LAPTOPS 100% Growth Continues

Falling prices, technological advancement and true mobility are driving
laptop business in the country. The top five brands held around 90% of the total
laptop market (AMJ 2004—IDC). But there were 15 other brands which tried to
make their presence felt in the market as well.

India has one of the highest potential and is a growing markets in the world
for laptop business. Around 20 known laptop vendors in the country have no
doubts about it. Why else would they continue to do business despite knowing the
fact that the top five brands hold around 90% of the market.

Yes it is true! HP, IBM, Dell, Toshiba and Acer held 91% of the laptop market
in AMJ quarter of 2004, according to IDC India. The remaining 9% was distributed
amongst a large number of players, of which around 15 are known brands. Besides
the known brands, there were Built To Order (BTO) laptops and Taiwanese imports
which many systems integrators were doing business with.

MARKET SIZE AND SHARE

According to IDC India, the fiscal 2003-04 closed with 1,18,730 units of
laptops. The country witnessed a sales of around 99,000 units in the next six
months (i.e. AMJ and JAS of 2004-05), which is an increase of 140% over its
corresponding half in 2003-04. Going by the CAGR of about 100%, the year 2004-05
is expected to close with no less than 2,35,000 units.

For the AMJ 2004 quarter, HP tops the Indian laptop marker with 34.40% market
share in unit terms, followed closely by IBM, with 30.3%. Dell held the third
position with 11.8%. Toshiba was in the fourth position with 7.8% and Acer was
fifth with 7.0%.

AMJ 2004 also saw Samsung launch its high-end laptops positioned for the
premium end of the market. During the launch, it set ambitious targets and in
just three months, managed to garner 3.5% market share in an already crowded
market to become the sixth largest player in terms of volumes and value.

Being a late entrant, this is a commendable task as Samsung sells expensive
machines starting at a price of over Rs 1 lakh. Its decision to position itself
only in the high-end segment and not competing with low-priced Taiwanese brands
has borne fruits.

Few other prominent players like LG, Sony, BenQ and MSI also entered the
market in the second quarter of 2004. However, these are yet to create a niche
in the market. According to R Manikandan, Deputy GM, IT division, LG
Electronics, their business strategy is to take laptops to the home segment and
not just large enterprises. Other like Wipro, Zenith, Fujitsu, Apple, Asus,
iBall, ACI, Sharp and Mercury continued to do brisk business in the last six
months.

SHIFT FROM DESKTOPS

Laptop prices are falling because laptop sales have soared worldwide and
also because duties in India have tumbled. Average prices of a laptop fell from
Rs 80,000 to less than Rs 50,000 in less than a year. That has reduced the price
gap between desktops and laptops.

But the ratio of laptops to desktops has always been lower in India than in
other parts of the world. The ratio is a mere 1:30 compared to global average
1:3.

Industry
analysts believe that this growth will continue for many more years. Just like
mobile phones, which in a matter of four years crossed the total number of
landlines, laptops also will cross desktops penetration. But that will be a long
time from now, because in India, the PC market is also growing. IDC forecasts
the desktop laptop ratio to change from 30:1 to a forecasted 7:1 in 2008.

The Indian laptop market is in a transition phase, where desktop users are
moving towards acquiring laptops. One strong driving force for this change is
the competitive pricing offered by most players in the market.

Raghu Raman, Country Manager - business laptops, HP India agrees:
"Aggressive price point from various vendors are driving down the prices,
making it an attractive option over desktop PCs. Today, we have laptops at
sub-50K price level, which is a lot more affordable than what it was few years
ago."

REDUCED LAPTOP PRICES ATTRACTIVE

With the price gap between the PC and laptop reducing, the attitude and
mindset of the customer is also changing. "We are seeing a distinct
increase in the market demand for notebooks today. Customers have become more
assertive and are demanding advanced technology capabilities on their systems to
facilitate faster growth in their business at an affordable cost," says S
Rajendran, GM, Sales and Marketing, CPG, Acer India.

Laptops have now become affordable and are no longer categorized as an
exclusive product. While high growth in laptop consumption can be attributed to
the steep drop in laptop prices, one should remember that it is not the only
factor that is driving laptop business. Laptops now offer true mobility. True
mobility is in the sense of a total unwired experience made possible by Intel
Centrino technology. Centrino gives wireless connectivity to the Internet; it
consumes less power and hence increases battery life close to minimum four
hours.

"It has been proved that a person using a laptop is more productive
because of its true mobility. It changes the person's behavior and attitude
towards work," says Sanjeev Menon, Brand Manager, Mobile Computing, IBM
India.

Today laptops are not just smaller in size but are beefed up with features
that can serve as an alternative to desktops especially for today's mobile
professional. "Long lasting batteries are helping offices make the switch
to laptops since they offer the advantage of making computers mobile within
offices that are powered by wireless capabilities," Alok Sharma, MD —
India, Apple Computer International.

CONSUMPTION PATTERN

With laptop prices matching those of PCs, laptops are finding their way into
homes and SMEs. According to MAIT's Quarterly Industry Performance Review,
about 18% laptops found their way into the homes for the first time ever in
2003-04. Consumption in the SMB sector also grew significantly. However,
corporates, IT companies, financial institutes, educational institutes and the
Government were the most sought after markets for laptops.

With market traction in the direction of budget notebooks, vendor activities
are expected to be concentrated on this segment over the next one year. The
introduction of the new price band has created new markets for notebooks in the
SOHO and education segments, which are the prime beneficiaries of this new
trend. "This is expected to really open up the market beyond the
traditional domains of large enterprises and upper-level management, and rake in
much-needed volumes," says Rajendran.

Indeed, volume growth is one of the primary factors driving the trend towards
budget notebooks. Lower price points are making notebooks more affordable for
SMEs and SOHO segments, from where the volumes will come. "For most
vendors, it will not be a question of either-or; rather, they will make the best
of both worlds - budget and feature-rich notebooks," says Rajendran.

The education segment is perceived as one of the important segments for
laptops. Laptops are changing the way education is being imparted. Many
engineering colleges and reputed management institutes have added laptops as a
part of their course material. Of course the students are being charged in their
annual fees for that, but they find it a lot more affordable now. HP has sold
laptops to about 20-25 such institutes, and business from this segment
contributes about 15% of their total laptop sales.

TRUE MOBILITY PROFITABLE

According to Raghu, providing laptops to students helps the institute
optimize its IT infrastructure. "It saves space and the regular maintenance
efforts. Wireless features in the laptop helps the students work from anywhere
in the campus," he adds.

SMB also suddenly started accepting laptops. "These are price generated
interests. At the entry level, price plays an important role. Individual buyers
are looking at affordability more than features," says Sanjeev.

India is more of a value conscious market. As long as the Indian customer is
convinced of the value he gets for his investment, price is not an issue. While
the aggressive pricing of budget notebooks means tough times when it comes to
vendor margins, for buyers it may indicate happy shopping all the way.Mobility is linked to productivity. Large enterprises have realized this and
are buying laptops in big numbers to automate their sales work force.
Pharmaceuticals and insurance companies are also giving away laptops to their
always-on-the-move work force. "A strong push towards mobility in the large
enterprises among its sales forces has led to increased productivity," says
Sanjeev.

While selling to the SOHO and individual users, lesser known brands focus on
reducing the price using every possible means - like providing Linux as the
Operating System or omitting it altogether. However, the premium brands stick to
their policy of providing a complete laptop. They are more focused on the total
cost of ownership, features and performance.

BUSINESS STRATEGY

With over 20 known brands, the laptop market is a crowded one. The reason so
many players are attracted to this business is because of the huge potential
that exists in this country. At the entry-level laptop market, smaller players
are trying to outsell each other by playing on the price. However, these laptops
are heavier and suitable as a desktop replacement.

Whereas, in the high-end laptop market, vendors are talking about true
mobility. More important than price is the value and features that are being
offered in each laptop. HP, IBM and other premium brands are talking about the
value that it offers in terms of features and performance. They also explain the
total cost of ownership to customers. Then what is it that differentiates the
top players?

It is the innovative strategies that each one has adopted. Technological
innovations that are unique to each brand differentiates them. Various features
like security, commonality, swapability, downward compatibility, multi-bay,
longer batteries life, brighter screen, and slots for mini storage devices are
some of the offering from top brands. Besides these, top players have categories
their laptop division caters to in the enterprise segment and consumer segment.

TIPS FOR CHANNELS

Desktop growth has come to a stagnation of 20%-30% a year and laptops are
the only growing hardware product that will grow by more than 100% a year. With
a high increase in volume, it makes all the more sense for the reseller to enter
this segment. "This time the channels have another reason to be happy. The
low priced laptops are enabling channel partners to enter the SME and SOHO
segment with ease. The desktop replacement market opens up a huge opportunity
for them," says Vishal Sriwastav, Business Manager, BenQ India.

The first half of FY 2004-05 has almost been highly successful for partners
dealing in laptops. Most of the partners DQCI spoke to reported good growth in
this half. And they are optimistic of continuing this growth until the end of
this fiscal. Today, the lucrative margins in selling laptops are attracting a
large number of partners. However, partners should remember that just like the
desktop market, the margins are sure to slump soon.

The only alternative partners will be left with is that they do their bit of
value additions to grab deals and not just do the task of box-pushing. Vendors
are optimistic about channel partners' role in the growing laptop market.
However, they feel that an aggressive sales push is required to capitalize on
the opportunities available.

"Channel partners should offer complete solutions, along with
peripherals and software," says Alok. Partners can look at bundling,
add-ons like external optical storage drives, and mini storage drives, all
carrying thicker bottomline. As a start, partners entering the notebook market
space should start by dealing in entry-level models and grow their product
portfolio with time.

Sanjeev of IBM advices partners to exploit this market with a segment focus.
According to him, partners should choose verticals like education or government
and make a focused approach. Partners should also expand geographically by
exploring untapped markets.

Another innovative approach for channel partners would be to tie up with ISPs
or telcos to come up with combined offering. A simple example is joining hands
with Reliance to bundle wireless connectivity on the laptop through their
wireless network.

Price-differential between desktop and notebook is the lowest now. This will
enable many channel partners to enter the consumer segment like the SOHO and
self employed professionals with entry-level models. Premium brands have offers
starting from Rs 50,000 going up to Rs 1.7 lakh. And the in the entry-level
desktop replacement models, prices have stooped to as low as Rs 35,000, albeit
without the OS.

As channel partners are the ones who actually would be doing majority of the
selling, vendors have to beef up their service and support network to keep the
channels convinced. They definitely have to show them the huge margin that
follows. The usual method has been by launching channel schemes.

The key to a good channel program is to send a strong message that gets a
partner to act and execute deals with maximum efficiency. Apart from channel
programs, vendors themselves have to ensure their presence extensively across
the country. All top companies have its channels in place. Both HP and IBM have
an extensive reach. Similarly, new entrants like Samsung and LG also have an
extensive channel network. Companies like Acer and BenQ are beefing up with
their network to ensure availability of the products through out the country.
The focus is to go beyond the metro cities.

NELSON JOHNY

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