Sep 18, 2009|
IT Hardware: It's hard to ignore
Software and services have become synonymous with the Indian IT sector. But wait, aren't we ignoring the hardware? Yes, it is ironic that the Indian IT sector that boasts of future super vendors like Infosys and TCS does not have many big brands to talk about in the hardware space. While the Indian IT software industry became the apple of everyone's eye, hardware remained the neglected child. This article talks about the hardware sector in India and the challenges and the potential it has in store.
The IT hardware industry comprises of a plethora of products and accessories like desktops, notebooks, mobile computing devices, servers, storage, printing and imaging solutions, security and network devices. The domestic market for hardware is expected to grow at a compounded annual rate of 8.2% in the next 5 years. The Indian PC market (usage in homes, small and medium businesses, large businesses, government and education) stood at around 7 m in volume terms in 2009, and is expected to grow at a CAGR of 9.7% going ahead. The leading companies in the PC market are HP (28%), HCL Infosystems (16%), Dell (15%), Acer (12%) and Lenovo (11%) among others. HCL Infosystems leads in the commercial desktops space, with a market share of 15%.
HCL Infosystems earns a special mention. It is one of the largest information and communication technology (ICT) company with its Indian operations generating revenues of around Rs 123.8 bn, next only to HP which generates around Rs 129 bn from India. Apart from hardware, HCL Infosystems also covers software, networking, telecom, education and security segments. The company bets on the fact that India is the world's fastest growing ICT market, expected to grow at 13% despite the slowdown (Source: IDC report).
Some facts about the hardware industry:
- The Indian hardware sector grew at a CAGR of 21% over the last 5 years. Most of the business was India focused as domestic revenues grew at a CAGR of 23% during this period, while the share of hardware export revenues which is already miniscule, saw a 12% dip.
| Source: Nasscom Strategic Survey 2009
- The hardware could not keep up pace with the export-oriented IT software and services segment, which grew at a scorching rate of nearly 30% since the last 5 years. The Indian IT industry's total revenues touched US$ 72 bn with exports of around US$ 60 bn. The revenue of the Indian hardware segment remained subdued at US$ 12.1 bn.
- The hardware segment contributed around 17% to the overall IT industry revenue. Its share in overall revenues has seen a decline over the years, on account of the slow pace of growth in the domestic market which is its core area of focus. Nevertheless, the hardware market clocking revenues of US$ 12.1 bn accounted for nearly 50% of the overall domestic market for IT which stood at around US$ 24.3 bn during 2008.
- According to Nasscom estimates, the global spend on hardware is estimated to have grown by 4% YoY during 2008 from US$ 570 bn to US$ 594 bn. The software and services spend touched US$ 967 bn growing at 6.3% YoY during the same period. While even after recording a spectacular growth rate, Indian IT contributes only 2% to the global software and services market, the hardware exports remain a goose egg at US $ 0.3 bn.
So, what has resulted in a lackadaisical growth in the hardware segment? The major miscreants are lack of availability of input raw-materials, government policy mood swings, double taxation, high interest rates, customs duties on capital goods, poor infrastructure, transit delays and increased costs. Apart from branded US hardware majors like HP etc, low cost producers like China have remained a major competition for the sector. But things are changing for good on many fronts lately.
Major change in sentiment comes from the government's initiatives. The sector is lately relieved of the policy of duplication of service tax and other duties. Furthermore, the government's planned expenditure of over Rs 230 bn for better automation of e-governance projects will be the major impetus. Increasing Internet and telecom penetration is an added boost to the hardware sector.
We believe that the hardware sector in India is bound to grow by leaps and bounds. Why? If we analyse the major growth drivers for the ICT sector and particularly hardware, India is indeed a strategic place. With tele-density of just 29%, a lot of scope lies in this segment. Growth in core sectors like telecom, energy, power, infrastructure, health and education is underway and the future looks promising for the hardware sector which will fuel all these initiatives. Though there are not many listed companies in this sector as of now, this industry seems to have a lot of potential. It is worth keeping an eye on.
More Views on News
Aug 2, 2017
A better than expected turnaround in performance results in a change in view.
Jul 27, 2017
Digital services drive growth for Wipro in 1QFY18.
Jul 14, 2017
Infosys starts FY18 on an encouraging note with a stable performance.
Aug 5, 2017
How to get exclusive insider recommendations from Ankit Shah.
Jul 14, 2017
TCS starts FY18 decently despite an adverse currency impact.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407