Ahead of the festive season, the personal computer (PC) industry is bracing for another round of price increases, as the import cost of components has risen.
Leading PC vendors say they have no option but to pass on the costs to consumers, as the steep depreciation of the rupee has made it impossible for them to absorb costs.
"We had increased the prices when the rupee was trading at about 58 a dollar. Now, it has depreciated by another eight-10 per cent. So, we will have to watch, as there is a lot of volatility. But even if the rupee stabilises at this level, we will have to effect an increase to absorb costs," said Amar Babu, managing director, Lenovo India.
| NO WAY OUT |
- Rupee falling against the dollar has raised import costs
- IT hardware sector works on wafer-thin margins
- If prices are raised, demand during the festive season might fall
The rupee has depreciated 16 per cent since May this year; so far this month, it fell about six per cent. As PC vendors in India typically assemble the components they import, their costs have risen substantially. "Because the IT hardware industry operates at a laser-thin margin, even a two per cent swing here and there makes it unviable to do business. We have already effected some price increases in July and if the rupee continues its fall, we have to pass it on to consumers eventually," said S Rajendran, chief marketing officer, Acer India.
According to experts, PC prices have already risen six-eight per cent since April this year. The latest round of price rises was seen in July, when the rupee was trading at about 58/dollar. However, this time, the case is different, as a price rise would put vendors on a sticky wicket - the festive season, when PC sellers see a rise in sales, is just round the corner.
"There has been pressure on the overall volumes of the business and, therefore, any increase in costs will further impact business, as the volume would come down even further. So, it is always a difficult decision to take. However, the depreciation is too high for us to be able to absorb the cost," said Lenovo's Babu. Anwar Shirpurwala, executive director of Manufacturers' Association of Information Technology, said a price rise was inevitable. "It is a tough balance to strike, as the festive season is around the corner. But companies will increase prices if they are not able to sustain the losses."
According to research and analyst firm IDC India, the first half of this year saw low demand for PCs; consumers were seen shifting to other hand-held devices and investing in commodities such as gold. However, the buying sentiment is expected to improve in the second half. "While a price rise is imminent and no one would avoid that, we need to wait and watch to see if this is going to impact consumer buying. Consumers have become somewhat inert to these inflationary and economic pressures. I don't think they will cancel their buying plans, though they might defer their buying decisions," said Kiran Kumar, research manager, IDC India.