Record first-half PC sales; Market grows beyond 2.3 million units: MAIT studys

New Delhi; January 05, 2006: MAIT, the apex body representing the hardware, training and R&D services sectors of the IT industry in the country, today announced the findings of its Industry Performance Review for the first-half of the Financial year 2005-06. The Desktop PC market grossed 23.4 lakh (2.34 million) units registering a growth of 36% over the same period, last fiscal. The buoyant IT consumption witnessed in the second-half of 2004-05 continued in the first-half of 2005-06, resulting in a significant market growth. With sound macroeconomic condition and buoyant buying sentiment in the market, PC sales are expected to touch 47 lakh (4.7 million) units in Fiscal 2005-06.

The high growth in PC sales can be attributed to increased consumption by Industry verticals such as Telecom, Banking & Financial Services, Manufacturing, Education, Retail and BPO/IT-enabled services as well as major e-Governance initiatives of the Central and State Governments. The southward trend in pricing continued during the year due to technological reasons and other initiatives of the industry, including the sub-Rs.10,000 PC. Significant consumption in the small and medium enterprises added to the industry numbers. Further, the trend of increased PC purchase in smaller towns and cities as witnessed in previous Quarters, continued undiminished. This is despite the fact that there was a marginal degrowth in the consumption in the home market.

MAIT’s Industry Performance Review - ITOPs, conducted by the leading market research firm IMRB (Indian Market Research Bureau), is bi-annual and aims to address the hardware sector’s efforts to manage the business environment, gauge the market potential and consumer trends. Apart from the half-yearly review, a module has also been introduced to monitor the Industry performance every Quarter, alternating with the half-yearly review, using the supply side estimation model. This round of the study involved face-to-face interviews with over 24,500 respondents selected randomly from 22 cities in India. The MAIT-IMRB study was initiated in 1996-97 and leading IT vendors subscribe to it. The study encompasses five broad product segments - computers, networking products, printers, other peripherals and Internet.

The Assembled PCs – the smaller lesser known regional brands and unbranded systems witnessed decline in market share, accounting for 34% of the PC sales in H1/2005-06. The share of the Indian brands grew to account for 31% of the market while the MNC brands accounted for the rest at 35%. In absolute terms, the proportion of the Indian brands grew by 84%; MNCs by 45% while the assembled by only 5%. In the first-half of 2003-04, the Assembled PCs commanded a 57% market share, however, with increased aggressiveness on pricing from and better reach of the branded players, their proportion has consistently reduced to 34% now.

The MAIT-IMRB Review reveals that PC sales to the Business segment improved by 55% accounting for 78% of the total PC consumption. In the Households, while the sales were 5.10 lakh units, the sector witnessed a degrowth of 5% over the same period last year. Within businesses, sales to the larger businesses (over 50 employees) grew by 62%; to the medium business segments (between 10 and 50 employees) by another 61% and that to small enterprises by 33%. The Larger Businesses dominated the market accounting for 55% of the total sales.

In terms of the Processor Configuration, PC sales in first-half of FY 2005-06 were dominated by P4, which accounted for 81% of the market share, followed by PIII accounting for only 2%. While other alternative processors like AMD, Cyrix and Celeron accounted for another 17%. In the households, it was the alternative processors that accounted for 27% of the market, a reflection of the higher price sensitivity in the home market.

In terms of Operating System installed on Desktops in establishments, 66% of the establishments had Windows 95/98 while only 2% preferred Linux. In case of servers, 5% of the establishments had Linux and another 6% had other non-Windows based Operating system, 10% operated on Windows NT; 22% had Windows 95/98 and 26% had Windows-2000. India has 2.2 million business establishments in the 22 cities studied.

As per the study by MAIT –IMRB, overall Printer sales grew by 43% over that in H1 2004-05 on y-o-y basis. The buoyancy witnessed in consumption of Dot-matrix Printers in the FY2004-05 continued undiminished. This was led by increased consumption in retail, the smaller enterprises and the households segment. Overall, the sales of DMP grew by 63% in the businesses segment and by 26% in the households. Sales to smaller establishments grew by 176%, to the medium enterprises by 91%, however sales declined by 40% to the large enterprises. Overall consumption of Inkjet printers grew by 13%; in the business segment it grew by 31%, however it remained stagnant in the households. Laser printers recorded a growth of 159% due to increased consumption across all verticals. Sales of Laser printer grew by 102% in large establishments, by 249% in medium enterprises and by 159% in smaller enterprises where consumption grew 121%. The growth projection for FY 2005-06 for overall printer sales is 39%; sales are expected to cross 16.3 lakh (1.63 million) units.

The sales growth in smaller towns and cities continued undiminished in the first-half of fiscal 2005-06. Together Class B and C cities accounted for 70% of total PC sales, registering a growth of over 44% in absolute terms, the proportion increased from 58% in the first-half, last fiscal. Consumption of Notebooks in the Businesses segment, in smaller towns, grew by a whopping 192% accounting for 37% of the total market, up from 27% in H1/2004-05. Sales of Servers recorded a growth of 110% in Class C cities and 87% in Class B cities, pulling-up the overall sales by 56%. Similarly in the Printers market, Class C towns accounted for 62% of the Dot-matrix market growing 30%; in the case of Inkjets, Class C accounted for 56% of the market growing 11%, while in the case of Laser printers, Class C accounted for 45% of the consumption with a growth of 130%.

The following is a synopsis of the findings of the MAIT-IMRB study:

• The Top 4 metros accounted for 30% of the total PCs purchased with 16% growth in consumption. The proportion of sales to Top 4 metros decreased, as against, 35% in H1/2004-05. PC purchase in the ‘Next 4 Cities’ grew 24% and accounted for 15% of the market. In other smaller towns, PC purchases increased by 55% to account for 55% of the total PCs purchased. Smaller towns had accounted for 48% of the market in the same period the last Fiscal.

• In the Businesses segment, the ‘other smaller towns’ emerged as the major consumers in H1/2005-06 accounting for 53% of the PC sales, recording a growth of 47%. The Top 4 cities accounted for 32% of the sales with sales growth of 42%. The Next 4 cities also witnessed high growth of 159% accounting for 15% of the total market.

• While the consumption in the Households declined by 5%, interestingly, the home-offices witnessed a consumption growth of 12% while the pure-homes recorded a decline in consumption by 7%. This trend in PC consumption in the households is in consonance with that being witnessed in the consumer durables market where the buying sentiment in the households has also been low. Further, the degrowth of sales in the households is also reflected in the poor off-take of sales in the unorganised sector where the sales growth has only been 5%. In the Households, SEC A with flat sales continued to dominate the market with 49% market share. This was followed by SEC B with 32% market share and 15% growth, Sales to SEC C registered a negative growth of 33% pulling down the overall sales.

• Notebook sales recorded a high growth of 94% and also found their way into the homes. In H1/2005-06, about sixteen thousand notebooks were sold to the Households segment accounting for 13% of the total market. Consumption in the Small enterprises grew 118% accounting for 17% of the total Notebook sales to the Business segment; sales to Medium-sized enterprises grew by 136%, accounting for 21%. Compared to the first-half of last fiscal, sales to large enterprises grew by 102% accounting for 61% of the total sales in the business segment.

• The Server market registered a growth of 56% over the first-half of last fiscal riding on high consumption in the medium establishments where sales increased by 258%. Medium enterprises accounted for 43% of the total servers market. Sales to large enterprises grew by 35% accounting for 30% of the market; however, small enterprises registered a negative growth of 11%. Server consumption also grew significantly in the smaller towns registering a growth of 110% and accounting for 44% of the market. Top 4 cities accounted for 40% of the market, growing 15% while the ‘next 4 cities’ accounted for the rest 15% of the market, growing 87%.

• In the Networking market sales of NIC grew by 115% over H1/2004-05, while that of Hubs grew by 25%. Modems – dial-up and modem cards, registered a negative growth of 21%.

• The UPS market grew by 16% over H1 of 2004-05. Consumption in Top 4 cities grew by 19%, in ‘Next 4 Cities’ by 16% and that in other smaller towns by 14%. Households accounted for 50% of the UPS market registering a growth of 38% over H1 of fiscal 2004-05; consumption in Businesses remained flat.

• Consumption of Monitors increased to 23.4 lakh (2.34 million) units with a growth of 40% over the first-half of FY 2004-05. The market witnessed growth in consumption of 15” & 17” monitors by 77% and 67% respectively. 15” monitors accounted for 52% of the market while 17” accounted for 37%. The proportion of 14” monitors decreased from 23% to 6%. 20”/21” monitors accounted for 3%, a small proportion of the total market.

• The number of active Internet subscribers (entities) increased to 31.7 lakh (3.17 million) in September 2005, while the figure was 29.2 lakh (2.92 million) in March 2005. The penetration of Internet, in the top 22 cities, among businesses was 48%, while that in households was 15%. The businesses segment now contributes 42% of the total active Internet entities and households account for the remaining 58%. Dial-up remains the most commonly used means of accessing the Internet among businesses, although the proportion of Businesses using dial-up has dropped from 57% in September 2004 to 47% in September 2005. The proportion of access through DSL/cable link increased from 28% to 36% during the same period.

Commenting on the need for creating a strong domestic-demand-led IT hardware Industry in India, Mr Vinnie Mehta, Executive Director, MAIT said, “On its part the industry needs to focus its attention on localization and creating value-for-money solutions, especially for the price sensitive segments of the market like the home and the SMEs. We have witnessed a slight slow down in the buying sentiment in the homes in the first half of 2005-06 despite the best efforts of the industry on the pricing front. This, we believe, is a temporary phenomenon as PC penetration in homes is still very low. We are very confident that the increased Government focus on pan-India deployment of broadband at one of the lowest costs in the world coupled by the industry initiative of lowest priced PCs in the world will soon lead to accelerated PC consumption in the home market.”

Reflecting on the hardware-manufacturing scenario in the country, Mr Rajendra Kumar, President, MAIT said, “As the domestic IT consumption assumes global proportions, the Government of India should aggressively utilize this as a bait to attract IT manufacturing investments in the country. However, large capital investments involve significant risks, and the government needs to proactively set in place concrete measures that would help in mitigating such risks. These measures should include addressing and providing assurance on infrastructure and utility concerns; incentivising IT manufacturing in India that is competitive with other locations; and enacting policies and measures that will significantly enhance PC and Internet penetration in the country. The overall focus of the Government should be to develop India into a global manufacturing hub for IT manufacturing, not only for catering to the domestic demand but also for exports. ”

Definitions:
• Top 4 Cities/Metros/Class A cities – Delhi, Mumbai, Chennai, Calcutta
• Next 4 Cities/Class B Cities – Bangalore, Hyderabad, Ahemdabad, Pune
• Class C Cities/Towns: Other Smaller Towns/Cities
• Internet entities – Entities are establishments/individuals with Internet connection; an entity could house multiple users.

About the study:

ITOPS is a syndicated end-user based study on the IT hardware market conducted by the eTechnology Group of IMRB. ITOPS has been an annual exercise since 1996-97 and for the last five years the study has been conducted on a bi-annual basis, as well. The study is based on over 24,600 face-to-face interviews with end-users spread over 22 cities, with data projected to the 'all India urban market'.

The MAIT-IMRB study involves data collection after the 'last mile' that the product travels, i.e. from the premise where the product is finally installed. It is therefore an accurate estimate of 'what' was bought, 'by whom', and for 'what purpose'. Since the MAIT-IMRB study is based entirely on data collected from 'users', it is able to accurately estimate the large unorganised market as well as direct imports. It does not suffer from shortcomings of estimates based on shipment or supply which in addition to under or over-counting, may also reflect biases in perception of vendors and resellers.

With ten consecutive years of ITOPS data, the study is now able to closely track emerging segments such as small offices, home users, first time buyers, etc. and identify the role of key drivers for purchase such as the internet. By virtue of tracking the installed base built over the
years, and monitoring the extent of upgradations/ replacements taking place in the market, the study has been able to identify emerging business opportunities that promise to expand the market for IT products in India.