A recent report by IDC says that 1,000 PCs were shipped every hour in Q4 (JFM) 2008, taking the total PC shipments to 2.1 mn in this quarter, as against 1.9 mn in the corresponding quarter last year. The fiscal ended with PC volumes (desktops and notebooks) crossing 8.25 mn, signifying a growth of 22% in shipment terms. In terms of desktops, which constitute a bigger slice of the PC pie, the total number of desktops shipped during FY 08 was 6,219,763, a 10% growth in volume, according to IDC. In terms of value, desktops grew only by 5%.

Stacking up the years progress, in terms of volume, desktops managed to sustain growth but its net value was an area of concern. Despite the same growth in volume last year, a decline in prices during FY 08 and a section of the consumer segment opting for assembled PCs have made the value growth rather flat. Moreover, IDC in its PC audit this year has also taken whitebox (assembled PCs) into consideration and hence has revised the overall volume and value of last year. The bottom line nevertheless was that the escalation of notebooks breaching the sub Rs 30,000 price points enabled first time PC users also to go for notebooks. Assemblers continued to hold a prominent place in the consumer desktops space, and the overall decline in ASV led to a flat value growth.

Desktop Dynamics
Three to four years back, the gap between the desktops and notebooks shipments was significant. But if we look at shipments of three of the top five players in the PC industry, the gap between the total number of desktops and notebooks has significantly come down. For instance, HP shipped a total of 1.4 mn PCs over the last year51% desktops and 41% notebooks. Meanwhile, Lenovos PC volume break-up shows 53% desktops and 47% notebooks. Acers desktops and notebooks share was similar with 52% and 48%, respectively.

However, in terms of revenue, notebooks had a better yield and overtook desktop revenue in the case of Lenovo and Acer. The narrowing gap between desktop and notebooks may be a trend in the making. It will not be a surprise, if given the momentum and vendors focus on the notebook market in FY 09 that notebooks overtake desktops shipments for vendors like HP, Acer, and Lenovo. But at the same time, desktops will grow overall, mainly driven by enterprises, as they have a large fixed workforce.

At the commercial side of things, its the branded players who hold the market. In the consumer space, assemblers have a considerable market shareas per industry estimates, the assembled desktops category has 18-20% market share currently.

Vendor-wise, HP tops the desktop market with 12% market share. Over the last year, HP made concerted efforts to strengthen its offerings, both for consumers and businesses. It was aggressive in its go-to-market strategy and expanded its retail footprint across 500 cities and its retail partner network to over 2,000. On the consumer side, it launched new Compaq Presario desktops priced between Rs 15,000-28,000. For businesses, HPs desktop portfolio was spread across the 7000, 5000, and 2000 series, and ultra slim desktops. These products are also competitively pricedthe ultra slim desktops starts at sub Rs 45,000 price points.

How they Stacked Up Company Revenue(in Rs  crore) HP 2,500 HCLI 2,060 Lenovo 1,306 Dell 1,021 Acer 565 Others 8,870 Total 16,322
Others include Wipro, Zenith, Xenitis, Chiragh, Sahara, Vesta, etc, besides the substantial grey market/assembled segment for PCs.
Source: DQ Estimates
While HP and HCL retained their top positions, vendors like Dell and Acer made maximum gains. Dell shed its direct only strategy and started courting channels. Bollywood stars too shone brightly on the PC firmament in FY 08Shah Rukh for HP, Saif/Soha for Lenovo and Hrithik for Acer

At #2, HCL spruced up its product line. As one of the largest selling brands to enterprises, HCL saw good momentum for its commercial offerings. HCLs desktops are branded on the Infiniti series, for which HCL also offered value added services like remote software support and PC problem resolution. In terms of product innovation, HCL has successfully leveraged Intels Atom processor, both on notebooks and desktops. During the year, HCL also launched MiLeap small form factor notebooks with a starting price of Rs 14,000.

In a more recent development the company launched a new desktop PC called Neutron, based on the Atom processor. The incorporation of the new processor from Intel is significant because this will reduce the space taken by desktops. For instance, an Atom-based desktop occupies 85% less space and consumes 76% less energy.

Meanwhile, Lenovo managed to garner a modest growth of 9%. Lenovo branded desktops were targeted at consumers and ThinkCenters were for the enterprise segment. Keeping with the trend, Lenovo jumped into the small form factor desktop race by launching ThinkCentre A61e, an AMD-based machine and priced it aggressively at Rs 16,000. But small form factor as a separate category is heating up with all leading players taking a plunge. Interestingly, Lenovo has gone the AMD way and offered Athlon 64x2 or Sempron instead of Intel Atom, a processor mainly aimed at small form factor PC. But since Athlon is a power processor, this is bound to connect better with users in the enterprise space, thus justifying Lenovos processor strategy.

With a 10% unit growth, vendors retained their market shares with Dells going up marginally but its not that rosy on the value side, the growth was just about 5% overall

The A61e is an interesting offering from Lenovo and can be termed as a green desktop given its elements. The machine uses upto 90% reusable and recyclable materials and comes with recyclable packing. Interestingly, this desktop can also be powered by a solar panel that is optional.

On the consumer side, Lenovo launched a new brand of desktops, called IdeaCentre. With features like anti-bacterial keyboard and Lenovos vantage technology, the company called IdeaCentre the digital performance PC for home users. Over the year, Lenovos second manufacturing facility in India went live at Baddi, Himachal Pradesh. The company invested close to $11 mn in the facility, which has a capacity of 2 mn units per annum. For Lenovo, its clearly eyeing a larger slice of the consumer pie. With range of new products and increase in manufacturing capacity, Lenovo has been eyeing a larger slice of the consumer pie.

Dells growing clout in the desktop space was also evident. Its market share increased from last years 4.2% to 5.5% in FY 08. Dell, with a mix of direct, and, more recently, channel and retail selling has considerably upped its presence in India. In the desktop segment, Dells major focuses are large corporates and SMBs. It focus was on the government vertical, where it intends to garner a major slice in the future. As per industry estimates, Dell has more than 100 channel partners pan-India and is working toward increasing the number aggressively. By deciding to sell through channel partners, the volume sales of its desktops is bound to increase. In the future, as Dell gains foothold in the market, it may upset the present market share of top players.

For Acer, its been a good year for desktops sales with 35% growth. Unlike notebooks, the consumer and commercial shipments are more balanced in desktops. Aspire 3450, a top-end multimedia desktop that sported a 19 TFT and eight USB ports was one of Acers important launch. With notebooks posing a challenge to mid- and entry-level desktops, there are growing opportunities in high-end desktops. Acer took seemed to have read the pulse correctly and introduced high-end desktops in the market.

But even with the right strategies in place, Acer has tough competition from vendors like HP, known for high-end multimedia machines. To counter this, Acer offered its high-end machine at sub Rs 25,000 price range, making them highly affordable. Acer also got into small form factor by launching ultra-mini desktop one-tenth the size and one-fourth the weight of the conventional tower desktop.

If we look at the processor adoption, desktops sold are a mix of Intels Core family products. Vendors like HP and Acer drove the AMD processors due to their product breadth and hence there were good numbers of both Intel as well AMD processors in their desktop portfolios. The days of plain vanilla tower design in desktops are on their way out. To make desktops more appealing to a notebook buyer, shrinking it without compromising on the power equation was the only alternate. So during the year, all vendors took to the ultra slim desktop market by either using Intels Atom or mainstream processors. Clearly the desktop dimensions went in for a major overhaul. Moreover, most vendors offered TFT monitors, signaling the trend of stagnation in the CRT monitor side.

Despite the serious challenge posed by the burgeoning notebook market, desktops still flourished. Not just branded PCs, the gray market too was thriving, especially in tier-3 & 4 towns and cities

Outlook
Industry experts aver that during FY 09, desktop growth would be in the around 10-12% in unit terms. Market is predominantly marked by entry-level and mid-end desktops. Going forward, the market would open up to more high-end, multi-media and gaming desktops that will compete with traditional gaming consoles like Xbox and Playstation. On the mainstream, the market will move forward with ultra slim desktop volumes going up significantly in the days ahead.

Shrikanth G
shrikanthg@cybermedia.co.in

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