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PCs: The services edge - Views on News from Equitymaster
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  • Jan 3, 2002

    PCs: The services edge

    The PCs market in India is divided amongst three players. The unorganised segment that is comprised of independent assemblers, Indian branded players like HCL Infosystems and MNC brands like Compaq. The cost leadership policy has given the unorganised segment an edge over its branded competitors. Consequently, these players have 53% of the market share. However, with realisations falling rapidly, the break up might change in the future.

    Recently, to counter the cost leadership policy of the unorganised segment, branded manufacturers like HCL Infosystems have introduced PC for prices as low as Rs 22,500. This kind of a pricing will leave very little room for the assemblers to maneuver. Another reason why the assemblers are able to price their products lower is due to the fact that the unorganised segment avoids taxes. Currently, an import duty of 15% is applicable on PC related components. Again the unorganised segment also avoids paying excise duties. But with the mass use of PCs critical for development of the country’s economy, the government will sooner or latter give into the demands of hardware industry and curb import duties.

    It is then the services led war will begin. And at this point, the unorganised sector may find itself at a loss. PC is a complex product, which cannot be repaired at home on a Sunday morning. Also, PCs are increasingly getting prone to virus attacks, crashes due to unstable operating systems and inter-operatability issues. The software that runs on these PCs is changing rapidly. But irony is that PC is increasingly playing an important role in the daily routine. From education the use of PC has shifted to communication, leisure and entertainment.

    The volume edge
      HCL Infosystems Wipro*
    Particulars FY00 FY01 FY00 FY01
    No of PCs produced (nos) 99,391 124,225 56,866 62,779
    Installed capacity (nos) 150,000 150,000 72,500 72,500
    % utilisation 66.3% 82.8% 78.4% 86.6%
    *Micro processor based systems and peripherals
    Source: FY01 Annual reports

    Therefore, consumers of the future will not only buy PCs that work but those that keep working inspite of calamities like virus attack and systems crash. One of the strategies that could help dominate the PC market could be to help keep the PC running by providing a range of post sales services which could include backup, anti-virus protection software and hardware upgrades.

    Compaq in a bid to out do its competitors recently announced that it would bundle subscription service for remote data storage with its new line of Presario’s. The customers can now save their data on remote servers, which are managed by a company, Connected Corp. in this case. This would shield its customers from losing critical data if the computer is damaged or the system crashes.

    Through the offering users can program the service to back up data through the Internet as frequently as they please. Using a small client-side application and a regular Internet connection, the service will synchronize the data on a user's PC with remote servers managed in the data center. If any data is lost, the user can recover it from those remote servers. Another service that Compaq is offering to woo customers is an option of receiving a notebook on loan if the PC is destroyed or fatally crashes. In the wake of the Sept. 11 terrorist attacks, there's a growing focus on data storage to protect users from losing critical information in the event of an emergency.

    It is very interesting to note that two of the major Indian brands Wipro and HCL Infosystems not only sell PCs but also are Internet service providers. Wipro also provides data storage facilities. Therefore, the companies could offer services similar to Compaq. They are in a better position to do so due to their own ISP services and in Wipro’s case also captive storage services.

    India has the infamy of having one of the worst IT infrastructure in the world but at the same time has the distinction of having one of the most computer and Internet literate populations in the world. The PC penetration in India is about 4 in 1000 compared to about 64 in 1000 in advanced countries. These two factors put together have created an ever-burgeoning demand for computer hardware. In FY01, the PC markets showed a significant 34% unit growth. But the Indian brands did not make much of this opportunity. While their market share increased from 19% in FY00 to 20%, the MNCs were clearly the winners with a jump in market share from 23% in FY00 to 27%. The Indian brands are at a greater strategic advantage and a little bit of innovation could change the numbers in their favour.



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