The Indian hardware industry, unlike the software services sector, has traditionally not lived life by the quarter. That may be changing. Finally, MAIT is bringing out quarterly reports on PC and all hardware sales, much on the lines of quarterly hardware tracking done by market research agencies.

In the third of its quarterly report this fiscal on Q3 market share figures, the association has come up with some interesting numbers. Two of which are significant. The first is what it called an alarming increase in the number of assembled systems sold in the market. And the second is what looks like a growing penetration of PCs in cities outside the four metros of Delhi, Bombay, Calcutta and Madras.

According to the report, the grey market’s share of total PCs sold increased from 49% to 63% even as overall PC sales fell 2.3% in Q3 as compared to the previous quarter. Clearly, MAIT is not happy with the situation. "We will continue to press for reduction in excise duty. It is key to reducing price points for IT products and eradication the grey market menace," the association’s executive director Vinnie Mehta said in the report.

The organization is doubly miffed because the recent Jaswant Singh budget did little to either fuel local hardware sales or to check the growth of the grey market. "The budget did not bring down excise duty. It puts branded players at a disadvantage," Mehta added. For two years now MAIT has been demanding that excise duty be halved from the existing 16% to 8% to help branded players compete effectively with the grey market. The association has also argued that the government itself stands to gain if it lowers excise duty. "The government loses about Rs 500 crore annually because the grey market does not pay excise. Lower excise in fact would have helped some of them graduate to the organized sector," adds Mehta.

The branded disadvantage
It’s an old story. Branded PCs have been forever on the back burner in India on price competitiveness. While assemblers work out of single rooms/showrooms, branded PC pricing has to take into account not just the excise and customs duties but serious manpower and overhead costs. In addition, assembled PCs offer more flexibility to the customer who can configure the specs according to his requirements and budget.

Interestingly, there is another factor that seems to be adding to the growing popularity of grey market systems – pirated software. Assemblers have for long bundled non-licensed and therefore, considerably cheaper, software into their systems.

According to a recent IDC report, software piracy in India has actually gone up during the last year (see "Of Pirates and CDs") and could be a contributing factor to growing grey market PC sales. Assembled PCs have traditionally held a sizeable market share in India. The Internet fuelled this demand further in the late 90s and the assembled market grew from 3.7 lakh units in 1997-98 to eight lakh units in 1999-2000. Doubling in just about two years. In fact, historically, there has probably been just one year in which the grey market share of the total market actually shrank. This was in FY 01-02—when overall systems sales fell by about 7.5% while PC sales fell by about 5% in unit terms.

Other trends
Other trends that MAIT identifies in its report include—greater growth in PC sales in the non-metros; enterprise demand being led by banks, educational institutes and the technology sector; notebook sales still a corporate phenomenon; server market growth tapering off in major cities as organizations consolidate investments and a flat quarter for peripherals.

Interestingly, in both the server and notebook segments, the top four metros seem to be contributing less and less to total sales.

On the whole however, MAIT is sticking to its original projection of 20 % growth in PC sales during the year despite a marginal drop Q3. By the end of fiscal 03, MAIT estimates 2 million PCs would have been sold during the year. The second of the PC volume landmarks in recent times. (The 1 million installed base mark was crossed in 1995). Despite the landmarks, the old issue of the grey market just does not seem to go away. At least half of the two million PCs sold during the year would have come from assemblers who are now seen as key drivers of PC consumption growth. Question—is that such a bad thing?

TV Mahalingam

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