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PCs to get cheaper, better - Views on News from Equitymaster
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  • Aug 23, 1999

    PCs to get cheaper, better

    According to newspaper reports, Intel, world's largest manufacturer of microprocessors, has announced sharp price cuts for its Pentium III (P3) microprocessor. Come September, and the P3 500 MHz processor will become cheaper by US$ 150 to US$ 250. As a result, personal computer (PC) prices will fall as the microprocessor is the most critical and expensive PC component.

    India's PC penetration is dismal with only 2 PCs per 1,000 people. Compare this to over 400 PCs per 1,000 Americans and 150 PCs per 1,000 Japanese, and one realises that India has a long way to go before it can call itself an IT superpower.

    Until a few years ago, India had lower PC sales as prices were exorbitant. PCs were beyond the reach of the common man, and only the government and corporates purchased PCs. But with the systematic slashing of processor prices by Intel, the PC became more affordable, allowing Home segment users to participate in the Information Technology (IT) boom.

    The lure of the Internet also acted as an incentive, encouraging more Indians to buy PCs. Similarly newer concepts like Enterprise resource planning (ERP) and Electronic commerce (E-commerce) has promoted PC culture among corporates as well as the government institutions. In fact, the Union government is the single largest buyer of PCs.

    However, despite all this, 2 PCs per 1,000 Indians is simply not good enough. In order to promote the IT culture in the country, the government set up the IT task force last year. The IT task report aims at a scenario where the penetration of computers will be increased from the present level of 1 computer for every 500 computers to 1 computer per 50 persons.

    Some of the main recommendations made by the task force in its report are as follows;

    • 100% depreciation on IT hardware/software products over the next two years.
    • IT to be granted priority sector status by banks for the next five years
    • Zero import duty on all IT products till the year 2002
    • Increase in the density of computer literate population by providing finance at reasonable rates to individuals

    In FY99, PC sales at Rs 43 bn posted 16% rise over FY98 (Rs 37 bn sales). Notebook sales at Rs 3 bn were down 31%, while servers posted sales growth of 36% at Rs 7.2 bn.

    A 16% rise in PC sales in FY99, can at best, be described as modest. While India is getting a lot of recognition for its software expertise, the dismal PC penetration in the country is a cause for some concern. Overseas, there is a strong correlation between hardware sales and software revenues. Therefore, strong growth in hardware could provide a strong fillip to local software demand. The PC has to be more accessible to the common Indian, and with regular price cuts from processor manufacturers, that might just become a reality.



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