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Sub-10K PCs Utopia or Mirage?

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DQI Bureau
New Update

It was 'breaking news' when HCL unveiled its PC for Rs

9,990 at a gala launch in Chennai recently. Ajai Chowdhry, chairman and CEO, HCL

Infosystems, spoke passionately about his company breaking the price barrier

with this launch, offering a fully functional desktop. Other companies to join

the sub-10K PC bandwagon were Kolkata's Xenitis Group-with its Rs 9,750,

Intel-based desktops, and companies like Kobian and Sahara.

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While the sub-10K PC market is heating up, it's obvious

that the magic figure of Rs 9,990 is an illusion. As you do your calculations it

becomes evident that tax included, the end user price works out to be around Rs

11,500. So, if the vendor is including taxes in his pricing, the PCs are truly

sub-10K, which he's clearly not doing.

Reality Check



The key question is: "How viable are these PCs from a margins point of

view?" As per industry estimates the vendors will gain a maximum margin of

2% or less for the sub-10K PCs. Clearly it's a low value high volumes game

here. In order to arrive at decent margins, vendors' need to sell, on an

average, an estimated 1,500 to 2,000 units per month.

Meanwhile, while none of the companies divulge much

information on the expected volumes for these PCs, they say that the response,

so far, has been good. One of the leading players in the sub-10K PC game is the

Kolkata-based Xenitis Group. This is what he company's chairman Santanu Ghosh

has to say: "Our expectations for this sector are conservative, we see it

more as a developmental platform. At present, sub-10K PCs contribute only around

10% to our total product sales."

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The

consumer is unlikely to pick a machine only because it's cheap. So

vendors need to do a lot of convincing to make the user accept that

these machines are worth buying. There is clearly the question of

'value' and 'expectation'

Right now, the sub-10K PC business is clearly a gamble. The

only USP here is the price, and one is not getting into the performance debate.

For the price, the configuration most of the vendors offer is rather neat--128

MB RAM, 40GB HDD, 52 X CD ROM Drive, 15 inch monitor, mouse, and Linux OS. On

the processor side, Kobian and HCL offer a VIA 1GHz processor, and Xenitis comes

with the Celeron and Cirix models. Sahara offers an AMD processor.

With this configuration, a user would be able to run basic

applications like word processing, email, and Internet. But the absence of a

modem de-sells the entire configuration--a PC just for word processing does not

make sense to a user. While Linux-based applications are available on these

sub-10K machines, Linux adoption in the desktop space being still in its infancy

negates that advantage. User awareness on applications available on Linux is

also very low. Assuming that a user migrates to a Windows platform, how much of

the implementations would really be legal? Some sections of the industry are

vehemently arguing that these low-end machines will drive piracy, though

vendors, obviously, refute it stoutly. Says Ghosh, "First of all I doubt

whether this perception actually exists. There are lots of situations and

loopholes that instigate piracy, which have to be dealt with in a totally

different way. The introduction of the sub-10K PC is a social need in the

country, I don't think it has any connection to the ever increasing

piracy."

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HCL's Chowdhry is bullish about the road ahead for the

sub-10Ks. At the time of launch, Chowdhry said: "Our idea of launching a

fully functional PC at this price is to drive home the point that low cost does

not mean low in quality. All our PCs follow very stringent quality tests before

they reach the consumer. We are adopting a multi-pronged strategy for increasing

the reach of our sub-10K offerings--by informing people how a PC can aid in

shaping an individual's aspirations." That would be the key challenge, as

vendors would be addressing the buying segment at the bottom of the pyramid.

Who's the Buyer?



According to Ghosh, the target audience is not the existing high-end PC

user. Companies are trying a combination of marketing approaches for pushing

more of these low-end offerings. Ghosh says his sales team works directly with

customers and helps in decision-making.

If one looks at the enterprise side of things, these PCs

might have a spillover effect. Take a typical Indian SMB. Not all employees are

given a PC, like, for instance, junior office assistants, who use a common PC

for their work. Now with the sub-10K PCs, these lower rung employees can be

given their very own PC. On a large enterprise front, government and education

verticals will be the main focus for vendors. These verticals can better manage

their IT budgets by accommodating more number of PCs, thereby enhancing the

installed base in their own organizations.

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On a large corporate environment, current specifications

prohibit any large-scale deployments. But, as cost cutting and optimizing on IT

spend is at the top of the CIO's agenda, he might be tempted to look at these

machines more closely. Large enterprises, today, involve themselves with various

social causes. They could be the buyers for these PCs. Right now they are more

polarized at the home, education, and government verticals.

As this quarter moves on, one will see the actual market

response to these PCs on a wider scale. If the existing sub-10K PC vendors are

able to gain traction, more players will jump in and, ultimately, the

configuration will also become more value-based. (Right now the absence of a

modem and use of low-end 1GHz processors puts the mass adoption of sub-10K PCs

in question.)

The target consumer--the middle class--is unlikely to pick a

machine only because it's cheap. If the friendly neighborhood assembler sells

him a P4 with all connectivity options at 16K, he would gladly shell out the few

extra thousands for a PC that's industry standard. So vendors need to do a lot

of convincing to make the user accept that these machines are worth buying.

There is clearly the question of 'value' and 'expectation'. So a user

demanding value is the most unlikely target. On the other hand, a user whose

expectations are not too high--one who just needs a basic PC to start on, is the

key consumer. He can be lured into buying a PC only when the mindset--that the

PC is a commodity--takes root. HCL's Chowdhry firmly believes that by

increasing the purchasing power of the lower income group segment, one can

increase penetration. He says that his company's 'PCs on EMI' was a great

success.

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Like Xenetis' Ghosh says, "The question is not who can

afford, the aim rather is to invite people who never thought they'll ever own

a PC. With even junior school education demanding an exposure to computers, and

more and more government and NGO initiatives coming up, low cost PCs are a

market need."

Summing up, seeing how things have gone in the last two

months, the sub-10K PC is a significant milestone for the Indian PC industry,

despite its shortcomings. If one analyses questions like: Will it increase PC

penetration? Does it offer value for money? There are still no valid answers. No

concrete pointers indicating any major trend in the low cost desktop industry in

India. Vendors are just scratching the surface, but they might just be on the

verge of creating a whole new market that will alter equations for the Indian PC

industry!

Shrikanth G

in Chennai

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