Stronger dollar sends prices skyrocketing

Pooja Sharma & NR Sethuraman

New Delhi/Chennai

June 2, 2008

With the rupee becoming weaker against the US dollar, the IT sector worldwide
is witnessing a major slowdown. The dollar, which was trading at Rs 39.90 on
March 31, had risen to Rs 42.80 per dollar last week. Following such hike in
dollar rates almost all the major PC and laptop vendors have hiked their prices
by anything between seven to 13 percent. While HP has hiked its prices by 13
percent on a range of products, HCL has hiked the prices between five to seven
percent.

The price rise is not only reserved for PC but also holds true for components
as well. Global giants like HP, LG, Lenovo and Compaq have taken the lead in the
price hike, and though marginally, all IT hardware prices have increased by four
percent.

“This pattern has set in because of the result of the stagnation of
production capacity and higher input requirement in China. With the dollar
losing hold on the global economy, exchange rates are now in an unstable
equilibrium. This has resulted in the commodities imported from South-East Asia
to become more expensive,” reasoned Vinay Dugar, Director of Kolkata-based
Supreme Technologies.

“The IT hardware price index was stable and marginally low in
January-February as stockpiling was in effect and the stagnation trend had
already set in China. It was thus expected that after the fiscal year 2007,
there is going to be a hike in mid April,” he further added.

“Mostly, hard disks, CPUs and RAMs have been affected the most. However,
the incidence of the rise is felt on all imported products as all computer
peripherals including motherboards have become costlier,” commented Gaurav
Goel, MD, Eastern Logica of Kolkata.

As a result of this trend, IT sales in the East have gone down by nearly 20
percent and are expected to go down further if the price rise persists. In this
situation, it is ultimately the consumers who are the hardest hit as they are
now liable to pay the extra price as an effect of the appreciation in China.

The price rise has also been felt in South India and the dealers are
unanimously attributing this to the appreciating dollar. “Since 100 percent of
the products are exported, the rise in dollar rate has naturally increased the
prices of all hardware products,” informed R Mahesh, CEO, Ozone Computers,
Coimbatore.

Rakesh Jain, CEO, Chennai-based Supreme Computers too felt that the dollar
appreciation has played spoilsport in the market. “This sudden price hike in
hardware products due to increasing dollar rate has worsened the market
scenario, which has been in slump for a while. The price of all the products has
seen a huge rise and the rise percentage is yet to be estimated,” he averred.

According to major sub-distributors in Tamil Nadu there has been an average
five percent price hike across all the products including laptops, monitors,
hard disk's, processors to name a few and almost all the vendors irrespective
of size and standard have hiked the prices. Due to the impact of this chain
reaction the sales in the market has obviously come down.

According Nitesh Bhandari, CEO, Texonic Instruments, Chennai the 12 to 15
percent hike in the price of products will definitely see a dip of 16 to 17
percent of sales in the market. “Apart from the rise in the dollar rate, price
rise in essential commodities like copper and lead has increased UPS prices to a
great extent. Increasing oil prices has made the IT products about 15 percent
costlier. Due to which, the dealers may loose around 16 to 17 percent of their
business,” Bhandari informed. However Yaspal Jain, CEO, Devraj Computers,
Chennai fears a 100 percent loss in the business due to this price hike. “No
customer would like to buy products unless it is essential. During this time,
when the prices are so high, naturally the dealers can't even do one percent
of business,” Jain claimed. According to Mahesh, “With the new session
starting this was the season when all educational institutions spend enormous
money on IT. Those dealers who would have given quotations earlier would now
suffer a major set back in their margins,” he claimed. Being the IT hub, the
status of Karnataka market seems to be worst hit. “Our dealers are
approximately loosing around 40 percentage of business due to this price hike.
Being almost 80 percent dependent on the IT industry, no other market in India
would have witnessed a setback that Bangalore has witnessed,” informed Sanath
Babu, CEO, Sri Durga Computech.

Moreover the scenario in Karnataka is further worsened by another factor too,
where few vendors have increased the price and few are playing with the prices
by maintaining the old prices. Due to which there is a lot of confusion in the
market. Other major markets like Andhra Pradesh and Kerala too has witnessed an
average of five to seven percent hike in the products price. “Almost all the
products have seen a 10 percent price hike. We foresee a further 10 percent
increase in the prices, as flight charges also are expected to go up,” MV
Venkateshwar Roa, CEO, SV Electronics said.

G Mahendar, CEO, Compage Computer, Secunderabad added, “Due to various
duties like excise, customs and increasing dollar rates, the price of products
are estimated to increase further, as the vendors too need to cope with certain
things for their survival.”

While all the three states suffered a major setback in the trade, Kerala
traders have one thing to looking forward to at least for a short while. “Even
though the prices of products has gone up, due to the holiday season we have not
felt the pinch. But within a short time, we may start feeling the effect,”
informed Eldho Areeckal, MD, Aldous Glare, Cochin. However, he pointed out the
negative side. “There is also news that vendors have stocked the goods and are
now diluting them at this point of time to gain profits, which we can't deny.
There would be some hope for the dealers if the distributors and vendors take
some step during this point of time,” Areeckal averred.

A Singh of Delhi-based Computer Land mentioned that this price hike is going
to affect the industry only for a while and it is a market reality that everyone
has to adjust to sooner or later. It's not just the laptops that have become
dearer but the price of several other components that go into the making a PC
like TFT and LCD monitors that have also been hiked. However, this hike has
affected our sales figure and has gone down to the tune of 30 percent but the
industry would be stable in another week or so.”

Bharat Bhushan of RR Systems, Delhi who is an importer of PC components and
peripherals, added, “Due to the recent appreciation the component prices have
been hiked to the extent of four to five percent. Besides with margins in the
industry already low there has been a definite slowdown in the business and our
sales figure has gone down to the extent of 20 percent.”

Ajaya Kumar, CEO, Park Group stated, “There has been a hike of five to
eight percent on the prices of laptops and this is a bad signal for the
industry. Even when the rupee was appreciating the vendors did not pass the
benefits of the same to the consumers and earned handsome revenues. However, now
that the dollar has appreciated they are passing the burden on to the consumers
by hiking the price of the same. This is going to bring about a definite
slowdown in the business.”

Putting forth the vendor point of view Rajiev Grover, Director-Consumer
Products, Personal Systems Group, HP India said, “We are looking at increasing
the laptop prices in the range of 13 percent. The primary reason for this hike
is dollar appreciation coupled with price hike for some components. We will be
increasing the prices with immediate effect and over the next few days the hike
will be extended to the entire notebook range.”

With inflation touching a record high in India and dollar appreciating, plus
the government likely to hike fuel prices soon the situation in the IT channel
looks grim for the moment.

(With inputs from Avishek Rakshit in
Kolkata)