PCs not to get any cheaper as worldwide shortage hit India

NEW DELHI, Septemeber 3: The worldwide shortage in the semiconductor

industry coupled with booming markets in developed countries and resurgent

Asian economies is putting the squeeze on the Indian IT market. India has

been hit with a shortage of PC components and peripherals, which may halt

the downward spiral of PC prices. Of the major components that go into a

PC, prices of only processors remain stable. Prices of hard disk drives,

monitors, motherboards, graphics/sound cards and memory have shot up by 15

to 60 per cent in the last two months. Most of these components are being

sold under `allocation', industry jargon for contractual buying against

orders.

Other than the macro factors, various other issues affect individual

components. The shortage in motherboards has been aggravated by market

leader Intel's transition to a new integrated (sound and graphics) chipset

called the 810. As a result, remaining stocks of the older Intel ZX and LX

chipsets are selling at a premium. "The market is shifting to using

boards based on chipsets from ALi, SiS and VIA, but their capacity is very

limited," said Avenet Max Ltd. (PCC sales) Key Account Manager Vivian

Singh , distributors for Zeda, Micro-Star, Hyundai and AMD. Interestingly,

the channels in India are not keen on the transition to the 810 as it cuts

into their thin margins. "With the older motherboards we could make

money on the board itself, the sound card and the graphics card. By

integrating sound and graphics on the board, we lose those margins,"

said a PC assembler. Currently, a ZX motherboard sells for $54 while an

810 is going for about $75. "With the 810, we expect a $20 to $25

saving in the bill of materials," said Intel Corp Director (South

Asia) Atul Vijaykar in a recent interview. However, market sources feel

that it will take a few months before the advantages of the 810 are

realized.

Monitor prices have risen because of an agreement between Philips,

Samsung and LG. The top three CRT manufacturers have come together to

control production and rationalize prices specially after the glut caused

by last year's Asian crisis. As a result, they have hiked prices by $5 to

$6 in the 14" category and $6 to $7 in the 15" category.

"We don't see the price of the 14" and 15" monitors

dropping any further," said Proview Electronics Ltd. director Somesh

Sinha.

Hard disk drives also face a situation of transition with strong demand

for 4.3 GB drives in countries like India while developed markets have

moved on to 8.4 GB drives. Seagate's entry level offering - 4.3 GB U4

drive - has gone up from under $70 a few months back to $84 now. Sujata

Infotech Ltd Country Manager D.S. Rekhi attributes this to the increased

demand from the sub-$600 PC market, particularly in the US. Strangely

enough, both 4.3 GB and 8.4 GB capacities are being sold under allocation.

But how long is the shortage going to continue and what effect does it

have on PC prices? Mr Singh believes the semiconductor industry shakeout

is a cyclic phenomenon. "This happened last in 1994-95. I believe the

constraint will continue for 12 to 18 months," he said. Mr Rekhi

feels that the shortage will get more acute. "From now till December

is the heavy buying season in Europe and the US. I see things only

stabilizing after December. In India it will get worse after the elections

when demand from the government sector will pick up and Diwali comes

around."

Both agree that PC prices will either stagnate or increase. Falling

processor prices have helped to keep PC prices within the current range.

It seems, now is a good time to buy, as the scenario for the coming months

seems bleak.