The Five Million Mark: Outgrowing the Little League

A long journey–16 years to be precise. A landmark
 achievement–the five millionth PC to be exact. What started out in 1984
with the launch of Minicomp’s Neptune PC has grown to be a five million-strong
installed base. From a PC shipment of 1,200 in 1984–the average PC then cost
Rs 5 lakh–the industry saw the million mark in 1996 with shipments touching
four lakh in that year. It took 12 years to reach the first million but the next
four years saw a million PCs shipped annually. Comments Jyoti Satyanathan,
business manager, personal systems group, IBM India, “From the figures
perspective, it feels wonderful to touch the five million mark.”

En route this journey, the industry has seen many companies
and brands rising and falling. Erstwhile important market players like DCM DP,
Usha, PCL and Sterling today only have history by their side. In 1986, HCL, DCM
DP and Zenith accounted for 87% of the total PC market share. Today, they make
up less than 15% with DCM DP being an insignificant player in the PC market.
Among the other Indian players, HCL is still the market leader, followed by
Wipro and Zenith in the top five club.

Also, in the swadeshi-videshi debate, the market is still
very much in the hands of Indian players as the unbranded segments still make
about 70—75% of the market. They have been giving the branded players a run
for their money, and their market share.

Also, interesting case studies have been created with the
foremost being of how a single wrong strategy can lead a company to its ruin.
PCL’s aggressive strategy of late 1997–to bring the PC to the common man
with its “dhamaka” offer of Rs 24,000–backfired badly as it could
not successfully execute its promises. Today, PCL is known only for that
mistake. Another interesting case study has been Intel’s successful promotion
of the gray market with its genuine Intel dealer (GID) scheme. The chip giant
supported gray market players through the scheme, providing respectability and
dependability to them.

The best yet to come

That’s been the past; now a little about the future.
Statistically, the advantage of a large population like India is that the per
capita consumption remains low and when compared to other countries with higher
per capita indicates a huge potential. In India’s case this seems to be true.
Yet another case study would be the IT task force recommendation of converting
STD/ISD PCOs into public teleinfo centers. The industry could see about 6 lakh
PCs being mopped up by such centers. Also, various government departments are
budgeting about 3% of the overall budget for IT, a major part of which is
expected to be in hardware. No wonder, IDC projects a heady CAGR of about 47%
till 2003-04, compared to China’s 25%. IDC expects shipments in India to jump
to 7.5 million compared to just over a million today. Presently, all the top
global vendors are in India with Dell joining recently with its international
model.

What 5 million means to India?

Well, five million is certainly no big news when compared
with other countries and even with the Asian neighbors. (See box: Where Does
India Stand) Aditya Pant, research head, IDC India, says, “China’s annual
shipment is higher than the installed base of India.” Agrees Satyanathan,
“No doubt five million is a big number but we needed to grow faster.”
Says KV Saichandrasekhar, head, product marketing, commercial PC group, Compaq
India, “It would have been better if it had happened a couple of years
back.”

Nevertheless, the industry experts agree that with the five
million installed base and the one million-plus annual shipment, India is
definitely hot. In fact, these numbers would be the key reason for further
growth and interest by vendors. The first example, Dell’s announcement of its
direct selling model in India. Though Dell has been in India since the
mid-nineties, interest remained low. Unlike India, Dell has a manufacturing base
in China where annual shipments are over five million. Though Dell has no
immediate plans to set up a manufacturing base in India, with the announcement
of its direct business model, it will only be a matter of time before Dell takes
up setting a base in the country. Also, MNCs like IBM and Compaq have already
set up their assembling units in the country, and others are expected to follow
soon. Unlike in the past, it will not be import duties but logistic necessities
that will drive assembly or manufacturing units. Says Vinnie Mehta, director,
MAIT, “With zero duties coming in by 2003, I don’t see why people should
set up manufacturing units in India.” Says Satyanathan, “The decision
to set up assembly or manufacturing units in the country will be purely driven
by logistics.”

To take care of the potentially high growth, experts point
out that the import model may not work very well with PC vendors. So, most of
the players will have to set up assembly or manufacturing units with higher
capacity. Also, the installed base will become a good opportunity in other
related segments like peripherals to seriously think about setting up operations
in the country. Adds Saichandrasekhar, “I think in the next couple of years
few manufacturing centers will come up in India.” Samsung has already taken
the initiative with its intention of setting up a monitor plant in India. It has
estimated a budget of $35 million over a five-year period to cater to the
growing needs of the Indian market.

Home: Sweet spot

Another impact of the growth of the PC industry will be the
increased focus by all vendors on the home segment. While the thin-versus-fat
client debate will continue in the corporate segment, in the homes fat clients
will be the clear winners. According to IDC, by 2004, consumer desktops will
grow at a CAGR of over 57% compared to 40.7% for corporate desktops. Also, the
vendors will be looking aggressively at this market as in the wafer-thin
margin-driven business, this could be nirvana. At the corporate level, there is
a bigger requirement for functional PCs and this is one of the key reasons why
the debate of thin clients is gaining prominence among corporate users.

According to an IDC study of 175 US businesses about the use
and planned use of thin clients, almost 75% respondents said thin clients are an
acceptable alternative for some PC users. In fact, more than 50% of respondents
have replaced PCs with thin clients. Also, thin client shipments have increased
by 90% in 1999. In the corporate segment, to beef up the margins, vendors will
increasingly look at services. This is already happening with services forming
an important part of all PC vendors. For IBM, services form a high 40% and for
Compaq, 16%. So, the sweet spot for the vendors will be the home users as specs
continue moving upward without respite. Even the margins for vendors increase.
And much of the advertisement focus by the vendors will be to lure home users
towards their respective brands.

Info appliances

Another debate rages on: whether the PC will survive in its
current form in view of the increasing penetration of information appliances.
And whether vendors will have to change their strategies in India. So far, info
appliances have not deterred PC growth globally and one does not see anything
different happening in India either. PCs will continue to be the number one
computing device for Indians. They will continue to have a heady growth–information
appliances are not seen as eating into the PC market share. Agrees Satyanathan,
“Information appliances will not lead to cannibalization of the PC. They
will complement each other.”

However, with India touching the five million PC installed
base and good growth foreseen in the coming years, software companies will focus
on meeting local domestic market demands. Also, the installed base coupled with
the Internet growth will see the Indian landscape changing. More of locally
focused content will be in Indian languages. Such content will also be located
in an Indian data center rather than be based out of the US. Pant says,
“PCs will bring in a lot of changes in the dynamics of other related
industries.”

Over the past 16 years, the Indian PC industry has seen both
success and failure. The future too will see its ups and downs. Though India,
compared to other countries, has been a little late in crossing the
five-millionth mark, the best is yet to come. The country has growth rates and
potential that vendors love to see. After 12 years for the first million and
four years for the fifth million, we expect the tenth million in only two years.
It’ss growth unlimited for the industry.

The Top Five in the Five Million

YOGRAJ VARMA
In New Delhi

The Top Five in the Five Million

MNCs are emerging as the top brands in India. Of the Indian troika of HCL,
Zenith and Wipro, only HCL maintained its top spot while Compaq and HP moved
lower. A look at the top five players in the Indian PC market

HCL

The
undisputed Indian market leader so far. The only question is how long it can
retain its #1 position. Growth has been slow compared to industry and
competition. In 1997-98, it shipped close to one lakh PCs, which included pieces
manufactured through HCL’s alliance with HP. It reached 101,500 in 1999-00,
growing at a CAGR of only 6% during the two years. Also, HCL has not been able
to maintain its significant lead in numbers it had earlier. HCL’s PCs were 50%
more than its nearest rival but after the HCL-HP combine broke up, an aggressive
positioning by the competition has seen the gap reduce. The difference between
HCL and Compaq, the #2, was only 20,000 pieces in 1999-00; much lower than the
50,000-plus gap in 1998-99.

The strategy seems to be to move towards the higher-margin services and HCL
is concentrating on becoming an end-to-end solution provider leveraging on its
installed hardware base. Also, it seems to focus its PCs more for homes. HCL is
using such marketing tactics as road shows and carnivals across the country to
build brand share in a market increasingly dominated by MNCs. It remains to be
seen whether all this can help HCL, the #1 Indian PC company, retain its
position.

E-4/5/6, Sector XI, Noida 201301
Tel: 4555219, Fax: 4550923
Web site: www.hclinfosystems.com
Chairman and CEO: Ajai Chowdhary
Revenue (1999—00): Rs 996 crore

Compaq

Compaq
reclaimed its #2 spot in 1999-2000 from Zenith, which shipped 1,000 PCs more
than Compaq in 1998-99. Compaq saw strong growth in the home segment where,
according to our estimates, it grew by over 200%, from 7,214 in 1998-99 to
21,784 in 1999-2000. However, at the corporate desktop level, it seems that it
is yet to get the top-of-the-mind recall that HP’s Brio enjoys. Compaq plans
to address this with its Deskpro EP range of PCs. However, its clear focus seems
to be the home and this is where the company hopes to get the maximum market
share, both in value and volume terms.

Also, according to IDC, Compaq could emerge as the top player in the Indian
market–the September PC channel sales figure puts the company in the top
position. The report pegs Compaq’s market share at 7.9% with September sales
at 9,297 units. However, the company is going to face the heat from HP on the
home and corporate front and from IBM, which looks strong on the corporate
front.

92, Industrial Suburb, II Stage
Yeshawanthpur, Bangalore 560022
Tel: 3374785, Fax: 3374395
Web site: www.compaq.com
Managing director: Balu Doraiswamy
Revenue (1999—00): Rs 1,085 crore

HP

Still
recognized more as a printer company, HP has been doing a great job in the PC
market. At #3, it has been able to give "value for money" with its
low-priced Brio. It upstaged Zenith’s highly successful "MNC value at
Indian price" proposition. So successful has been the pricing that nearly a
third of HP’s PCs probably goes to the consumer market competing head on with
its own Pavilion brand, which targets homes. The Brio has been the single reason
for the plus 100% growth in HP PC numbers, more than doubling its 1999-2000
numbers to 63,000 from the earlier 25,000. In the home market, it’s trying to
replicate its international success with the Pavilion range. However, with
Compaq betting on the home segment,and with IBM getting aggressive in the
corporate segment, it will be interesting to see where HP places its bet.

Chandiwala Estate
Maa Anandmai Marg
Kalkaji
New Delhi 110019
Tel: 6826000, Fax: 6826059
Web site: www.hp.com
President: Ganesh Ayyar
Revenue (1999—00): Rs 1,137.8 crore

Zenith

Zenith’s
only value proposition–"MNC value at Indian prices"–was taken over
by HP a long time ago and this has reflected in the poor growth in Zenith’s PC
numbers. Compared to the 1998-99 growth of 52% in numbers and 34% in revenues,
Zenith grew a meager 3.6% in numbers and 5.7% in volume in 1999-00.

Zenith projected its PCs as a branded product at shades above the assembled
PC prices for the home; while it pushed its value proposition of "MNC value
at Indian prices" for the corporate. The home and corporate segments, both
key for Zenith, seem to have lost interest among buyers. This is partly due to
an aggressive strategy by HP and Compaq on the home and the low-priced MNC PC.
But a bigger problem for Zenith has been the lone brand for every user.

Zenith House
29, MIDC Central Road
Andheri (East)
Mumbai 400093
Tel: 8377300, 8366030
Fax: 8377297
Web site: www.zenith-india.com
Chairman and managing director: Raj Saraf
Revenue (1999—00): Rs 250.2 crore

Wipro

Known
more for its software division and Asim Premji, Wipro has been in the top league
for a number of years. Of course, it’s no longer an equal to HCL. More
importantly, with the phenomenal success in the software business, the question
that keeps popping up is whether Wipro can regain its earlier glory or continue
to be an important player in the PC market. In 1999-2000 Wipro did reasonably
well with sales doubling to 49,000 units from 23,800 in 1998-99 as average
realization crossed the Rs 40, 000 mark to be in the top 5 league. Wipro has
been focusing on the corporate segment more than the home segment. However in
the last one year, the company is focusing its various brands on the home
segment.

Doddakennelli, Sarjapur Road
Bangalore 560035
Tel: 8440011, Fax: 8440056
Web site: www.wipro.com
Chairman: Azim H Premji
Revenue (1999—00): Rs 2,035.7 crore

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