PC Sales Record 7% Negative Growth First Time Ever

MAIT announced the findings of its Industry Performance Review for fiscal
2008-09. The total PC sales between April 2008 and March 2009, with desktop
computers, notebooks and netbooks taken together, were 6.79 million (67.9 lakh)
units, registering a decline of seven percent over the previous year.

IT consumption in 2008-09 was severely impacted, especially in the
second-half of the fiscal year, by the slowdown in the Indian economy. Impact on
consumption of notebooks was most pronounced as growth plummeted to a negative
17 percent compared to a high of 114 percent in the previous year. Sales of
desktops declined four percent. The OND quarter was the most adversely impacted,
subsequent to which growth in PC consumption started to show signs of revival.
With business sentiment gradually gaining momentum, PC consumption in fiscal
2009-10 is expected to cross 7.3 million units, registering a seven percent
growth.

Commenting on the findings of the study, Vinnie Mehta, Executive Director,
MAIT said, “Consumer sentiment was subdued due to uncertainty in the economy in
2008-09 which impacted the consumption of IT in the country. While consumption
in the first-half of the fiscal was satisfactory, less than expected offtake in
sales in the second-half pulled down the overall growth into the negative
quadrant. A silver lining in the second-half of 2008-09 was the emergence of a
new product category, the net book that took the fancy of the consumers. This
new form-factor appeared to be better insulated from the prevailing market
sentiments.”

He further added, “Although the sales growth in both the enterprises and the
households headed southwards, the overall consumption in the PC market was led
by telecom, banking and financial service sectors, education and the
e-governance initiatives of the Union and the state governments. Verticals such
as BPO/IT-enabled services, manufacturing, retail and households, which
traditionally account for significant proportion of the IT market, were very
conservative in their IT spends in 2008-09. Sales of desktop clocked 5.27
million (52.7 lakh units) declining four percent, and that of notebooks, with
netbooks taken together, another 1.51 million (15.1 lakh) units with a degrowth
of 17 percent. Consumption of netbooks exceeded 70 thousand units in fiscal
2008-09. The year also witnessed deviations from the traditional downward trend
in pricing for IT products as the dollar continued to be significantly strong
compared to the rupee. This was mitigated, to an extent, by price drops due to
technology reasons and also due to intense competition. Going forward, with
signs of revival in the domestic economy, we expect positive growth for PCs and
other IT products for the fiscal 2009-10.”

Western India followed by the South, led PC consumption accounting for 37
percent and 23 percent of the market, respectively. Sales in the West grew by 12
percent over 2007-08, while in South it declined 22 percent. PC consumption in
the East increased by 18 percent accounting for 22 percent of the market, a
reflection of IT activities gaining ground in the region. The northern states
witnessed a decline of 34 percent in PC sales, they accounted for 18 percent of
the market.

Unlike the trends in the previous years, where sales in the second half of
the year have been significantly higher than those in the first-half, 2008-09
witnessed a rather subdued second-half as delineated below.

The bi-annual MAIT Industry Performance Review-ITOPs, conducted by IMRB
International is a survey of the domestic IT market, its potential and trends.
This round of the study involved face-to-face interviews with over 25,000
respondents selected randomly across 22 cities in India. The MAIT-IMRB study was
initiated in 1996-97 and encompasses five broad product segments-computers,
networking products, printers, other peripherals and Internet connections. Apart
from the half-yearly review, a supply-side estimation module has also been
introduced to monitor industry performance every quarter, alternating with the
half-yearly review.

Delineating his thoughts on the current policy environment and the need for
spurring IT consumption in the country, especially in these challenging times,
SS Raman, President, MAIT said, “We are glad that the outcome of the Union
Budget 2009-10 has been satisfactory. Stability in the rate of excise duty at
eight percent for all IT products and components augurs well for the IT
industry. Further, the government has, to an extent, resolved the impasse
regarding the classification of packaged software, which shall henceforth
attract service tax on the licence portion. Issues that remain unresolved are
the continuance of the four percent Special Addition Duty (SAD) which is a
significant cost for the local manufacturers as also the low rate of abatement
for MRP based excise duty assessment for IT products such as notebooks,
printers, modems, etc. We have requested the authorities to resolve these at the
earliest.”

He further added, “It should be made mandatory for nationalized and PSU banks
to earmark funds for easy and subsidized loans for purchase of IT products and
solutions for the SMEs and the home consumers, especially for education.
Similarly, governments should extend interest free loans to all their employees
for purchase of IT products. Further, as several e-governance projects are being
rolled out, these need to be replicated across all the states in the country and
completed at an accelerated pace. Providing for local-language interface will be
critical for the success of such projects, especially those aimed at
government-citizen interface.”

Stressing the need for redoubling efforts by the government and the industry
to accelerate growth of the domestic IT market in the country, Ravi Swaminathan,
VP, MAIT said, “MAIT has set for itself an ambitious target, 'Goal 511', 500
million Internet user, 100 million broadband connection and 100 million
connected devices by 2012. This calls for strengthening of the national IT
infrastructure along with the physical infrastructure on a priority basis. In
this regard we need early roll-out of 3G and wi-max networks. These will not
only enable consumption of front-end devices, CPEs and other back-end devices,
but will also create a new economic paradigm through various applications,
services and other avenues created through the network-multiplier effect. Urgent
and significant efforts are also needed to build efficiency and reduce wastage
in all industry verticals through deployment of green and energy efficient IT
products.”

Some of the salient findings of the MAIT Industry Performance Review 2008-09:

The desktops market

Organized vs unorganized segments: Multinational brands accounted for 51
percent of the total desktop market in 2008-09, registering a growth of eight
percent over the 45 percent share last year. The proportion of Indian brands
fell from 22 percent to 18 percent, registering a decline of 22 percent.
Assembled desktops and unbranded systems witnessed a degrowth of 10 percent in
absolute units accounting for 31 percent, down from 33, of total desktop sales
in 2008-09.

The establishments segment accounted for 66 percent of the desktop sales,
registering a growth of five percent on a YoY basis although consumption of
notebooks in the establishments declined 27 percent. Owing to conservative
attitude, establishments do not seem to have shifted preference in favor of
notebooks. The consumption in small, medium and large enterprises grew by three
percent, 17 percent and two percent, respectively.

Manufacturing will drive the market MAIT is expecting the market to grow at 7 percent in 2009-10. What are the factors that could drive this growth? Well, there are certain factors that would drive the market in the next one year. One important segment is the home segment. This sector has not been spending on IT this year. The stock market had also slashed. Therefore, from home point of view, the market will grow. Last year the government did not spend much money and had been conservative. This year government is going to spend. Establishments like telecom, banking, government, education, etc are the green areas. Manufacturing will increase, and this will drive the market. Retail, though small in size, will also increase. Vinne Mehta Executive Director, MAIT There is lot of confusion among the dealers regarding the tax structure of packaged software that would now attract service tax on license portion. Is MAIT seeking any clarification from the government? We had a meeting with the government a day before and had an open house meeting with the ministry of finance. There are various factors that are involved in taxation of packaged software. Software tax system is embedded with lots of confusion. We had customized software that did not attract any custom duty that includes countervailing duty (CVD). Then we had license of a customized software, which did not attract any duty. We had packaged software that attracted a CVD of 8 percent whereas the license did not attract any CVD. So there are so many permutations and combination of activities that create confusion. In the budget, government said that the value of the software is the license part of it as software as a vertical is largely service oriented sector. And hence the right to use valued portion will be taxed. Government has announced that the packaged software will now attract service tax on the license side but it is still not clear on the continuance of four percent of special addition duty. MAIT is seeking a clarification from government that will help us in resolving the litigation. In the desktop market, the share of Indian brands have dipped from 22 percent in 2007-08 to 18 percent this year, whereas that of MNC brands have gone up by eight percent. What is your comment on the prospect of home grown companies in future? MAIT does not represent a particular body. It is a mother organization and whatever programs we are running is suitable for every player whether it is multi national or a home grown company. So it depends on how the company is utilizing the available resources and how much capacity it has to grow in future. The IT market has shown a negative growth. Channel partners and dealers in upcountry market are facing a slow business. What could be the factors that keep them motivated and their spirit high to sustain? Sentiments of the dealers in the upcountry market will improve when the business in the overall economy improves. Every year the IT industry has been growing positive and this has been the first time when it has showed negative growth. Therefore, this is the time when one should understand the pain points and work on it. This is the time when strong players will survive and will continue to grow and invest in future. AMRITA TEJASVI amritat@cybermedia.co.in

Household consumption of desktops fell by 18 percent, accounting for 34
percent of the total desktop market, with sales crossing 1.78 million (17.8 lakh)
units. Within the households segment, SEC A and SEC B each accounted for 39
percent of the market although consumption in these declined by 26 percent and
19 percent, respectively. Sales to SEC C at 22 percent market share remained
flat.

Market segmentation by processor sales: Desktop consumption in 2008-09 was
dominated by P4 based units, which accounted for 59 percent of total sales,
however, the market was quick to adopt other next generation processors such as
Core-duo, Core2duo and Core2quad accounting for two percent, 22 percent and two
percent of the market, respectively. Other processors like the AMD, Cyrix etc
accounted for 10 percent of the market.

Market segmentation by town-class: Consumption of desktops in towns and
cities outside the top four metros has been progressively increasing over the
years. In 2008-09, these accounted for more than three-fourth of the total
desktops purchased. The top four metros accounted for 25 percent of the total
desktop market with a sales growth of five percent.

The notebooks market

Notebook sales recorded a degrowth of 17 percent due to decline in
consumption in both the establishment and the households with sales declining 27
percent in the establishments and another three percent in the households. The
decline in consumption in the second-half of 2008-09 was more pronounced as
sales of notebooks fell 35 percent compared to the same period last year. Towns
and cities outside the top four metros contributed to nearly 80 percent of the
notebook sales.

The establishment segment accounted for 49 percent of the notebook
consumption, the small and large establishments recorded a decline of 53 and 47
percent, respectively in 2008-09 while consumption in medium enterprises grew 27
percent. The SMEs accounted for 38 percent of the total notebooks consumption in
the country.

The household segment, accounting for 51 percent of the overall notebook
sales in the country, registered a decline of three percent in the last fiscal.
The SEC A and SEC B households, together, contributed to over 90 percent of the
notebook sales in the household segment. Notebooks have also started to make
rapid inroads into the SEC C as well.

The server market

Sales of servers declined two percent in FY 2008-09. Bengaluru, Pune and
Hyderabad, the key centers of IT/ITeS witnessed a decline of 78 percent in
consumption of servers. However, driven by the need for consolidation, server
consumption in large enterprises grew by 35 percent. Sales to small and medium
enterprises declined one percent and 29 percent, respectively.

The Internet entities

The number of active Internet entities increased to 8.6 million (86 lakh)
subscriptions by March 2009, while the figure was 7.2 million (72 lakh) units in
March 2008. With this, the number of Internet users exceeds 60 million. Internet
penetration by entities in the top 22 cities was 47 percent among businesses and
24 percent among households. The businesses segment now accounts for 28 percent
of the total active Internet entities and households account for the remaining
72 percent.

DSL/cable remains the most commonly used means of Internet connectivity among
businesses: 45 percent of businesses were found to use DSL/cable, 31 percent
dial-up connections, seven percent leased-line, four percent used data cards,
one percent used VSAT while 11 percent ISDN services.

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