Acursory look at the Indian PC landscape during FY 2004-05 revealed a pitched battle between global and Indian giants-a locking of horns characterized by cutthroat competition fueled by fiercely waged pricing skirmishes. HCL is the leading Indian brand, with other Indian players like Zenith, PCS, Wipro, and the likes also having a good growth year. The MNC warriors HP, IBM, Dell, and Acer took on the Indian giants, with HP at the pole position. With both global and Indian brands contesting closely for greater market share, the PC market in India ended the fiscal on a rather comforting note with a growth rate of 24%, as against the previous year's 21%. But growth does not mean that things were well with all PC vendors. The first indication of the pain and pangs of operating in an industry that is becoming stressed by with wafer-thin margins was the surprise sellout of IBM's PC division to China's Lenovo. And then came the news that, globally, HP's PC division is ailing and badly needs a turnaround. In all, it is not a very rosy picture for vendors who need to launch a new product frequently with higher specs and lower prices, given that the obvious question on every PC vendor's mind is: Where are the margins? To add more salt to injury was the VAT that came into play by April 2005, and added to that the zero import duty regime which set the stage for intense competition. As the tax regime impact will be felt in the ensuing quarters of the current fiscal, let us rewind here a bit and delve into fiscal FY 2004-05, and figure out how things panned out for the PC business.

Fiscal 2004-05 can be called the year of affordability. Customer choices clearly expanded with the market getting more defined as vendors offered focused products aimed at various buying segments. While the Government talked about the sub Rs 10K PC, HCL took the lead and announced a sub Rs 13K PC sporting a Via based processor. In recent times, Kolkata based Xenetis has been attacking the market with a slew of low cost PCs that will alter the PC landscape in the ongoing fiscal. Meanwhile, processor wise, Intel's Celeron is still going strong in India but the price differential with P4 HT is fast narrowing. This will ultimately put the brakes on Celeron based PC sales in the days ahead. However, the default desktop configuration over the year was the P4, 40 GB HDD and 128 MB RAM. The country's numero uno, HCL, made an impact by announcing a slew of offerings luring both the price conscious budget buyers as well as the higher end offerings aimed at the high value segment. Notwithstanding the dwindling margins in the PC business, the healthy growth rate indicates that PC volumes increased due to a combination of factors. The surprise mini budget and the tax sops on PCs that came in the last quarter of FY 2004-05 were fully felt in the AMJ of FY 2005-06. Further on, the union budget did away completely with the excise duty for completely built PCs that set the tone for the JAS quarter of the fiscal, but initial buoyancy fizzled out as the government re-imposed the tax at 7% for imported PCs and 6% for standalone CPUs. While it made for pricing confusions, at the same time it created a level-playing field between global and domestic vendors. The escalation of desktop volumes was clearly felt at the end of OND in which the volumes grew in excess of 30% at 9 lakh units. The upsurge in sales was attributed to the festive season.

The acceleration effect continued well through JFM of FY 2004-05 with volumes hovering around 9 lakh shipments. Both HCL and HP posted record sales with shipments crossing one-lakh units in the quarter. HCL's first of its kind PCs on the EMI scheme also increased the affordability index further with middle income group consumers going for that. Says an IDC report, "The recent re-surfacing of finance-based purchase options also had an accelerating effect on the consumer desktop market, which is already witnessing a consistent drop in end-user prices for both the branded and the unbranded players". At the end, the audit for the whole FY 2004-05 revealed a growth of 26% with units summing up to in excess of 3.3 mn.

Desktops: The Volumes Game
In the previous year (FY 2003-04) the major trend was the assemblers shedding marketshare in favor of the branded players. That trend saw further escalation during FY 2004-05 with the assemblers' slice shrinking further as against the previous year's 58% to 48% for FY 2004-05. A further downslide is expected on the assembler space in the days ahead. With the Intel based branded PC coming into the sub-Rs 18,000 mark, the assemblers found the going difficult. Some took the more lucrative route by becoming resellers, and in the bargain averaged better margins. In terms of buying segments, as usual, the BFSI vertical responded proactively and opted for various configurations driven by the bank branch automation and expansion of their core banking solutions. Meanwhile, rapid expansion of facilities by software services companies also drove the PC volumes to the pink. Telecom is another vertical that also did aggressive buying.

A look at the vendors in the fray reveals the dominance by HCL and HP who due to their reach and manufacturing capabilities have been dominating the desktop arena in the country for the last few years. The year also saw the phasing out of USB 1.1 ports with all branded PCs adopting USB 2.0 standard that redefined data transfer rates between the PC and the peripheral devices. For instance, branded desktops offered two high-speed USB 2.0 ports on the front side of the ATX cabinets for easy access, and brands like IBM provided optional accessories such as the portable USB 2.0 Hard Drive. For the uninitiated, the USB 2.0 ports transfer data up to 40 times faster then USB 1.1 and provide backward compatibility with existing USB 1.1 devices.

Dell also upped its visibility during the fiscal with aggressive pricing and that became evident in the DQ-IDC Customer Satisfaction Audit (CSA) 2005, in which Dell was ranked number one in the overall product and post sales support. This feedback from customers is a clear indication of Dell's growing stature in India. The innovative campaigns that the company launched in the recent times include its attractively priced Optiplex series of small desktops with pricing starting from sub Rs 20K to Rs 30K for bulk orders of minimum ten machines. This strategy worked for Dell in pushing its products in the verticals like BFSI, software, and the BPO space, where front-end operations called for bulk PC purchases. Dell's focus primarily on the enterprise side of things has improved and this has upped its brand recall in the last one year. Meanwhile, for the second biggest Indian PC manufacturer, Zenith, it was a very eventful year with volume sales going up as it used its state of the art manufacturing facility in Goa to the hilt. But the year also saw players like PCS Technology upping their product ante by launching various new initiatives. PCS in March announced the setting up of its second PC manufacturing plant in India at an investment of Rs 20 crore, in Goa, where it already has a plant. The second plant, which is expected to be operational soon, will assemble notebooks, servers, and desktops with a 70K capacity. PCS reached the market with its competitive pricing and it launched an Intel Centrino notebook called Mustang priced below Rs 50K. On the desktop side it pitched hard its Silver Magic net PC, targeted at the home segment.

While the MNC and the Indian brands grew on expected lines, the biggest surprise over the last year was the storming of LG, which saw its volumes rise considerably. LG, according to company sources, became the third largest selling desktop PC in the Indian consumer PC market. In total LG achieved a sale of 96.5K desktops during the fiscal. Other players like Wipro, Accel, and Vintron made up the rest of the PC pie with several of their product offerings.

Notebooks: Growth Ahoy!
If the desktop business looks merrier on the face, going by the performance of the notebooks during FY 2004-05, even a hard-core pessimist has to agree that India is fast emerging as one of the biggest potential notebook markets in the Asia Pacific region. A look at the year that went by amply demonstrates a spectacular year for notebooks, with growth exceeding 141% as compared to last year's 75%. In terms of volumes, an about 2.2 lakh units found their way to the end-users during FY 2004-05. Acer showed good incline in its volumes as the company launched various models targeted at the low to high-end segments. IBM also breached the affordability index by offering notebooks in the sub Rs 40K segment. At the low end, vendors offered the mobile Celeron based notebooks targeted at the price conscious buyers. Acer also made available the AMD Sempron based notebook with the Aspire 1362, which at a price point of Rs 35,999, has been a huge success within the educational community. Similarly, its entry level and mid level lines which comprise the TravelMate 2300 and TravelMate 4000 series, were aimed at the value and price conscious buyers and contributed to more than 50% of its notebook sales. Meanwhile, the entry level Mobile Celeron based TM 2300 at Rs 39,999 and the Centrino based TM 4000 at Rs 49,999 ushered in a lot of aggression in the notebook market. Acer performed exceedingly well in FY 2004-05, and is amongst the fastest growing IT notebook vendors in the country with an estimated 15,000 ship ments in India during FY 2004-05.

Industry analysts attribute the buoyancy in the notebook sector over the last year to customers realizing the added advantages that a notebook offers over a desktop, especially where product features and mobility factors are concerned. Additionally, the introduction of the newer value price bands has expanded the market, especially for mid-level notebooks, and enterprises are now warming up to the idea of providing employees with notebooks instead of a desktop at a marginal 10–20% higher investment cost. Meanwhile for IBM too it is party time in terms of notebook sales. In the recent times its notebook volumes are seeing a quantum leap. An indicator to that end is the kind of volumes it saw last year. For instance, in the first three quarters of 2004, IBM India has shipped close to 39,450 notebooks as against 16,036 the corresponding period previous year, representing a 146% growth. What drove the demand was buying from two kinds of consumers. First time notebook buyers are going in for the low cost sub Rs 40k notebooks. While consumers who already own notebooks went for high-end wireless notebooks."

HP, as usual, topped the notebook charts both in India as well as globally with 34% (IDC). The JFM 2005 quarter was significant for HP as it rolled out new notebook products from prices starting from Rs 49,000 to Rs 1.5 lakh. Another leading player in the Indian PC business, Zenith, attacked the notebook market with a slew of products that surprised the industry. Moreover, the kind of pricing Zenith announced clearly bowled the MNC brands in the country. In all it was a spectacular year for Zenith on the notebook front with growth ramping up to 7,200 units. The growth was mainly due to the seven notebook models the company launched in one go during FY 2004-05. Those were targeted at various buying segments.

Meanwhile other brands like LG, Sony, Samsung, Fujitsu, ACI, and Dell made aggressive forays with high to mid-end machines. For instance, Sony's VAIO range saw lots of traction over the last year with the company going for large-scale visibility exercises. In all, notebooks as a segment became very defined during FY 2004-05 in terms of buying segments. For instance, there were the sub Rs 35K AMD or Celeron entry level offerings, and the mid-end Rs 45-60K Centrino based noteooks, that constituted a major chunk of the notebook revenues, were targeted at power users. Meanwhile, the Rs 65K going upwards of 1.40 lakh ultra portables notebooks offered by players like Sony, Toshiba and Samsung, were aimed at an altogether different segment of globe trotting CEO and the likes.

Notwithstanding the buoyancy, India's notebook penetration levels are very low when compared to other geographies. For instance, India has one of the lowest rates of computer ownership in the world, at just about nine computers per 1,000 people. The global average is 27 computers per 1,000 people, and in the United States it exceeds 500. But things are changing for the better. For instance, Pharmaceutical major Pfizer, during 2004-05, shopped notebook aggressively, with 90% of its computer purchases being notebooks.

The Road Ahead
The outlook for FY 2005-06 is very positive, as vendors are bullish on huge volume growth in both home and the enterprises, which could further drive the PC volumes. A consolidation of vendor growth estimates for the ongoing fiscal puts the volume growth at 32-34%. Intel's P4 HT configurations will see lots of traction and will start cannibalizing on its entry level Celeron based offerings as one is seeing a declining interest in Celeron based machines. The consumer will be more willing to pay a small premium for P4 desktops. However, on the portables front, mobile Celeron will be key to the growth of entry-level offerings with the education segment expected to drive bigger volumes. Similarly, the Centrino-based notebooks will further become affordable and will breach the Rs 45K barrier in the ensuing quarters of FY 2005-06. With the impact of the new tax and duty regimes in place, most vendors consider that it only created a brief confusion on the part of the vendors, channels, and the consumers, and many believe that it will not create any major pricing fluctuations. It was a very eventful year for the PC business in India and one only hopes this revival will drive bigger growth in the days ahead.

Shrikanth G