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PC Markets: Plummeting realisations - Views on News from Equitymaster
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  • Jan 9, 2002

    PC Markets: Plummeting realisations

    According to figures released by MAIT (Manufacturers Association of Information Technology), the economic slowdown has impacted PC sales adversely causing a YoY decline of 4% in volumes in the first half of fiscal 2002. This is contrary to the trend in FY01, during which the PC markets witnessed a steep 34% volume growth in PC sales. Infact so sharp has been the decline that MAIT has revised its forecast for the PC markets from a growth from 30% to a decline of 12% for FY02.

    Product Units Value (Rs bn) Realisation per unit (Rs)
    Computers 1HFY01 1HFY02 Change 1HFY01 1HFY02 Change 1HFY01 1HFY02 Change
    Desktops 834,650 803,055 -4.0% 29 22 -23.0% 34,386 27,520 -20.0%
    Notebooks 18,719 21,170 13.0% 2 2 -30.0% 128,746 79,830 -38.0%
    Servers 28,620 27,005 -6.0% 6 5 -24.0% 199,860 173,301 -13.3%

    The decline in value terms in 1HFY02 has been even steeper at 23%. This was due to the fact that for 1HFY02 PC sales have shown a sharp drop in realisations. The average realisation per PC declined to Rs 27, 520 a drop of 20% as compared to the corresponding period last year. This is quite sharp as compared to a drop of 6% in FY01. The drop could be due to the fact that branded players have cut prices to take on the assembled segment. With the rapidly falling prices cost leadership strategy that has so far given an edge to the assembled players, is no longer a sustainable edge. To improve market share, players will have to provide services that will differentiate them from competition.

    Read more on the service edge

    Infact during 1HFY02, the market share of assembled players has dropped sharply from 59% in 1HFY01 to 44% 1HFY02. This loss has been the gain for MNC brands that have increased their market share from 24% in 1HFY02 to 36% in 2HFY02. The Indian brands, however, have only managed to improve their market share from 17% last year to 20% currently. Another reason for the sharp decline in the market share of assemblers is due to the fact that PC sales to the home segment declined by 11% compared to 1HFY02. The home segment is more price sensitive than the business segment and therefore, assemblers have seen the demand for their products heading south. The business segment also showed a decline but this was marginal at 1.5%.

    If one were to go by the MAIT forecast of PC sales for FY02, then the second half should be relatively less painful. PC sales are expected to pick up during the second half of the fiscal 02. The forecast for FY02 is a sale of 1.6 m units, of this 0.8 have been already sold, this means that compared to 1HFY02, PC sales will show a 5% growth. But with competition intensifying this is hardly going to be any respite for the players. Therefore, for companies like HCL Infosystems that has the largest share of the PC market in the country (6.8% according to IDC), the year is going to be tough one. Not only will the topline show marginal growth, the operating margins might also be impacted adversely.



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    Aug 18, 2017 (Close)


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