IDC's sees no impact of economic slowdown on IT

While various economic indicators for 2000-01 point towards an economic slowdown, the domestic IT industry is witnessing an exhilarating growth. IDC's Industry Performance Index (IPI) shows that the Indian IT industry continues unabated on its growth path. The index, based on IDC's India IT tracking programs, reveals that in the first six months of the current fiscal (April-September 2000), almost all IT product categories witnessed vertiginous growth. This vindicates IDC's earlier stand that there is tremendous buoyancy in the Indian IT industry and it will not be impacted by the minor slowdown that the economy is currently facing.

IDC's Industry Performance Index is a surrogate measure of the performance of the Indian IT industry as compared to the base period (first half 1999-00). It is the normalized weighted score of the domestic industry size across various IT product categories. The weights refer to the relative share of a particular product category in the overall market and the scores are normalized assuming the index for the base period to be 100.

In the first six months of the current fiscal, the Industry Performance Index has grown to 159.5, which represents a jump of more than 35 points over the preceding six months. This highlights the fact that the performance of the industry is improving significantly between two successive periods.

Unlike in the past year, when the growth came primarily from the consumer segment, the growth in the current fiscal is fairly evenly spread. While the home segment remains the fastest growing segment, there has been a considerable improvement in business spending as well. This is clearly borne by the fact that products that move primarily in the business segment, namely commercial desktops, notebook PCs, servers and LAN hardware, have also grown at impressive rates.

PCs represent not only the largest component of the IT industry, they are also one of the fastest growing product categories. Although components shortage and currency devaluation kept the average sales value (ASV) of PCs on the higher side, it could not arrest the tremendous momentum that existed in the market. IDC estimates that in the first half of 2000-01, more than 8.5 lakh PCs were shipped. Of these, approximately one-third found their way into homes. The home segment has been consistently growing above the overall average, which is pushing the share of this segment up. IDC believes that this trend will continue for at least a few more years.

While the home segment has been growing at a scorching pace in the last three years, what sets apart the first half of 2000-01 from the preceding years is the high growth in the commercial segment as well. While shipments of commercial desktops shot up by almost 58 percent in the first half of 2000-01 as compared to the same period of last year, sales of notebooks, which move primarily into the commercial segment, grew by 68 percent in unit terms.

IDC believes that impressive performance in the first half would be repeated in the second half of this fiscal, with another 9.5 lakh PCs getting sold in the latter half of the year.

The first half of 2000-01 has been particularly good for servers as well. While Standard Intel Architecture Servers (SIAS, earlier called PC Servers) contributed the maximum to the total server market and grew by over 30 percent in value terms, the growth was driven by the non-SIAS segment, where the value jump was to the tune of 57%. After languishing for several years, the market for non-SIAS servers has got a fresh lease of life now. Internet emerges as the prime driver for servers; however, the finance segment (including banks, NBFCs and stock exchanges) is investing heavily on non-SIAS servers, especially in midrange and high-end servers.

The workstations market does not echo the same sentiment as the server market. Being a niche product, the growth in this segment has been somewhat limited. Traditional workstations (RISC/Unix) are increasingly being threatened by Intel-based Personal workstations. As a result, the market for traditional workstations has been declining over the years. In the first half of 2000-01, personal workstations grew by as much as 167 percent, while traditional workstations declined by 19 percent as compared to the same period of 1999-00.

LAN hardware market also did very well in the first half of 2000-01, notching up a growth of 65 percent over the same period of previous year. A strong growth in demand for switches and routers was the prime reason for this solid growth. Apart from a strong demand from the ISP segment, large amounts of LAN hardware is also being bought by software exporters. In addition, call center business is also booming in India, thereby adding to the demand for LAN hardware.

IDC opines that this strong growth is expected to continue for the second half of the year as well as major ISPs are expected to continue investing in infrastructure to maintain service quality levels for new subscribers and ward off competition from new market entrants.

Perhaps the largest beneficiary of the boom in the computing products market has been the peripherals industry. Apart from peripherals bundled with computing products, there is also a substantial after-market for peripherals like hard disk drives and monitors. The need to upgrade the PCs in the installed base is the prime reason for higher growth rates for peripherals than computing products.

The market for monitors crossed the million unit mark in the first half, representing a growth of almost 44 percent in unit terms. The growth in value terms was much higher as the market made a sudden transition towards wider monitors. The share of monitors with screen size of 15 inches or above shot up from around 23 percent in the first half of 1999-00 to a substantial 49 percent in the same period of the current fiscal.

The growing demand for storage led to an explosive growth in the hard disk drive market. As organizations become more IT-savvy, their demand for storage capacity increases. Moreover, IDC believes that the rise of Internet and e-business continues to put a huge demand on storage needs of organizations that want to redesign their business strategy around the Internet. The market is also witnessing a dramatic shift towards higher capacity drives. In the first half of 2000-01 almost three fourths of all hard disks sold had capacities of 10 GB or above, as compared to less than one percent a year back. In IDC's view, this shift is more vendor-driven today but user requirements will soon start keeping pace with the rapid technological advancements in the area of storage.

The printer market has been witnessing a flurry of activity as competition intensifies, especially in the rapidly growing inkjet category. Price and promotion are the main factors that differentiate the winners from the also-rans. Despite a heady growth in the PC arena, the growth in the printer market has been limited by the fact that increased adoption of network printing in the business segment is forcing the Printer-to-PC shipment ratio to move southward. Although the growth in the printer market pales in comparison with that in the PC market, it stands at a fairly respectable level in absolute terms.

Inkjet printers have now become the technology of choice for most segments. Nevertheless, the demise of dot matrix printers is still very distant. Given the inherent advantages like ability to print multiple pages, ruggedness and low printing cost, dot matrix printers would continue to find buyers in certain specific segments of the market. However, the market for dot matrix printers will start flattening out soon. In the first half of 2000-01, more than half of all the printers sold were inkjet printers. This marks a significant shift from the same period of 1999-00, when more dot matrix printers got sold

vis-a-vis inkjet printers.