The first tryst with slowdown

If the global automakers and phone makers would term India as the silver
lining in the dark clouds of the global slowdown, the PC makers have every
reason to vigorously disagree. In FY '09, combined PC (laptops and desktops)
shipment in India declined by eight percent. During the same time period, global
PC shipment shot up by six percent.

India's PC penetration is far lower than many emerging country's, let alone
the developed market. There are many explanations that have been and can be
given. The most common one that you are likely to hear is that most CIOs held
back investments in IT capex in the face of uncertainty, which affected all IT
sales, especially hardware sales. Many analysts would even go to dissect which
industries-IT/BPO is the most accused-did that more vigorously than others and
so on.

The big question-why has the consumer PC market not taken-off in India the
way it should have? India has a population of 1.1 billion. The installed base of
PCs is less than 40 million. Only a small fraction of that would be consumer
PCs.

Unlike software, services, servers, storage, networking and even printers to
a great extent, the PCs are not an entirely B2B product. Had there been an
active consumer PC market in India, probably it would have lowered the impact of
the slowdown. The Indian consumer market has seen no slowdown when it comes to
non-discretionary spending.

PC market crumbled

As India's economy matures, there will be business upturns and downturns and
that will impact all B2B spendings-including IT-from time to time. We are sure,
even this time, with all signs of recovery visible, the enterprises will start
investing in IT again. The IT market will bounce back and so will that of PCs.
The question is: Should the industry leave it at that? PC, as a very essential
IT product in an enterprise-and just that? We leave this for the time being with
some questions, as we move to the performance analysis of the market for last
year.Is it the low broadband penetration that is affecting home PC sales? Or has
the PC failed to prove its usefulness as a product to consumers when seen in
context of what it costs? Will netbooks be able to change that? Or has India
just leapfrogged to mobile devices and the growth may come from mobile devices
becoming more and more like PCs and not the other way?

The Market as it Was

In FY'09, the overall PC market registered a slump-probably its first-of 10
percent over FY'08 to record a total sales of Rs 18,030 crore, down from last
year's Rs 19,954 crore. The laptop market grew 3.5 percent to constitute 43
percent of the market at Rs 7,778 crore. What pulled the market down is the huge
18 percent drop in the desktop market, which registered a sales of Rs 10,252
crore.

One clarification here. This time, the market sizing was being estimated from
end-user pricing- based to what the vendors realized as their revenue.

In terms of unit ship­ments, which the above change in our accounting method
does not affect, the overall market dropped 8 percent, largely driven by 13
percent drop in desktop shipments while laptops grew at 7.9 percent, according
to IDC data. Between April 2008—March 2009, India saw a total shipment of
75,87,000 PCs, out of which desktops accounted for 71 percent and laptops 29
percent.

The Winners and Losers

As in a downturn, there are only losers and big losers. Well, HP
consolidated its market dominance by accounting for one-fifth of the market by
value, though the share in unit shipment terms was a little lower. Dell took the
#2 position in terms of value with a marketshare of 12 percent, while HCL
followed with 10 percent. In shipment terms though, HCL led Dell. Dell had a
very good year and even briefly dislodged HCL from #2 position in terms of unit
shipments in Q3.

Another silent performer was Acer, which decisively surged past Lenovo, as it
has done globally with a market share of 9.5 percent in value terms. What helped
Acer in the downturn is that it has very little exposure to the large enterprise
segments which got affected by the slowdown most severely. Its
constituencies-govern­ment, education, and public sector banks-were almost
isolated from the slowdown and that helped Acer. If Acer did everything right,
Lenovo's case was just the opposite. Nothing seemed to go well with the company,
with too much focus on the transaction model which did not take-off so well at
the same time impacting its traditional relationship model.

Dell, focusing on the business segment in India, focused on selling with the
right mix of relationships, pricing, and sold PCs like any other IT product-with
clear RoI orientation. This was the second year in succession that Dell did so
well.

For HP and HCL, it was an all round game. Even with the slowdown, HP kept
introducing a host of new products across all its ranges-especially in the
notebook segments, both commercial and consumer. This helped it increase
marketshare. Except for a brief drop in marketshare in OND, HP held on to its
dominant marketshare throughout. Toshiba, one of the top five global players in
PCs, was a major force in the laptop market. Sony, on the other hand, was a
player only in the high value consumer laptop market, a position that it has
taken by design.

Among the top five too, the relative positioning in each of the segments
varied. While in the commercial desktop segment, HP's lead over #2 HCL was only
marginal, in the consumer desktop market it was far more pronounced. Dell, a
leader in the US consumer desktop market, does not feature among the top six
vendors in India.

Two-thirds of this market is still held by the assembled/unbranded segment,
making it fairly price sensitive. In the commercial laptop segment-which was
probably the segment of the year-HP was far more dominant with a close to 30
percent share of the market, followed by Dell and Acer, both had less than 20
percent of the share. HP's dominance of the market was even higher in the
consumer desktop segment with more than one-third of the total market. Dell, an
insignificant player in the consumer desktop market, was the clear #2 when it
comes to the consumer laptop market.

With the slowdown showing clear signs of affecting different segments and
user groups differently, the tone of the marketing too changed. The celebrity
endorsement targeted at the consumers that was the hallmark in the previous two
years-Shah Rukh Khan for HP, Saif and Soha Ali Khan for Lenovo and Hrithik
Roshan for Acer-were almost missing. On the contrary, what was most visible was
Dell's high decibel campaign urging users to take their own path. While HP was a
leader in most segments, HCL and Acer did well on the government front.
Surprisingly, even Dell, a latecomer in this segment, did manage to grow well.

Will it be 10-10?

In FY'10, could India's PC shipments cross the 10 million mark? Going by the
trends, it seems highly unlikely, though many hope by the end of calendar year
2010, it may well be a reality, still making it a 10-10 of sorts.

Two isolated events that happened last year in this area could determine how
the PC market grows in India. One is the launch of the Connected India movement
by Intel, which aims at promoting the concept of increasing high-speed
connectivity. The usefulness of the PC as an isolated device has more or less
come to an end.

Second is the advent of Netbooks. A few players like Acer, HCL, and Asus
launched their Netbooks in India. They are positioned between laptops and mobile
phones as an Internet access device, with a good balance between computing power
and mobility. Will they catch the fancy of the average Indian user? That too
will determine how the market moves.

We may have to read a little too much into another trend: foray of many large
PC makers like Toshiba and Acer to the mobile phone market which also happened
last year.

Shyamanuja Das

(Source: DQ)