Tumbling to Ground Zero

The last year was the worst in the history of the computer industry, as the
slowing global economy battered PC sales around the world. Reports from
consultants Gartner Dataquest and International Data Corporation (IDC) have
shown that the decline in computer shipments last year was the heaviest since
the mid-1980s, when the industry was in its infancy. But relatively healthy
figures towards the end of the year offered some signs of hope for a recovery.

The last time consumers turned out in large numbers to buy new computers was
in 1999 when Internet providers such as Microsoft Corp’s MSN service were
offering huge rebates to buyers who agreed to sign up for extended periods to
access the Internet. Around that time, fears of the Y2K bug also helped spur
sales among consumers worried that their systems’ internal clocks would become
confused at dates ending in 00. After two particularly bad quarters, things are
looking up in the current quarter. But with government buying slowing down, one
cannot celebrate as yet. Though the general expectation is that sales in
January-March would grow over the previous quarter, in terms of year-on-year
growth, it will still at best be flat.

WHAT A FALL: A tough year, but signs are that 2002 will be far better

Given the slowdown and the WTC attacks, purchases of PCs, especially by
companies, may only have been postponed, rather than cancelled, in the second
half of 2001. The key indicator here is employment, since staff numbers tally
extremely closely with corporate demand for workstations. Less favorable for PC
makers is the fact that unit sales of computers disguise the heavy discounts at
which many are selling.

The banking sector, one of the biggest buyers in the last couple of years, is
also slowing down, with many of the PSU banks meeting their branch
computerization targets. Most companies are expecting strong demand from
IT-enabled services. Many software companies have postponed upgradation of
machines, with the US in recession. Companies hope that a surge in demand will
emerge from the software sector in the latter half of this calendar year.

Typically, 60 % of PC sales take place in the second half of the financial
year. The January-March quarter absorbs majority of these sales. The
July-September 2001 was the worst quarter, with PC sales showing negative growth
for the first time in the country. The October-December quarter also saw
negative growth on a year-on-year basis. While PC sales in the country grew by a
mind boggling 52 % in 2000, growth came down to mere 9.6 % in 2001. Total PCs
sold in 2001 was about 1.75 million, up from 1.6 million in 2000, according to
the IDC report for 2001. But the winner this year is undoubtedly Assembled Inc.
Of the 1.75 million PCs sold this year, more than a million were assembled PCs.
That way, assembled PCs could easily be among the top PC vendors in Asia.

However, in the branded PC segment, the major upset was HCL Infosystems
regaining its position as the #1 PC maker in India. With a market share of 8.6
%, it moved up from # 2 in 2000 to # 1 in 2001, upstaging Compaq. Except for HCL
Insys, all the three Indian brands lost marketshare in 2001. "The assembled
PC segment has gained further market share from 59 % to 62 %," says A S
Srinivas, Manager, Computing Products Research, IDC India. According to Gartner,
the slump was the result of the economic slowdown coming precisely at a time
when the consumers’ need to continually to upgrade their PCs was on the wane.
Until recently, industry optimists were predicting that PC demand would double
annually, indefinitely. Now, the market should is grow in single-digits, even
once the economic effects had been stripped away. Although sales fell in the
fourth quarter on an annual basis, they showed strong quarter-on-quarter growth–16.9%.

Dhanya Krishnakumar In New Delhi