD market, the integration of the same with
consumer gadgets and appliances is bound to increase the overall value and size
of the HDD market globally.

Overall, peripheral devices are increasingly taking the convergence route,
and what were once standalone devices are now seamlessly talking with each other
as a result of rapid strides in PC interface. Hastening this process is the
adoption of USB 2.0, which has streamlined to the point of simplicity data
transfers between a peripheral device and the PC. In the Indian context, the
ongoing fiscal is set to see good adoption of USB 2.0-based external storage
devices like zip drives and digital cameras.

Shrikanth G in Chennai