Domestic PC vendors in India struggle to gain market share: Gartner

Mumbai

September 20th, 2007

Multinational-Corporation (MNC) PC brands have overtaken the local Indian PC
brands in terms of sales, growth rates and marketing activities, says Gartner
Inc. Indian branded vendors like HCL, Zenith, Wipro and PCS account for only14
percent of the Indian desk-based PC market and six percent of the Indian
mobile-PC market in 1H07. According to Gartner, only HCL has withstood the
competition. However, even they are losing out to MNCs in the consumer segment.

The Indian PC landscape is divided among three different groups: MNCs, local
brands and white box vendors. In the past few years, although local brands are
growing at a steady pace, they are clearly way behind the growth rates of the
MNC brands. Indian vendors' shipments grew 18 percent year over year in 2006 and
35 percent year over year in 2005, while MNC shipments grew 73 percent in 2006
and 50 percent in 2005. This disparity gets even more accentuated considering
that in 2004, local and MNC brands were growing at roughly the same rates.

"Unable to withstand the pressure of the marketing blitz and the reach
of the MNC brands, the local brands have almost exited the consumer segment and
are rethinking their strategy to focus more on government, education, and small
and midsize business (SMB) segments", said Diptarup Chakraborti, principal
research analyst for Gartner's client computing group. "Moreover, the
mobile-PC segment in India, which has been growing at 74 percent year on year,
has seen little traction by local brands. MNC brands are dominating this niche
yet high margin segment with 94 percent of the market share."

The key growth drivers in 2007 were the education, small business, consumer
and government sectors. Mobile PCs continue to out perform desk based PCs in
terms of growth. The key factors contributing to this phenomenon is the rapidly
decreasing price differential between mobile PCs and desk based PCs, performance
parity between the two, availability of a wide portfolio of products ranging
from entry level to high end and push from both vendors and channels to grow
this segment. While mobile PCs have grown at 74 percent, desk-based PC growth
has slowed down to 3.9 percent. However, with small business and education
segment likely to continue with their spends on IT infrastructure desktops
should see some rapid upward mobility in the coming quarters

Gartner recommends a roadmap for local brands to improve their market share
in the India. Accordingly they must:

(A) Improve product lineup: Indian vendors lack a complete product
lineup. They are primarily focused on the low-and-mid range desk-based PC
segments and miss out on the lucrative mobile PC and high-end desk-based PC
segments. To grow their market share they should focus on introducing and
pushing AMD-based products, maintain specific stock keeping products for smaller
cities and gain technological advantage by concentrating on high-end digital
lifestyle and gaming machines where none of the MNC brands have a dominant
position.

(B) Increase brand visibility: It would be a challenge for local
vendors to quickly ramp up their visibility through marketing activities. They
should therefore use a more focused approach of targeting select retail outlets
in major cities where they can increase POS material, display space, product
range, customer assistants, etc. They should also leverage key channel partner
for joint marketing initiatives in smaller cities. Such programs haven't yet
been undertaken by MNCs in smaller cities, so local vendors can get a head
start.

(C) Improve channel mind share: Local vendors, although gradually, are
losing channel mind share, but not necessarily the channels themselves resulting
in fewer new-client. Local vendors must invest more to gain channel loyalty by
adopting a more proactive approach toward their channels, investing in building
a brand at the POS, improving their product range, and forging deeper bonds with
the likes of Intel and Microsoft. Indian vendors must continue to focus on and
dominate government, education and small-business segments, a space where their
MNC counterparts haven't yet made major inroads. Working with specific channels
in these segments will allow them to focus on their strengths.

Top 5 PC vendors in India - desk-based and mobile PC segments (based on
shipments), 1H07