The Indian personal computer (PC) market, which grew 15.7 per cent during April-June 2012 over the same period of the previous year, would appear to be going great. However, a closer look shows a different picture.
In calendar year (CY) 2010, 9.9 million PCs were shipped. That's an impressive growth of 30 per cent over 2009, which reported total shipments of 7.62 million. But CY 2011 saw the total shipment go up by just 7.3 per cent over the previous year to 10.62 million. According to CyberMedia Research, the Indian PC market's growth in CY2012 will be just eight per cent. The PC penetration in India is just about six-seven per cent.
"The PC market was largely driven by demand in consumer segment, specifically around portable PCs that remained buoyant. And fulfilment for the largest deal, Electronics Corporation of Tamil Nadu (ELCOT), was underway in Q2 2012 (April-June). and this resulted in the overall growth for the PC market during that period. However, barring the fulfilment on ELCOT, we only noted a sequential shipment growth of 2.6 per cent, which reflects the marginal spike in the overall demand for PCs in India," says Kiran Kumar, senior market analyst at IDC.
The Indian PC market is mostly driven by the commercial segment, which constitutes enterprise, SME, government and education, makes up for about 60 per cent of PC sales in India.
Analyst say that the global uncertainty has stretched the hardware refresh cycles for the enterprise segment, which has the biggest buyers of PC such as IT & ITeS, BFSI, manufacturing and exports companies.
All these segments have their own set of challenges. Although the SME segment has grown, its hardware buying patterns have been patchy.
"The India PC market has always been swayed by global sentiments, especially enterprise segment. To give an instance, the Indian PC market in Q4 of CY2008 (October-December) saw a steep drop of 30 per cent, compared to Q3 (July-September) of 2008. However, the recovery has been sharp as the sentiments improved. While 2012 is certainly better than 2008, we definitely see an erosion in the sentiment which firmed up in 2010," says Sumanta Mukherjee, lead analyst, information technology practice, CyberMedia Research. He adds that the damp mood in enterprise hardware procurement is unlikely to change any time before the second half of 2013.
A look at individual company numbers also show the impact of enterprise delays on the sale. Considering that the enterprise segment is a larger chunk for several players. Take, for instance, Lenovo, which has been the top PC seller in India for the past two quarters. True, the company has grown year-on-year, but its growth has tapered down.
"If you look at our growth rates, in 2010-11 Lenovo would have grown at 70 per cent odd, but for 2011-12 it has been around 47-48 per cent. From a demand standpoint in the enterprise segment, we have seen an impact," says Amar Babu, managing director, Lenovo India.
For Lenovo, enterprise gives 55 per cent of its business. Babu agrees that the impressive growth that Lenovo has seen in the enterprise growth has come partially from eating into rivals' pie.
With the rupee-dollar fluctuation, the PC manufacturers are in no position to get into a price war and reduce prices. This was one of the reasons why Dell has kept away from low-margin business. "Several OEMs could not participate in large deals and many preferred to go slow due to the currency fluctuation. Moreover, towards the start of the year, due to floods in Thailand, certain component costs went up due to shortages," says Saji Kumar, director-product management, Acer India.
Dell, another major player, saw its revenue from India slip by 30 per cent for the second quarter of FY2013. In the past few quarters, Dell has been struggling to retain its market share in India in terms of unit sales due to its focus on high-value business. The latest IDC figure show the company has now slipped to the third position in India after its market share fell to 13.4 per cent. "The revenues from all business segments in India declined in double digits. The currency has moved 25 per cent in the past year, which has clearly impacted us," says Amit Midha, president, APJ (Asia-Pacific and Japan), Dell.
IDC's Kumar agrees that enterprise refresh cycles are stretched, which in turn has delayed sales cycle. "Commercial spending continues to remain adversely impacted by the prolonged uncertainty in the euro zone and other mature markets. The widening trade deficit continued to exert downward pressure on the rupee in Q2, further diluting spending in enterprises pinched by the rising costs," he adds.
The enterprise refresh cycles are also being delayed due to the launch of Windows 8, where many are holding on to their decision to upgrade to new hardware.
Riding on freak consumer demand
Over the past few quarters, the PC market have been riding on consumer demand and that will peak during the upcoming festivities. IDC figures show that the consumer segment grew by six percentage points in Q2 2012 to record 47.7 per cent shipment share, against 41.7 per cent shipment share in Q2 2011.
CyberMedia's Mukherjee points out that even within the consumer segment, the growth is coming from tier-III and IV cities, where some of the PC vendors have been aggressively growing. "Since all the top players have a significant exposure in the enterprise segment, they are experiencing a drag in the segment. Amidst the weakening scenario, the enterprise hardware refresh cycle seems to have elongated too, which is also not helping the cause. However, vendors focusing only on consumer segment could be riding the consumer wave at the moment," he says.
Players such as Lenovo have been increasing their presence in smaller cities to boost sales. Babu says that Lenovo has seen growth coming from its exclusive stores in tier-II and tier-III cities. "Bulk of our growth is coming from these stores. They are growing much faster than the multi-brand stores," says Babu.
According to Vishal Tripathi, principal research analyst at Gartner, consumer buying accounted for 50 per cent of total PC sales in Q2 2012. "Consumer PC sales grew 24 per cent sequentially. It is being primarily being driven by entry level products. Vendors such as HP, Lenovo, Asus and Samsung registered more than 50 per cent growth in the consumer segment," he says.
As Acer's Kumar puts it, the next four to six months will be crucial for the PC industry.
This is the fourth of a five-part series on the slowdown that companies are facing.