Desktops & Notebooks

The Indian PC mart was not exactly the most happening place

in town. It grew by 32.4% in unit terms and just 7.3% in value terms. Therein hangs a

tale. Average selling value (ASV) climbed a bit to hover in the region of Rs 30,000 as

low-cost PCs became a hit with the home and SME sectors.

The growth figures of 1994-95 and the following year at 60

and 50% respectively are now history, and so is the measly 22% recorded in 1996-97. The

market seems to be headed for mature and steady behavior ignoring a sluggish economy,

growing at 5.5%, with politicians running amok. However, for past couple of years the

industry has been advocating the one-million-shipment target which, unfortunately, could

not be achieved this year either.

The previous year, when the industry was suddenly shaken

out of its stupor to discover that the home and SME sectors could be the proverbial Davids

guzzling more PCs than the corporate and government Goliaths, it had just braced itself

for a pleasant surprise. But last year the market saw greater segmentation with more

precise positioning of products. For example, the bare-speced Brio from HP graced the

market in September to target the SME segment while the multimedia Presario from Compaq

touched base with the more discriminating home sector in February.

Desirable desktop



HCL Infosystems retained the top slot among PC desktop vendors, no mean feat
this. But that is where the story ends because while in 1997-98, HCL's figure was 90,880

desktops, last year the company shipped almost the same number, at 92,000. Its market

share therefore has dipped from 15% of the market to 11% and the lead it had established

(the next two vendors in the pecking order collectively could not match up to HCL's

numbers) is history.

Zenith and Compaq accounted for more than a lakh desktop

PCs. Like 1997-98 HCL's marketing focus was more on the home and the SME sectors while it

kept distributing HP's Vectra for the corporate buyers along with its homegrown Infinity.

HCL has done well to switch to computer carnivals and other consumer events aimed at the

home market. However, the great Indian vendor will have a tough time retaining its turf as

the MNC prices are catching up with Indian price points helped in part by the steady dip

in customs duty on finished IT products.

HCL's quantum jump in 1997-98 was partly

attributable to the sudden demise of PCL which left a vacuum for HCL to exploit. Last year

Unicorp performed a similar disappearing act after selling almost 25,000 desktops the

previous year but its disappearance barely caused a ripple in the market.

Zenith registered a substantial increase

in units terms. Its market share went up very marginally while in revenue terms its share

dipped from 5.9% to 4.9%, which only shows its competitive pricing. The trend began with

Q1 itself when Zenith introduced a Pentium 200MHz MMX-based multimedia PC at Rs 33,500, a

price point even assemblers and regional brands found tough to beat. This resulted in the

highest ever shipment for Zenith in any quarter. Just when the effect was waning, Zenith

wowed the market with a sub-Rs 50,000 PIII desktop, forcing other vendors to fall in line.

The company is also well placed with corporates who prefer MNC brands as servers and

domestic brands as nodes. Zenith is a channel partner for HP and IBM.

Compaq came third in unit terms but stood

second on the value front. It was one of the first to launch Celeron-based desktops. Last

year it discontinued the Deskpro 2000 series and launched the Deskpro EP and EN series,

which accounted for more than a fifth of its shipments. Compaq also aggressively promoted

the Presario range with its 25 channel partners so that it is seen as one of the major

home brands today. The company entered into a strategic alliance with Canon making Canon

its lead partner for printer products working together to offer one-stop solutions to PC

buyers with joint promotional activities. HP used the same tactic bundling Deskjet 200J

with Pavilions. Compaq's forte really lies in the corporate sector, which continued to be

in the doldrums and it was busy formulating and adjusting to new norms as a result of its

acquisition of Digital.

HP became a full-fledged player only a year ago.

This time it launched two brands that look like shaking up the market. The Brio debuted in

September. Aimed at the corporate sector it broke the Rs 40,000 price barrier. Brio was

launched in order to attract the rapidly growing and more price-conscious SME sector. Not

content with the SME sector HP decided to have a serious dekko at the home with the launch

of the Pavilion in February bundled with a printer and a 10-hour internet connection from

Satyam Infoway. Cheaper than its rival, the Presario, this product could see HP penetrate

the home market.

IBM ranked fifth among PC vendors in unit

terms but due to its strong dependence on the corporate sector, shipments went up only

marginally compared to the previous year. The ASV, however, went up and so did overall

revenue.

Acer relaunched two brands last year, with

a lot of energy being directed to fresh branding. Its breakup with Wipro was

waiting to happen, meaning the company would have to rely heavily on its channel partners.

Even last year its sales had shrunk. Wipro resurrected its SuperGenius brand in a bigger

way positioning it to address the SME and home markets at a 10-15% premium over the

assemblers and regional players. The SuperGenius also scales a wide spectrum of price

points.

Vintron retained its position among the

Top 10 vendors and grew by more than 50% in units. During the first year of launch itself,

ie 1997-98, Vintron sold more than 10,000 units. Late last year it launched its Elixir

range, one of the cheapest ranges in the market. Vintron remains, by and large, a northern

India player and product-wise has just desktops to offer. The absence of system

integrators or value-added resellers hampers Vintron in offering comprehensive solutions

to large accounts, especially in corporate and government sectors. Last year Vintron tied

up with HP to sell the latter's desktops, notebooks and PC servers, which may help it

bundle its PCs with HP servers.

The surprise of the year came really from Minicomp, the

Mumbai-based company which shipped over 25,000 PCs. Vel Computers and Computech too

notched up brisk sales in the south and east respectively.

During the year Dell announced its intention to set up shop

in the country. The $18 billion global IT major has shown none of its famed dexterity in

selling through the Net here and has restricted itself to more conventional channels.

Barebone systems also made their mark in

the market. In keeping with worldwide trends, distributors are beginning to manufacture

barebone systems (boxes with minimum necessary components that can be promptly shipped

with customized requirements). Such distributors include GPTL, Nebula and ERIL. Barebone

systems are cheap and particularly useful for non-excise registered assemblers.

One of the celebrated events of 1998-99 in the desktop

market was the launch of the iMac. Apple had been lying low for long, but last year it

hitched its wagon to the Internet boom by launching the translucent Bondi blue computers

amid a worldwide media blitz. But while the marketing blitz resulted in the iMacs being

lapped up in the US, in India many ogled and salivated at the translucent curves of the

Mac, but this gawking did not translate into sales. The initial price point of Rs 80,000

plus was too much for price-sensitive Indian buyers. Figures from all the resellers just

amounted to about 1200 units. As regards the more powerful G3 Power Macintoshes, about 700

were reported to be sold in the country.

Notable notebooks



Each of the Top Five vendors in the portable market grew. But the growth was not
substantial as notebooks are still unaffordable for SMEs.

IBM's portable shipments grew 16%. The

company provided strong support to the low-end model, ThinkPad 310, as well as the

high-end PII-based one, ThinkPad 600. The year saw the launch of ThinkPad 770ED with a

14.1" TFT screen and a DVD drive was launched in the premium range but it was the

low-end models that accounted for almost 80% of notebook revenue for IBM.

Compaq shipped the highest number of

portables in 1998-99. The Presario and the Armada, some of the best-recognized notebook

brands, sold over 5,300 units during the year. The company bagged some good corporate

orders from Baan, Reliance and Castrol. Toshiba, which is selling through

HCL Infosystems, saw an increase in unit sales of notebooks from 2,100 in 1997-98 to 3,900

last year. Acer portables, on the other hand, did not make a significant

climb compared to 1997-98 and hovered in the range of 1200.

HP, not satisfied with its PC foray,

launched the OmniBook range of portables in the second quarter of 1998-99, appointing GPTL

as the sole distributor. The OmniBooks are available in Pentium 233MHz MMX or Pentium II

226MHz variations. However, GPTL could sell only 247 of the notebooks. Dell

managed

to sell more than HP and, at 650 notebooks, it is ranked fifth. SNI portables were at

sixth position, with 500 units, followed by HP at 350.

Powerful processors



1998-99 saw the launch of multimedia PCs based on Cyrix's MediaGX processor.
These were available at price points below Rs 30,000 during the second quarter. This

helped PCs become more affordable for home buyers. Leading chipmaker Intel discontinued

the shipment of Pentium 200 MMX and Pentium 233 MMX processors, leaving only the Celeron

as its reply to Cyrix. But the absence of Level 2 cache from the Celeron chips hurt its

popularity initially. Only in the latter half of the year did the situation ease for

Intel, with the availability of 128 KB cache on the 300MHz and 333MHz chips. The big news

for Intel, however, was the launch of the PIII. And PC vendors raced each other to

introduce a sub-Rs 50,000 PIII-based systems—Zenith walked away with the honors.

The bigger news for Intel, though, was that National

Semiconductor stopped the manufacture of Cyrix chips which had a 12.5% market share last

year. National, despite being a small player in the PC processor market, had made a

significant dent, gaining a reputation for itself in the marketplace. In fact, its

pricing, apart from AMD's, was seen as the main reason for the slashing of processor

prices by Intel and creation of the low-cost PC segment in 1998. Cyrix made possible

multimedia PCs for just Rs 30,000. During 1998-99, through aggressive pricing, 100,000

Cyrix-based PCs were sold in the country, while worldwide its market share was close to 7%

of the total PCs sold.

The GID strategy proved a winner for Intel and it

consolidated its market initiative. Last year the overall strategy was to add value to

Intel's channel partners through regular core training programs, special programs

empowering them to grow across the market, and through promotional marketing activities.

The chipmaker also launched the Intel Finance Scheme (IFS) program, giving an option to

consumers for buying PCs now and paying later in easy instalments.

AMD has been planning to enter the Indian market in a big

way for quite some time. The company is planning an office in the country, though the date

is yet to be finalized. HP, for one, is already using AMD's K6 chips in some Pavilion PCs.

Deadly distribution



There was more movement in the channels last year. For MNCs, distributors are the
bread winners while for the likes of HCL and Wipro, the dependence is less. With increased

competition, margins have been dipping. As the million-unit mark gets closer, distributors

need to be more professional, adhere to credit discipline, inject fresh funds and gain

better logistics control. GPTL and Redington are headed in that direction and recorded

substantial growth last year. Upping the ante this year will be, of course, ERIL,

subsidiary of the world's largest IT distributor, Ingram Micro.

Last year there was apprehension among established

distributors that distributing majors such as Merisell and Inacom might set shop in India.

That didn't happen. One notable vendor, Unicorp, signed off the distribution business with

the message that distribution is an intense and delicate job. ERP, systems integration,

networking and distribution don't go well together. At least they didn't for Unicorp.

'Homing' PCs



More than two hundred thousand PCs went home this year, a fourth of the
total sold in 1998-99. The overall market grew at 33%. The home segment grew at a

scorching pace of 89%. According to IDC (India), HCL kept up the lead it had taken the

previous year and claimed a market share of 9% by units and 10% by value. Zenith came a

close second with 9% by units and 8% by value. The top six vendors were HCL, Zenith,

Compaq, Vintron, Wipro and HP. Cumulatively, the top six just accounted for 26% of the

total home market in unit and 30% in value terms. The assemblers and GIDs made headway in

70% of the market.

Last year the absence of strong packaging—a single,

shrink-wrapped product with well-defined specs and service and warranty was lacking.

That's not true anymore. Take the latest entrant, HP's Pavilion. The Pavilion 4403 comes

with an AMD K6 processor, 3.2GB hard disk, 15" digital monitor and a host of other

features. MNC majors, domestic brands, GIDs and assemblers have never been in such eyeball

to eyeball (read price point to price point) confrontation. Some of the PCs are shipping

with an in-built modem and are bundled with a printer and an Internet connection. In an

assembled PC, if one actually puts together a machine with the same specs and adds on the

cost of a printer and Net connection, it would cost between Rs 40,000 and Rs 45,000,

precisely the price points the Presario and Pavilion hover around.

The outlook



PCs being the building blocks of the IT industry, they drive the demand for a
spectrum of other products and services. PC sales are a reasonably accurate barometer of

how the IT industry is faring. The opening of the ISP market should fuel PC sales in the

coming year. Banks and financial institutions are expected to continue with their

computerization programs aided by the World Bank.

On the flip side, Kargil and the prevailing political

uncertainty may discourage fresh investment decisions. Continuing inflation in the Indian

economy may also have a dampening effect on home buying as disposable incomes get eroded.

Desktop PC Vendor Share (1998-99)

Dell, Computech, Vel, CMS, DCM, Nexus, ERIL, Gateway, Tata

Elxsi, Apple, Micron & Melstar are included in Others.

Portable PC Vendor Share (1998-99)

Apple is included in Others

 PC MARKET SEGMENTATION

Home PC Vendor Share (1998-99)

DATAQUEST