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INDIAN INSTITUTE OF MANAGEMENT CALCUTTA
WORKING PAPER SERIES
WPS No. 598 /December 2006
Indian Hardware Industry – Structure, Problems and Prospects
by
Gaurav Sharma, Priyanka Anand
PG Students, IIM Calcutta, Diamond Harbour Road, Joka P.O., Kolkata 700 104 India
&
Anindya Sen
Professor, IIM Calcutta, Diamond Harbour Road, Joka P.O., Kolkata 700104 India
Indian Hardware Industry – Structure,
Problems and Prospects
Gaurav Sharma1
Priyanka Anand2
Anindya Sen3
Acknowledgement
We wish to thank Mr. Sanjoy and Ms. Madhumita from CMIE for sparing time and
helping us with data requests and reference reports without which this paper would not
have been complete.
1 PG student, Indian Institute of Management Calcutta
2 PG student, Indian Institute of Management Calcutta
3 Professor of Economics, Indian Institute of Management Calcutta
1
Abstract
The tremendous growth of the software industry in recent times has attracted a lot of
attention from analysts. However, the computer hardware industry has also exhibited
significant growth in recent years, through the nature of this growth has not been
analysed in a comprehensive framework so far. In the current paper, we try to provide
such an analysis with an economic focus in the Indian context. We look at the trends in
the different segments of this industry. The paper concludes by pinpointing global trends
and then trying to identify possible trends in the Indian hardware market.
2
1. Introduction
The tremendous growth of the software industry in recent times has attracted a
lot of attention from analysts. However, the computer hardware industry has also
exhibited significant growth in recent years, through the nature of this growth has not
been analysed in a comprehensive framework so far. In the current paper, we try to
provide such an analysis with an economic focus. In section 2, we briefly discuss some of
the salient features of this industry. The next section sets out the global scenario. In
section 4, we lay out the Indian scenario. We start with a historical background, and then
look at the trends in the different segments of this industry. The major players in the
market are also identified. This is followed by analysis of the impact of technology,
several important issues facing the industry, and discussion of government policies.
Section 5 concludes by pinpointing global trends and then trying to identify possible
trends in the Indian hardware market.
2. Nature of the Computer Hardware Industry
2.1 Industry Structure
IT industry can be segmented into hardware, software and training. Hardware has
little synergy with software and very few companies are engaged in both activities. Even
where hardware companies provide 'total solutions', software is typically off the shelf
software developed by specialized software companies. 4 Characteristics and market
requirements of both the segments are vastly different.
The computer hardware industry can be further segmented into:
• Complete systems like mainframes, workstations, personal computers, etc.
Workstations can be further subdivided in to two categories namely the
traditional workstations and personal workstations. Traditional workstations are
defined as RISC-based high-performance computing terminals with the operating
system as UNIX or Open VMS. Personal workstations are defined as Intel-based
computing systems with either UNIX or NT as an operating system.
• Peripherals like printer, modem, digitizer, etc. and
4 IBM's acquisition of Lotus is one of the few exceptions to this case.
3
• Consumables like cables, wires, switches, etc.
2.2 Key Characteristics
A number of features of the hardware industry deserve mention.
a) Low Vertical Integration
Hardware is sold mostly like a commodity - there is very little differentiation in terms
of capabilities and performance. No single company manufactures the entire system on
its own. Each company produces one or two basic parts, which are assembled together
and sold as a complete system. Several regions/ companies have emerged as leaders for
various products. Examples are Intel for microprocessor chips, Malaysian and Taiwanese
companies for printed circuit boards and other electronic parts and so on.
b) Technology
Advancing technology is the performance driver in the hardware market. It
essentially makes it cost-effective to make more complex chips in increasingly compact
sizes and provide a better value proposition.
Another trend observed in computer hardware is that of the convergence of different
products. New products are introduced with new and varied capabilities. Such a fast
evolving market has widened the avenues of competition as well. In some segments
computer hardware companies are directly competing with consumer electronics
companies making personal entertainment systems.
As the industry is marked by commoditization, it is essential that companies
consolidate to make use of economies of scale in order to retain profitability. This is a
typical market structure in a mature commodity industry.
c) Short product life cycle
The hardware industry is different from many other industries in that new products
are constantly being introduced and are premium earners for a short duration before
imitation by the industry leads to commoditization. In this context, companies have to
consistently strive to introduce innovative products on which premiums can be earned.
Such expenditure on R&D can only be justified by economies of scale and the ability of
the company to reach the customers first and penetrate markets to a large extent on
launch.
4
2.3 Industry Analysis
The IT industry has gone through many phases and is still transforming itself,
though the pace of transformation seems to have slowed in recent times. Based on the
discussion the previous section, we can therefore identify the following features of the
hardware industry:
• Mature Industry: With the passage of time the industry has matured, starting with as
many as 90 players it has slimmed down to nearly 10 major players. This has given birth
to a stiff and healthy competition. We can see that the hardware industry has reached the
zenith point and any further drastic changes in the industry cannot be foreseen. This is
leaving less room for new entrants to enter the market.
•Technology Driven: When we say that the industry is technology sensitive we refer to
major changes in the manufacturing process which involves a need to dump the existing
facilities and adopt a more sophisticated one. The point to be noted is that the
manufacturing process may undergo a change but no significant change is evident in the
hardware products. The only change expected is in the microprocessors segment.
• High Competition: The competition among computer hardware companies is
particularly intense. On the one hand, in the traditional PC market, companies' products
have largely become commoditized, with constant downward pressure on prices (and
narrowing profit margins) being the result. On the other hand, there are markets for
innovative new products, like tablet PCs and ultra-minimal desktops that are not yet fully
commoditized. Here, the race is on to develop products at breakneck speed so that a
company can be first to market a product. If a company falters in new product
introduction, it instantly becomes a target for larger companies looking to acquire new
businesses. In the era of high competition and depleting margins industry has witnessed
the extinction of nearly 80 companies since its inception. Some were forced to leave and
others had to consolidate. A recent illustration of this phenomenon can be the merger of
HP and COMPAQ. The high competition is expected to prevail; survival of the fittest is
the call of the day. DELL has given a serious fight to both IBM and HP, which are being
forced to move into ancillary services away from hardware.
5
•Global Supply: Outsourcing has been the buzz word and one of the keys to success in
today’s corporate world. The entire world has been a market for the hardware players.
This has also led to the mushrooming of suppliers globally. Hence economic sourcing of
supplies has become the need of the hour. This also provides reliability and cost
advantage.
• Price Elastic: The industry demand is price elastic which means a small reduction in
the price may boost sales. This is more evident in the PC market. Dell’s recent reduction
in the prices is giving sleepless nights to its competitors.
3. Global Scenario
The global computer hardware market grew by 5.6% in 2004 to reach a value
of $338.5 billion. The compound annual growth rate of the market in the period 2000-
2004 was 2.4%. Sales of personal computers account for 43.4% of the global
computer hardware market's value.
Table 1: Share of PCs in Global Hardware market
Category % share
Other Computer Hardware 56.6%
Personal Computers 43.4%
Source: Datamonitor
Looking at the Table 2, we observe that the growth rate has constantly increased
with the exception of year 2001 in which hardware products registered a decline
owing to IT Industry meltdown.
Table 2: Global Computer Hardware Market Value: $billion, 2000-04
Year $ billion % Growth 2000 308.0
2001 299.6 -2.7%
2002 308.0 2.8%
2003 320.5 4.1%
2004 338.5 5.6%
CAGR 2000-2004 2.4%
Source: Datamonitor
6
Figure 1: Global Hardware Industry Market Value
280
290
300
310
320
330
340
350
2000 2001 2002 2003 2004
% G
row
th
-0.04-0.03-0.02-0.0100.010.020.030.040.050.060.07
$ bi
llion
$ billion % Growth
Source: Datamonitor
An interesting point to note here is the geographic distribution of growth as exhibited in
Table 3. Asia Pacific has captured a major chunk of this with about 36 % growth.
Countries like India, Korea and Taiwan inspite of being non-manufacturing hubs have
shown high positive growth rates indicating the widening customer base in these areas.
Although the number of market players has come down, and despite the big role of
unorganised sector, MNCs are able to increase the growth in sales year after year by
setting up manufacturing bases in countries like India and utilising the route of price-
cuts.
Table 3: Global Computer Hardware Market Geographic Segmentation, % share
by value, 2004
Geography % Share
Asia- Pacific 38.8%
Europe 27.5%
US 26.8%
Rest of the World 6.6%
South Africa .3%
Source: Datamonitor
The Asia-Pacific region accounts for 38.8% of the global computer hardware
7
market's value, while Europe maintains a 27.5% share of the global market’s value. It is
very important to note that growth and domination from Asia – Pacific region is
largely due to base products like semi conductor and chip industries in countries like
Taiwan and Korea which is an important lesson and learning from the Indian
perspective.
4. Indian Scenario
4.1 History
The wars in the 1960s and the subsequent refusal of the US to sell electronic
equipment to India in 1965 fuelled the Indian government’s need for a policy for "self
reliance" in defence.5 In that backdrop, the Habra Committee report’s central theme
inevitably was "indigenization"- a word that drove the course of the Indian hardware
industry for over a decade. In this section, we will look into the factors responsible for
the growth of hardware industry in India.
Lack of Advanced Products
Prior to 1977, there were no Indian producers in the Computer hardware
business but a few international companies such as DEC, ICL, Honeywell, and IBM
dominated the scene. These MNCs largely sold old, refurbished systems in India with a
substantial mark-up. In 1971, India’s request for advanced computers was turned down
by IBM, and this triggered off the Indian government’s interest in the industry.
Government Monopoly
Subsequently, the government took the monopoly route and set up the first
domestic producer of computers, the Electronics Corporation of India Limited (ECIL).
Its brief was to tie up with international companies for local manufacture of
computers—and to increase the local content to a point of "self sustenance". At the
same time, the Department of Electronics and the Electronics Commission were
established and later in 1976, Computer Maintenance Corporation was set up. Import of
computers was carefully regulated, depending on ECIL’s production capacity, and the
entry of the local private sector was controlled. Foreign investment was discouraged
through the Foreign Exchange Regulation Act (FERA) passed in 1974 that prevented
5 The Habra Committee on Informatics was setup to establish the role of IT to further that end.
8
any foreign company from holding more than 40% equity. Its implementation in 1977
led to the exit of IBM (market share of 70%) from India.
The general government policy of heavy industrial regulation hurt the computer
industry: (a) The MRTP (Monopolies and Restrictive Trade Practices) Act set limits on
the capacity of companies, and prevented them from achieving economies of scale and
learning through mass production.
(a) Licenses for narrowly defined products were required from more than one
government authority which meant that it could take years before all licenses were
obtained.
(b) Import of components was highly restricted through tariffs.
(c) Foreign investment was restricted through FERA and the IT Act.
At the end of 1977, the installed base of computers in India was only 450. ECIL
started production in 1977. The period 1977-83 witnessed excess domestic demand for
computers, and domestic companies were born trying to meet this demand. The
restrictions on foreign participation in the industry thus ignited the local Indian industry.
CMC used the opportunity and government protection to expand its skills
quickly and eventually found itself servicing 40 foreign platforms. The private sector—
which had been pulling at the leash for an entry into the industry—suddenly found the
field all to itself. IBM was gone and ECIL, despite its highly popular S-16s and S-32s, had
other problems. For one, it often took 18 to 24 months to deliver systems and there was
a dreadful lack of applications on its proprietary operating system. Importing computers
was expensive and painful—import clearances were difficult to come by and in any case,
the DoE (Deptt. Of Electronics) clearance took at least six to eight months. 6
At the time, companies like DCM-DP (Delhi Cloth Mills-Data Products), Nelco
(headed by JRD Tata) and Microcomp (a breakaway of DCM) were making desktop
electronic calculators. They seized the moment to move into selling computers. Others
like CMS, Wipro, and Blue Star followed suit.
From 1984, however, the situation started changing when the government
explicitly recognized the productivity increasing role of the electronics industry. Policy 6 Hardware: All About Frontiers, Reached and Crossed; DataQuest Magazine December 2002 http://www.dqindia.com/content/20years/102122307.asp
9
changes and liberalization of the sector was set to roll in 1984-5. The new policy
withdrew limits on capacity. Licenses could be obtained through one government
authority, the inter-ministerial standing committee, for a ‘broad-band’ of goods. Tariffs
and excise taxes were reduced. Restrictions on import of components were reduced in
1984-5 and the import of technology and foreign collaboration were permitted. The new
policy led to phenomenal growth of the computer hardware industry. It reduced the
growth and entry barriers in the industry and promoted a competitive environment.
Government policy has therefore played a large role in the dynamics of the
computer hardware industry and continues to do so to some extent. It has been erratic as
it responded various crises, especially related to foreign exchange.
Large demand for the computer hardware was created by government decision to
increase spending on computer systems. The introduction of IBM PC in 1982 was
followed by a number of subsequent introductions of PCs compatible in India. A series
of price wars followed. The upshot was that the consumer got a better value for money,
companies became more efficient and PC sales went up by 116% in 2001-02.
As MNC entry norms became further liberalized and the local market looked set
to boom, the late 80s and early 90s saw a sudden spurt in joint venture operations. This
was initiated by agency operation joint ventures and followed by JVs proper. By the early
90s, almost every major Indian company had a major MNC tie-up. HCL tied up with
Apollo and then with HP (when HP took over Apollo); PSI with Bull; Modi-Olivetti;
DCM-DP with Control Data Corp. Wipro was to later tie up with Acer and bring the
Sun Sparc to India. Finally in 1992, IBM returned to India in partnership with the Tatas.
This consolidation of the industry led to rapid growth and increased efficiencies.
In 1980, the Indian computer industry comprised of a handful of people and earned
gross revenues of Rs 75 crores. Before the end of the decade, in 1989, HCL became the
first company to cross the Rs 100-crore mark and the Indian IT industry crossed Rs
1,000 crores in overall revenues.
Innovation of technology has been the mainstay of growth in the hardware
industry throughout its history. Stagnation in the industry in the 80s was averted by the
two events that set off an entirely new industry—Unix, a multi-user OS, and Novell.
10
The era of local area networking had begun with the 286 itself. Novell’s Network
OS—Netware—was based on the 286 and was introduced in the late 80s. It supported
the Ethernet—a networking protocol that allowed 10 Mbps transfer rate compared to
the 19200 prevalent at the time. But the cabling cost was enormous. The 286 was a good
machine but it was a 16-bit system with limited computing power. Besides, few
applications were available on Novell. When the 386 was introduced, things changed. It
was a 32-bit machine capable of some serious applications. As a result, people were
looking at running Unix on the 386, connecting up terminals at a fraction of the PC cost.
Technology once accepted by the market creates a multiplier effect in demand
for the product and leads to the creation of new industries and growth opportunities. All
the support hardware needs to be supported with the new successful technology and
hence product sales tend to rise sharply following a successful launch. Such was the case
as experienced by the networking products. Almost all hardware, including the printer,
needed to have drivers for Novell Netware or Unix. Among other things, this led to the
creation of entirely new industry—the networking and communications sector.
Since then, technology has kept the industry alive and kicking with ever reducing
price points due to technological advancement and increased competition.
4.2 Industry Overview
The market for computer hardware in the emerging Indian economy is split
between smaller domestic players and large multinational companies. It is comprised of
Indian branded players, MNC players and assembly players. While the Indian brands had
a 19% market share in 2001-02, MNC brands had a higher 35% market share and the
rest 46% was held by Assembled (Branded + Unbranded) players. The computer
hardware market consists of personal computers, servers, mainframes, workstations, and
peripherals. The market value figure relates to end-user spending on hardware. Market
segmentations relate to spending on personal computers and other computer hardware
(including mainframes, servers, and peripherals). The Indian computer hardware market
has exhibited high growth rates during the past five years. The high growth rates can be
attributed to the fact that a large middle class has emerged in India, and there has been
rapid growth in the IT industry. In addition, sales of PCs and servers have increased over
the last five years, and the decline in prices of notebook computers plus innovative
11
marketing strategies have boosted sales volume. Future growth in the market will be
driven by massive investment in the educational sector, among other factors.
The Indian computer hardware market generated total revenues of $5.3 billion in
2004, representing a compound annual growth rate (CAGR) of 17.6% for the five year
period spanning 2000-2004 (Table 4). Sales of other (non-PC) hardware form the leading
segment in the market, generating total revenues of $2.8 billion in 2004, equivalent to
52.6% of the overall market value. In comparison, the personal computer hardware
sector was worth $2.6 billion, which represented a 47.4% share of the market’s value.
The Indian computer hardware market grew by 19.8% in 2004 to reach a value of $5.3
billion. The compound annual growth rate of the market in the period 2000-2004 was
17.6%. Sales of personal computers account for 47.4% of the computer hardware
market's value.
Table 4: Indian Computer Hardware Market Value: $billion, 2000-04
Source: Datamonitor
Table 5: India Computer Hardware Market Segmentation % Share by Value, 2004
Category % share
Other Computer Hardware 52.6%
Personal Computers 47.4%
Source: Datamonitor
Year $ billion INR billion % Growth
2000 2.8 125.7
2001 3.2 143.2 13.9%
2002 3.5 160.6 12.2%
2003 4.4 200.6 24.9%
2004 5.3 240.3 19.8%
CAGR 2000-2004 17.6%
12
Figure 2: Indian Computer Hardware Market Value
0
50
100
150
200
250
300
2000 2001 2002 2003 2004
% G
row
th
0
0.05
0.1
0.15
0.2
0.25
0.3IN
R b
illio
n
INR billion % Growth
Source: Datamonitor
4.3 Trends in the Indian hardware industry
4.3.1 Digital Projectors
From being an adornment for corporate boardrooms, the projector has invaded
the households now. Evolving projector technology and decline in prices have opened
up the market in India. A large part of the demand is generated by the ever increasing
number of educational institutes in the country.
The top three players in this market are NEC, InFocus, and Epson. In value
terms, digital projectors garnered Rs 237 crore during 2004. In terms of technology,
digital light processing (DLP) constituted 34% and liquid crystal display (LCD)
accounted for the balance 66%. Weight is also a key criteria and the market is divided on
those lines also.7 For instance, projectors weighing 2-3 kg constituted 50% of the total
market in 2004.
Vendors also expect a growing demand from the corporate and education
segment. While there exists a huge potential in the small and medium business (SMB)
and home segment, the growth rate will be slow given the gradual adoption by the SMB
players. The concept of projector–based home theatre system is still in its infancy.
7 The Big Picture, Shrikanth G, DataQuest Magazine November 2005 http://www.dqindia.com/content/industrymarket/focus/2005/105111004.asp
13
Technology innovation, coupled with enhanced production, would drive down prices, as
market and product differentials gradually start moving away from product features to
factors such as service, ease of purchase, and price.
The digital projector market in India is a highly fragmented one with estimates
pegging it close to 30 players. This scenario exists due to low entry barriers for hardware
manufacturers to enter projector production in addition to other products. In terms of
market visibility, players like Epson, NEC, InFocus, Sharp, and Toshiba occupy the top
slots. HP has used its economies of scale to introduce a slew of digital projectors aimed
at various buying segments. HP has come out with value additions like built-in DVD
players and in-built flash memory, which enable users to store presentations and beam
them without the aid of a PC. It has leveraged these state-of-the-art mobility and wireless
features to earn a premium from the high value segment of corporate houses and
educational institutions.
3.3.2 UPS
The UPS industry in India is highly fragmented – it consists of many unorganized
players at the lower end and organized players at the higher end of the segment. The
escalation of the market share of branded players in the last two years has stunted the
growth in the unorganized sector.
UPS devices, over time, have renovated technologically. As we trace the
evolution path of power back-ups, it is only post 1980s that vendors have started
realizing the business potential in this space. In the 80s, an age dominated by mainframe
computers, power blackouts were predominantly managed through standby generators.
This approach just kept the key systems up and running while the majority of terminal
users were denied access. This lacuna acted as the catalyst for the emergence of defined
segments in the UPS space. It was during this time that standalone PC back-ups came
into being and created a new market altogether. Standalone UPS devices of various
capacities have now become default PC peripheral devices.
Industry experts broadly classify the UPS market into three segments8:
8 UPS:Surging Ahead With Power, Shrikanth G, DataQuest Magazine July 2005 http://www.dqindia.com/content/DQTop20_05/peripherals/2005/105071810.asp
14
a) Micro UPS segment (upto 3 KVA) that largely caters to the SOHO (small office -
home office), SME (Small and medium enterprise), and corporate sectors for
stand-alone PCs and small network stations. The government is also a big
customer of this segment.
b) Small-medium UPS segment (3-20 KVA) caters to corporates, institutions, retail
outlets, and hypercritical applications such as ISPs, ERP implementers, VSAT,
email servers.
c) At the top end, high-end UPS or enterprise segment (20 KVA and above) caters
to segments such as Infotech, telecom, datacenters, BPOs, and industrial entities.
A key yardstick for the growing stature of the UPS industry is the maturing of the
home segment and aggressive enterprise buying in the last two years. Some of the UPS
vendors only cater to the SOHO, with their entry-level offerings. Here price offerings are
low and huge volumes are achieved. The enterprise segment brings in big revenues for a
handful of big UPS vendors, and a typical large enterprise goes for a range of power back
up devices. For instance, data-centers, BPOs, and financial institutions, where downtime
is not at all acceptable, go for huge capacity power backups. Enterprises also opt for UPS
placed in a networked environment where workgroups share a single UPS. In terms of
consumption, the metros are the biggest markets and only in the recent times is one
seeing a shift towards B and C class cities. However, most vendors are putting in place
aggressive growth strategies to capture more market share from the higher end of the
spectrum.
The growing UPS market clearly indicates that it is now treated as mission critical
equipment. The power conditioning market is getting more sensitive and mature to the
evolving needs of the businesses. With India assuming a key role in the Asian economy,
businesses are attuned to the fact that they need to be robust in terms of infrastructure,
to attract and retain investors. Hence network uptime is extremely essential. In line with
the critical nature of power back-up devices, most of the vendors during the year pitched
on 99.99% uptime. Selling power back-up solutions has assumed the path of the software
services models by vendors giving Service Level Agreement (SLA) guarantees on uptime.
This is has been the core USP of the UPS market, and a key differentiator.
A look at the vendors in the fray shows a highly divided market in India. The Indian
UPS market can be divided into three vendor categories – national, regional and local.
15
Vendors like APC, Emerson, Eaton Power Quality, DB Power, Numeric, Microtek,
TVSE, and Ingram Micro compete on an all India basis. Meanwhile at the regional level,
players like Champion, Elnova, and the likes have good traction. The local players
operate city-wise and provide assembled UPS that mainly go with PC assemblers. The
local UPS segment falls under the unorganized sector of the UPS market and numerous
players dominate that space.
Performance-wise, during 2004-05, most of the frontline national players have grown
well. For instance, APC found good movement of its offerings and also attacked SMBs
and large enterprises with different power back up configurations. Numeric Power
Systems also had a good run during the year with its product offerings moving up the
value chain.
4.3.3 Monitors
As we look at the evolution of the monitor market in India, right from the VGA
days, it was the PC assemblers who have been driving the demand of standalone CRTs.
But as branded PC vendors gained customer favour, the standalone monitor market has
become more of a kind of exclusive market in the peripheral space (refer to fig 3). This is
because of the current oligopolistic nature of the market. There are only a few drivers
now who power the standalone monitor business: one, the PC assemblers, two, the
consumers upgrading to latest technology monitors from older ones, and three, the
OEM sales.
Fig. 3: Indian H/W Vendor Shares Fig. 4: Indian H/W Market Structure
16
The major players in the monitor business are LG, Samsung, Microtek, and HCL.
Advances in technology have reduced prices and thus improved affordability. Low entry
barriers and easy availability of market access and technology has led to the entry of a
plethora of new players.
Table 6: Market Share of Branded Monitors, India
Brand % Market Share
Samsumg 40.4%
LG Electronics 32.2%
HCL 4.2%
Proview 3.1%
ACC 1.1%
Others 19%
Source: IDC India, 2006
In a commoditized industry as this, it has been difficult for players to gain market
share, the strategy followed is essentially to increase shelf space of their products in the
retail stores. Companies are trying to strengthen their regional distribution channels and
push volumes in the assembler segment. Players have tried hard to lure the customer
with their brand, but have managed to do so only with very small brand premiums.
Recent import duty rationalizations have reduced the price differential between the
imported and Indian monitors to only about 4%.
Since hardware products are generally sold by bundling, it is only when the price
points come down that the bundles change and the higher end products are accepted en
masse by the market. Thus the industry is marked by a mass shift in demand from one
product to another. In a technology driven industry like hardware, where new products
are introduced very often, such a demand pattern results in very short life cycle/shelf life
of the products.
17
Table 7: Monitor Market Structure & Growth
Source: IDC India, 2006 Source: IDC India, 2006
With the assemblers finding the going difficult in the last two years, the
standalone monitor market volumes are headed for a slow down in the days ahead.
Similarly, many PC users with 14- and 15-inch monitors are also likely to upgrade in
favor of 17-inch CRTs.9
Demand for a higher end product is driven by the extent of bundling in the
market. Even though the 17-inch monitors got into the mainstream with good demand
from the home and SMB segment, they have not been able to replace the 15-inch
monitors that still remain the default entry-level monitor shipped with PCs.
We can see the extent to which price governs sales of a hardware product
(monitors here) in the following analysis:
Table 8
The display market in India underwent rapid changes. The TFT-LCD market is
outpacing the growth of CRT monitors and there is a sharp shift towards 17-inch LCD
monitors. Growing awareness of LCD technology and decline in the price differential
between CRT and LCD monitors has contributed to the growth of LCD monitor market
growth in India.
9 Monitors: Getting Flat, Shrikanth G, DataQuest Magazine July 2005 http://www.dqindia.com/content/DQTop20_05/peripherals/2005/105071812.asp
LCD vs CRT (Units)
2004-05 2005-06 % Growth
CRT 3,371,755 4,164,163 24% LCD 283,420 807,314 185% Total 3,655,175 4,971,477 36%
Branded vs OEM (Units) 2004-05 2005-06 % GrowthBranded 2,656,847 2,879,202 8% OEM 998,328 2,092,275 110% Total 3,655,175 4,971,477 36%
Type Average Price Market Share
17-inch CRT 5,500 22.5%
15-inch CRT 4,500 67.5%
LCD 10,000 10%
18
The monitor market is extremely technology driven with new innovations being
the main source of growth. At present, the CRT has reached its saturation point with its
full-flat version. Prohibitive costs had limited the adoption of LCDs in the past, but a
decline in its price has expanded the consumer options. Verticals like healthcare, hotels,
airports, BPO, and IT are the key markets for LCD at present consuming more than
80% of the LCD shipments. Purchase decisions in this market are largely influenced by
product price-value combination. Although the decline in price differential between LCD
and CRT monitors have played a large role in the growth of the LCD monitor market in
India, consumer awareness is of key importance to ensure fast and widespread
acceptance of efficient technology. A close look at the tangible and intangible benefits of
LCDs indicates that large- and mid-sized enterprise-monitor-buying decisions are
increasingly favouring LCDs. For instance, a 17-inch CRT monitor today costs around
Rs 6,000 and the LCD monitor Rs 10,000. One needs to pay a premium of Rs 4,000 in
order to acquire a 15-inch LCD monitor. But the real value of the LCD lies in the lower
running costs, and shorter payback period of between two-to-three years through saving
in space and electricity.
4.3.4 Printers
Printers constitute a significant proportion of the IT peripherals space with
numerous offerings based on the two dominant technologies – impact and the non-
impact. Important factor in printer choices are a high level of print RoI, total running
cost, total cost of operation, and level of simplification to existing document
management processes. Consumers have become extremely conscious of the return to
the print investments, most corporate buy decisions have been made on the basis of an
increase to company productivity. Such increasing awareness on the part of consumers
has forced companies to change their offering in the printer segment. More and more
vendors are opting for a solutions approach to printing and in some cases also acted as
consultants to organizations to help them choose the best print devices. This approach
has helped them create a price differential in their offerings. Customers looking for
increased efficiency in processes have become less price conscious and more service
focused.
Print offerings across categories have segmented across on definite consumer
lines. The age of generic print solutions is over. So now vendors need to position each of
19
their product offerings in such a way that buyers find a clear value proposition. If we
look at the last year, all print vendors aggressively focused on the print RoI and talked
about how users can cut down print costs by choosing appropriate technologies. As we
look at the year ahead, except single function inkjets, all print segments are expected to
garner good growth. Entry-level single function inkjet unit shipments will continue to
decline or remain flat.10 During the same time, single function lasers are expected to
register huge growth, as inkjet users in bigger numbers will migrate to laser technologies.
Meanwhile, inkjet as a technology will thrive in the MFD space, as vendors will further
reduce the price-points leading to price war here. Players such as HP will leverage their
PC business and will aggressively bundle inkjet MFDs with PCs. Meanwhile, A3 copier
based MFD will further gain in popularity as companies with demanding imaging and
output needs will opt for A3 MFDs.
4.3.5 Scanners
Globally, scanners are losing their sheen. Driving this change without doubt is
the multifunction device (MFDs) and their all in one capability in wooing the buyers to
opt for MFDs instead of scanners. The impact was felt to the maximum extent for entry-
level scanners, which once constituted a thriving market when printers used to be
predominantly single function. But since 2003, MFDs slowly started making their
presence felt and provided ample pointers of an impending impact on standalone input
devices. A typical case of product obsolescence, entry-level scanners would soon become
history, but at the same time mid and high-end segments will fill up the void and will
continue to grow. The drivers that will enable organizations to look for high-end
production scanners would be the need to bring paper based knowledge into their
eContent, and the need for quicker turnaround of business processes.
There is a strengthening cannibalization effect in the peripherals space: the
phenomenon of single function inkjet printers and entry-level scanners being replaced by
All-in-Ones (AIO) is not being observed in India right now but in the West the trend is
gaining momentum. The CRTs are being challenged by the TFTs and Desktops which
are in turn being challenged by Notebooks. While it will take a while for this trend to
catch up in India, one segment that has already come into sharp focus is the Scanner
market and the direction it will take as a standalone product in the peripherals space.
10 IDC India Quarterly PC Market Program, 2005
20
In a technology driven market, cannibalization of old products by new offerings
seems inevitable. MFDs and high mega pixel digital cameras pose a serious threat to the
future of entry-level scanners. Most vendors have shifted focus to the mid and high-end
scanner requirements that are driven by verticals like BFSI, publishing and the
government.
A look at the scanner market shows that MFD has started cannibalizing other
output devices. In the printer space, Inkjets are facing the onslaught of MFDs. Inkjets,
for instance, that have been posting flat values over the last two years, showed marginal
decline in volumes for the first time.
For one, vendors will find the going tough in projecting the USP of single-
function devices because with a marginal additional cost, a consumer would prefer a
MFD that can print, scan, and copy. With Inkjet MFDs becoming highly affordable over
the year with prices breaching the Rs 5K mark, a consumer intending to buy a scanner at
Rs 3K might opt for a MFD. Still, vendors are hopeful that exclusive consumer needs-
including quality output and special tools to enhance the image-will drive the demand for
standalone devices like scanners.
Table 9: Major Players: Scanners & Printers, India
Share by Volume 2005-06
HP 53.7%
Umax 24.2%
Canon 11.3%
Microtek 3.5%
BenQ 4.9%
Source: IDC India, 2006
Table 10: Scanner Market Size, India
Scanner Market Size
2004-05 2005-06
Units Value (Rs crore) Units Value (Rs crore)
174,418 112 157,973 105
Source: IDC India, 2006
21
While both entry-level scanners and single function inkjet printer volumes are
expected to decline dramatically, new technology enhancements will bring in the much
needed volume stabilization of standalone devices. For instance, USB 2.0 is getting into
the mainstream. Scanners with version two of USB will bring in greater benefits to the
customers in terms of data transfer from their PCs. This will lead to more enterprises
overhauling their old scanners, mostly entry level, and migrating to faster and more
functionally rich scanners.
While this will hasten the high-end scanner market, it will also lead to a market
for used scanners. These will be sold at very low prices and will result in some amount of
market expansion. For instance, an entry-level scanner was costing around Rs 6,300 in
2000. The resale value of the same now is a mere Rs 1,000 and going down by the day.
While far more technically advanced scanners, even on the entry level space, are available
at Rs 3,500, cost-conscious first time SOHO consumers will opt for used scanners
instead of newer ones. The role of the vendor in such a market is to enable easy
migration to new imaging technologies by all customers and to avoid development of a
cheap resale market that eats up on market demand. Hence the vendor will have to offer
innovative buy-back programs that drive higher end scanner demand.
4.3.6 Desktop PC
Desktop PC business is characterized by the cut-throat competition with
numerous vendors (branded and un-branded) inhabiting this space. HCL and HP
continue to dominate the desktop PC business, and HCL has retained its number one
position with a market share of 15%.11 HCL Infosystems is the leader of the Indian PC
industry in terms of total annual shipments of desktop PCs. The key growth drivers for
the industry are increased spending by verticals such as telecom, banking, retail, and
ITeS. The PC market has been segmented into low, mid and high-end over the years.
This is essentially because of a large gamut of choices in specifications are available to the
users and they have been allowed to self select themselves into an appropriate consumer
segments. This has allowed the PC vendors to exploit the consumer surplus to the
optimum level in a highly commoditized market.
11 IDC India Quarterly Monitor Market Program, 2005
22
Another initiative that has brought huge growth to Acer is the widespread
introduction of retail stores over a large number of locations. Acer has been able to
register growth of 39% in desktops in unit terms. Acer also made major inroads to the B
and C class cities.
Giving tough competition to Acer is Zenith, which has become one of the
leading Indian systems players in the country. The company, over the years, has made
significant initiatives that have strengthened its overall PC business.
A possible PC market driver could be notebooks which showed an 88% increase in
terms of shipments last year, but the numbers are small. The interesting thing that has
happened, perhaps, for the first time, was that branded PCs snatched away some market
share from assemblers. Also, if the government's new thrust on Internet services and
broadband takes off, and if the telecom service providers really move on with their
wireless initiatives, PC and notebook sales in the country could really take off. PC
penetration is considered a key parameter in judging the level and role of IT in any
economy. A closer look at the server market shows that the non-PC server segment is
under pressure, and its growth was much less compared to PC servers. The PC server
growth was driven by unprecedented demand from the BFSI and telecom sectors on one
hand, and dropping prices on the other.
4.2 Major players in the Indian market
We provide in brief the profiles of the leading market players in Indian hardware
industry.
HCL Infosystems: This is the country's number one desktop brand. The company
targeted aggressively the B and C class cities and expanded its distribution network. It
attacked all the buying segments with low cost processors like Via to industry standard
P4 HT offerings. The aggression HCL has showed in pricing its products in a way has
kick-started the price war with brands like Acer, and vendors like HP cutting down end-
user price points. Another significant development for HCL was its launch of the high-
end home PC called Neo, complementing its Beanstalk range.
23
HCL is the exclusive distributor of Toshiba notebooks in India, but with Toshiba
aligned to the higher end of the spectrum HCL was unable to tap the low and mid-end
segments of the portables. To plug this gap, HCL has made a low key launch of its own
brand of notebooks called eZeebee and Powerlite. So, HCL continues to extend its
strategy competing on price to the notebooks segment as well
Zenith Computers: This Indian company has, over the years, reinvented itself in
more ways than one. With its state of the art plant in Goa, Zenith's manufacturing
capabilities were ungraded considerably. Moreover, the company put in practice a
number of manufacturing best practices. In 2004 & 2005 Zenith introduced higher and
better range products, backing them with superior quality control and distribution. It
offers its products at different price points to cater to different consumer preferences
and has been extremely successful in capturing and maintaining its market share. On the
exports front, the company has mandates from Bangladesh and other SAARC countries,
and its entire product offerings were certified with CE and FCC norms.
IBM: IBM has been a major player in the Indian market since before deregulation of
the industry. It had up to 70% market share but exited from India due to dissatisfaction
with government regulations. The IBM brand is associated with high quality products
and commands a premium in that regard. After selling off its PC division to Lenovo in
2004, IBM has concentrated on notebooks and on consolidating its market share.12 IBM
India experienced a 146% growth in notebook sales as a result of this consolidation. The
demand was driven by buying from two kinds of consumers – first time notebook buyers
went for the low cost sub Rs 40k notebooks, while consumers who already owned
notebooks went for high-end wireless notebooks. Overall, IBM's market share in the
notebook space hovers around 26%. On the desktop side, IBM has captured market
share with its ThinkCentre brand characterized by small form factors. IBM also offered
lots of custom options for the buyers like opting for a TFT panel instead of a CRT and
upgrading to industry standard optical drives, all supported by comprehensive schemes.
In terms of pricing, IBM has been to bring its entry-level P4 offerings at the sub Rs 25K
point with its 'A' series and upwards to sub Rs 45k for its workhorse S and M series.
12 Cygnus Business Consulting And Research- Monthly Industry Monitor- IT Hardware Vol. 412
24
The Assemblers: The once ubiquitous neighbourhood friendly assemblers were
losing their market share in the face of intense competition from the branded segment of
the PC industry. Industry estimates peg the share of assembles for the fiscal at around
48%. A MAIT-IMRB study said that market share for assembled PCs, which was 57% in
FY 2003-04 was reduced to 44% in the first-half of FY 2004-05.13 Margin pressures and
the 4% countervailing duty (CVD) that the government imposed on computer
components put great stress on assemblers. In this scenario, better margins exist for
those manufacturers who import fully built PCs as there would not be multiple taxation.
While big players absorbed the tax and duty changes, the budget-constrained assemblers
found the going difficult as customer loyalties shifted more to the branded side. Also, PC
buyers find the service levels to be deficient with assemblers who were not able to offer
quality and timely service unlike a branded PC manufacturer. In all, assemblers are bound
to face tough times ahead unless they re-invent and align with branded players.
4.5 Impact of Technology
Technology plays a very crucial and important role not only in introduction of
new products but also in price determination in the computer hardware industry. While
in some cases the improvement in technology has reduced the cost of products by a
significant amount, at other instances a higher premium has been demanded by the firms
for high end products. Technology innovation in peripherals can come about in terms of
hardware modifications, improved electronics or better software. In the consumer space
better design aesthetics can be added to this list. New technology makes sense only when
it creates a significant impact on business. Technology can help improve product
functionality, offer greater convenience by merging features, save on cost, or offer better
return on investment. In this section we will look at how technology has affected the
structure of hardware industry and the pricing strategies followed by different players.
Market Share: In contrast to the mature US and European market, India is a fairly new
market with low computer penetration. However, over time it has responded very
promptly to the introduction of new technology and innovative products. The Indian
market has seen the introduction of a wide variety of innovative products by competing
13 MAIT- IMRB (Indian Market Research Bureau) Industry Performance Review 2004-05
25
players. The competition has been essentially based on technological advancement and
prices. HP has maintained a dominant position in the Indian markets for a long time.
However, in 2005 some of the world’s leading manufacturers were able to capture
market share from HP in the Indian laptop and scanner market owing to the advanced
product launches. Advancement in not only product but manufacturing technology also
have prompted the producers like Dell to set up their own manufacturing plants in India,
which has not only increased the customer base, but also improved acceptance of the
firm’s products.
Multiplier Effect across product categories: When laptops were introduced in India,
interesting trends in product sales were noted. Along with the increasing demand for HP
laptops, sales for HP printers also experienced a big jump. This trend of combined sales
enabled the company to do price bundling and capture a large market share.14
Effect on Pricing: As is obvious in any fast changing industry, the price for old
technology in the computer hardware industry has experienced sharp decline over time.
This is especially apparent in product categories such as desktop PCs and laptops.
Innovation introduced by one firm has made it almost compulsory for other players to
either match its value proposition by slashing prices or increase R&D budget. When
Zenith introduced new servers in the market,15 IBM was forced to slash the prices of its
own product by 10 %. There have also been cases when technological improvement has
led to an increase in product pricing but it is mostly confined to new products like touch-
pads, PDA etc.
Differential pricing: While in any consumer market the aim of a firm is to capture the
entire consumer surplus, this is especially true for the computer hardware industry. Any
product category is offered in multiple versions to different consumer segments at
different prices. Such a strategic segmentation of the consumers has enabled the
computer vendors to tap the consumer surplus efficiently and maximize profits without
any compromises on customer base.
14 Fay, Scott, Competition Between Firms that Bundle Information Goods, 27th Annual Telecom Policy Research Conference, Alexandria VA, September 25-27 15 Borenstein Severin (1999), Understanding Competitive Pricing and Market Power in Wholesale Electricity Markets, Working Paper No. CPC99-08, University of Berkeley, University of California Energy Institute, and NBER, August
26
A case in point here is that of AMD which was able to challenge world’s biggest CPU
and processor producer, Intel, on the basis of its advanced technology and low cost of
production. Although desktops are certainly facing diminished share in light of
accelerated notebook success, desktops still represent a majority of total retail PC sales
and do not show signs of vanishing from the market anytime soon. The fact that AMD
can challenge Intel – even within the restrictive group of retail desktop sales- speaks
volumes for the advantage technology has vested to AMD. AMD challenged Intel’s well
established brand because of its low cost microprocessor and Mother board which was
20-30 % cheaper than similar brands of Intel because of the high quality semiconductor
used .
4.6 Issues Facing the Industry
There are lots of serious issues that need to be addressed in the Indian hardware
industry.16 Issues like lack of local availability of input raw material, ever changing
government policies, inconsistent sales tax structures in different states, high interest
rates, customs duties on capital goods, poor infrastructure, inordinately long and variable
transit times all add to uncertainty, delays and increased costs. Everyone in India
grumbles about duty, but even China has a similar duty structure. The main reason why
companies prefer to locate their manufacturing operations in China is because customs
processing in China is much faster. Here, even after a manufacturer’s raw material arrives
at a port, it might take another month or so before the goods reach his factory. In the
fast changing world of technology, that is virtually suicidal for hardware manufacturing
companies. Besides, labor laws in China are also very flexible. In India, there are a lot of
restrictions for the hardware industry. With environmental concerns mainly ignored or
casually overlooked by Indian corporates, MNCs desist from setting up manufacturing
16 Das, S. (1995), Size, Age and Firm Growth in an Infant Industry: The Computer Hardware
Industry in India, International Journal of Industrial Organization, Volume 13, Number 1,
pp. 111-126(16)
27
bases here since there is no compliance with ISO 14000 standards, which deal with
environmental issues.
The other issues that need to be pondered upon are:
Contract manufacturing: The trends in contract manufacturing, say, involving the
production of printed circuit boards, subassemblies and other product lines employed by
OEMs (original equipment manufacturers) in different industries such as telecom,
networking and consumer electronics have been undergoing a sea change in the last
couple of years. Not only is there a distinct trend by OEMs to parcel off manufacturing
operations in bulk to these contract manufacturers to cut costs and improve operating
efficiencies, but these contract manufacturers have also gone global to derive `economies
of scale' in their operations.
The strategies of OEMs and contract manufacturers are in a state of flux. From
an OEM's perspective, they are willing to work with fewer contract manufacturers for
two fundamental reasons. First, to derive considerable cost savings by working with
contract manufacturers who can use `size' to realise scale advantages and share benefits
with OEMs. Second, in an increasingly complex operating environment, these OEMs are
looking for varying competencies, skill sets and domain expertise under one roof. On the
other hand, the contract manufacturers, especially the big names such as Celestica or
Flextronics are rising up to the OEM's requirements. To insulate themselves from the
growing `commoditization', they are making large-scale acquisitions to enhance their
economies of scale and broad base their service offerings.
Economies of scale: Global component manufacturing capacities are 20 times larger
than those in India. Considering the head start (over a decade) which these countries
have enjoyed in some hardware areas, India has to be extremely careful in the choice of
global components/finished products, it chooses to invest in. The huge consolidation
that is taking place in this marketplace has been dictated by the growing
`commoditization' of the hardware marketplace. Unless ‘economies of scale' drive
investments in this `volume-driven game', it is likely that Indian players may not last long.
Apart from developing design capabilities in niche areas, India's capabilities will be put to
the test in export markets in almost all other areas.
28
Players entering this arena have long recognized that wafer thin margins are the
order of the day. Hence, the actual positioning of Indian players will have to hinge on a
careful study of economies of scale in each of these global components / finished
products.
Huge capital investment: According to the MAIT-E&Y report 2005, the investment
requirements to realize potential opportunities are expected to be about $9 billion. For
the Indian players, a rigorous evaluation of capital investment and its sourcing from
credible agencies holds the key to the success of this endeavor. Once, the industry
decides to go ahead, it is absolutely imperative to create "global scale" capacities. Any
half-hearted attempts at hardware manufacturing will be disastrous not only for the
companies but also for the industry as a whole. Secondly, India's record in attracting
foreign direct investment (FDI) has been poor so far, if the experience in telecom is
anything to go by.
4.7 Government Policies
Prevailing tax rates and provisions: Currently, Hardware industry attracts excise duty
at the rate of 16% and sales tax at the rate of 4%. Customs Duty varies according to the
input raw materials from 5% to 35%. On the positive front, realizing the importance of
the IT sector, priority status was declared and the government formed a separate ministry
for Information Technology during October 1999. A National Task Force set up by the
government is aiming to increase PC penetration from 3 to 20 per 1000 population by
the year 2008. The telecom reforms are yet another set of policies that affect the fortunes
of this industry. The recent decision of the government to spend more in hardware is
again a positive factor. IT Task Force's export target of Rs 43,500 cores from hardware
out of a total production Rs.1,30,500 core, with investment requirement of $ 16 billion in
equipments and components, is another encouraging factor. The conditions for
automatic FDI approval in IT sector were eased with the removal of NOCs for existing
joint venture partners.17
1. 17 Dedrick, Jason and Kenneth L. Kraemer (1993), India's Quest for Self Reliance in
Information Technology: Costs and Benefits of Government Intervention, (January 1, 1993).
Center for Research on Information Technology and Organizations,
Globalization of I.T. Paper 10.
29
The lobbying by the hardware manufacturers finally seems to have brought some
rewards for them during Budget season. India is signatory to the Information
Technology Agreement. In 1998, it was announced that zero duty regime on IT products
would be preponed and implemented by 2003. However, the local manufacturers urged
the Finance Minister strongly that it may be made effective only from the year 2005. This
would give them an opportunity to gear up to meet the challenge of international
competition. This demand was accepted. As a further measure of assistance to
indigenous industry, it was proposed to reduce the customs duty on a number of
hardware inputs to 5% and on certain capital goods to 15%. The duty on certain IT
items would be reduced to 10% or 5% as per the WTO binding.
According to the agreement, customs tariff on IT items are to be brought down
in stages to zero. India has committed to bring down the tariffs on 217 bound items, out
of which 95 lines are to be reduced to zero percent by 2000, 4 lines in 2003, 2 lines in
2004 and the balance 116 lines in 2005.
On the other hand, the government should give a strategic focus to this sector in
a speedy manner considering the industry demands like modification of EHPZ,
introduction of SEZ and removal of export obligation as the industry is import-intensive.
For the IT sector to grow, it is necessary that the government frames clear and
simple cyber laws, especially pertaining to electronic commerce (e-commerce). Taxation
of e-commerce transactions is another issue that has to be clarified.
The Information Technology Bill is expected to clarify all these questions. The
industry can also look for rationalization of the laws governing overseas acquisitions by
Indian companies.
4.8 Future Outlook
In India, computer penetration is just 3 per 1,000 people as against the world
level of 60(Datamonitor Report 2005). This offers immense scope for the industry in the
country. The fast spreading Internet revolution - it is now growing at 205% in the
household sector - is a major demand-driver .The spread of computer education and
training will also increase the demand for PCs and other allied products.
30
The number of active Internet entities increased to 1.29 million in March 2002
indicating an increase of 15% over March 2001. The penetration of Internet among
businesses grew to 39% from earlier 36% and while a marginal increase led to 11%
penetration in the households. On the other hand, the Desktop PC market grossed 16.7
lakh units registering a negative growth of 11% over the previous year. The increasing
number of computers becoming obsolete provides some interesting figures. In 2005, one
computer became obsolete for every one computer put in the market, which provided
further boost to demand. Increased spending by Central government, state governments,
liberalized sectors like banks will also give a fillip to the demand.
4.9 Key Growth Drivers
Banking and Financial Sector
The heavy investments in the year 2003 undertaken by the banking, financial services,
and insurance segment, resulted in the server segment experiencing a reasonable growth
in the year 2003. In total BFSI segment accounted for nearly 23% of the total units sold
in the fiscal year 2002-2003. Due to the BFSI segment the SIAS market was the focus of
attention and generated a fair amount of growth. The reason why the BFSI segment
catered to the huge growth is due to the regulatory changes in the banking sector made in
1994. As a result of privatization many private banks were opened in the year 1994.
Major banks among these are ICICI, HDFC, and UTI etc. These banks are heavily
dependent on technology. So they introduced the concept of ATM’s and centralized
Core Banking. 18
As a result of these facilities offered by the private sector banks the PSU banks
were losing their market share. So public sector banks decided to set up centralized core
banking infrastructure in order to maintain their competitive positioning vis-à-vis new
private sector banks. The server expansion projects by State Bank Of India, Punjab
National Bank and Canara Bank helped the server segment to regain share lost in the
year 2002.
Another key trend that fuelled the server demand was server consolidation. The
banking segment showed the way and a majority of demand for high-end servers came in
due to this trend. The growing demand for value –added applications such as credit card 18 Cygnus Business Consulting And Research- Monthly Industry Monitor- IT Hardware Vol. 301 to 606
31
authorization, cash and wealth management, ATM and online banking helped to pick up
sales. This trend is continuing in the current fiscal year also. So PSU banks are focusing
on building backend infrastructure to support centralized core banking (both retail and
wholesale), apart from serving customers through alternative channels such as ATM and
Internet banking. To maintain these PSU banks need high end servers.
Telecom Sector
Other than banking, another sector that contributed to the boom in IT segment
is the Telecom sector. Reliance Infocom, Tata Tele Services and Bharti Cellular made
large investments to build their infrastructure. Mobile telecom service providers
purchased RISC/UNIX servers for deploying BSS & OSS application. Business support
system application (BSS) is used for billing, mediation and fraud management. Operation
support system (OSS) application is used for network management and control and call
switching.
Manufacturing Segment
Manufacturing and the distribution segments contributed towards reviving the
server segment in India. Manufacturing sector followed only banking and telecom in
purchasing severs in the year 2004- 2005.
Internet Services
Nowadays internet occupies a pivotal position in our day to day operation.
People want to communicate almost continuously, be it with the cell phone or by email. .
The number of new Internet users worldwide continues to grow at about a 30% annual
rate, and reached over 500 million by the end of 2001. This demand is with conventional
uses such as browsing and email. These are not possible without PC, so the demand of
the PC is increasing day by day.
Expanded requirement for enterprise storage and industry standard servers
The most significant trend in data storage is the move toward use of enterprise
server, which uses high-speed networking technologies and storage subsystems to
provide faster access and greater availability of data. Lots of companies and government
32
organizations are converting their paper-based database to computer based, so the
demand for enterprise storage servers is increasing day by day.
Increasing Demand for Security Solutions
In the Information Age, many enterprises including financial and law firms,
government agencies, and R&D groups need a safe, reliable way to store sensitive data. A
disaster for computer database might be happen at any moment of time. To prevent all
these future uncertainties the organizations are creating backups of their database for
security purpose. For this they need high end servers, so the demand for hardware is
increasing.
E-Learning
e-Learning can be defined simply as learning that is facilitated, supported or
enabled through the use of technology. The technology can come in many different
forms - for example Personal Computers, Interactive TV & Video or even through a
Video Conferencing System. These days, the Personal Computer tends to be the main
technology medium of choice. The corporate e-learning market is growing by leaps and
bounds. Generating nearly $2.3 billion in 2000, the US corporate e-learning market is on
track for a growth rate of more than 50%, exceeding $18 billion in 2005. The e-learning
market for higher education is also emerging, which means that now is the time for
distance-learning providers to step in and take part of a global market that could reach
$2.2 billion by 2004. As students become increasingly comfortable with e-learning, other
institutions will jump on the bandwagon, too. Personal Computer tends to be the main
technology medium of e-learning.
5. Conclusion
5.1 Global outlook With continuous advancement in technology and increasing acceptability of
computer products as basic requirement, the future for computer hardware industry
looks promising globally. Substitution of products due to improved technology is one
key factor in this efficient and rapidly progressing market. Increasing share of emerging
markets especially Asia-Pacific regions like Taiwan , Korea proves that it is not necessary
to be a manufacturing hub to dominate the industry. A country might shine as well if it
33
has expertise in some of the base products like semiconductor and chip industry as in the
case of Taiwan.
Some of the important products like Desktop PC’s are predicted to become obsolete in
coming years by some experts , but going through the available data and factoring in
country presence, e.g.. India, where technology is still way behind the mature markets,
we take a contrary view. No matter how sophisticated and popular laptops and digital
dairies may become, when it comes to buying a computer a large chunk of the customer
base is in the middle class and corporate sector. These segments still rely heavily on
Desktop PC’s. A look at the data of global desktop sales predicts a similar trend.
Although users are switching to other products, the ever expanding market size owing to
population growth and awareness indicates that there is much demand to be expected for
the Desktop PC.
Without mentioning the importance of unorganized sector in computer hardware
no report can be complete. A large chunk of demand is still met by small players who
compete primarily on low cost advantage and the opportunity for a customized product
offering. This important sector has eaten away on the bargaining power of big players for
many years and enjoys the advantage of being close to the end user. Large players have
however begun to catch-up with the unorganised market. We see the trend with the
introduction of low priced Dell machines and plans to setup manufacturing base in India.
“Brand does matter” and the Indian customer who is still sceptical about technological
products is developing an inclination towards branded products. If this trend were to
continue, we might see shrinking of the unorganized sector from India in the future.
5.2 Indian Outlook
Indian brands
Indian brands are sandwiched between MNC brands and the grey market, leaving
them cornered with little or no room for differentiation. This tussle has witnessed a drop
in market shares of Indian brands, and they need to find ways to counter competition
before it is too late. Ideally they need to decide whom they want to compete with – the
cash rich MNCs or the assemblers with low price offerings. In any case, vendors will find
it difficult to place their hardware independently of services, so expanding service
capabilities will be of prime importance. Various Indian players like Zenith which were
34
having a high growth rate in the Indian market are witnessing a decline in growth rate
because of the MNC’s like IBM, and Dell’s expansion plans and strategies in India.
Established Indian brand which were having a tough time to compete with unorganised
sector because of low cost are finding it tough to compete now with international players
(MAIT Report Aug 2005).
The argument that MNC players are the only ones who are really gaining is
further buttressed by the fact that even the unorganized, grey market is seeing terrible
times. In a way, the organized sector has cannibalized the unorganized sector.
Identify niche areas of growth: While the MAIT-E&Y report talks about areas of
opportunity, it does not make out a persuasive case for electronic hardware segments in
which the Indian players will have a competitive advantage vis-à-vis its Asian and other
overseas peers. This is important because India has been late in joining the hardware
revolution and unless the limited financial, infrastructure and manpower resources are
deployed in the right areas, even this opportunity may turn out to be a mirage. For
instance, deploying resources in semiconductor manufacture at a time when China is
going on an investment overdrive in semiconductor complexes to emerge as a global
chip player may turn out to be counterproductive for Indian manufacturers.
Taking a broader perspective, given the technological advancement in developed
countries and their aggressive strategy to fight for market share , it seems that the best
strategy for Indian players is, instead of competing with MNCs, to try to develop their
expertise in some niche areas like peripherals development, semiconductor industry, etc.
In this role, the government would have very important role to play by helping local
players with tax reduction and other favourable policies to enable local brands to survive
in such a market.
35
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Reports:
1. Cygnus Business Consulting And Research- Monthly Industry Monitor- IT Hardware
Vol. 301 to 606
2. Dataquest Industry overview
3. Dataquest Peripherals Datamine
4. Dataquest PC&Desktops Datamine
5. Dataquest Industy Tracker Datamine
6. http://www.dqindia.com/content/datamine/2006/106022801.asp
7. http://www.dqindia.com/content/datamine/2006/106020701.asp
8. http://www.dqindia.com/content/datamine/2006/106062701.asp
9. http://www.economist.com.
10. http://www.dqindia.com/content/datamine/2006/106041801.asp
11. http://www.dqindia.com/content/DQTop20_2006/giants06/2006
12. Nasscom-Dataquest IT User Survey 2005
