Thinking 'out-of-the-box'

Assembled
desktop PC makers have always retained an edge over branded PC vendors
due to their proximity to end-customers and personalized
services, which they often provide. It is precisely due to this
reason that the assembled market is sustaining itself despite stiff
competition and attractive offerings from branded PC players. Buying
the 'white box' is always cheaper than purchasing a branded PC.
The price difference of a normal low-end PC will be just about5%,
but in a high-end PC it can be as much as 15-20%. This is because
assemblers do not have to account for the marketing and branding
costs.

Given the
commoditization happening in the 'white box' PC space, this looks
like a noble initiative by the vendors to support its partners who
are struggling for survival. The aggressive market moves and
competitively priced offerings targeted at the SME customers of the
brand dealers have threatened the very existence of 'white box'
system builders. At the first glance, the share of assembled PCs
continued to decline and posted a share of 20% in FY11 in the entire
PC market. However, the factors which are replacing or shrinking the
'white box' manufactures could be the pricing of the branded PC,
which is becoming cheaper; the growing brand awareness in Indian
customer mindset and availability and hassle-free service. On-site or
off-site support have become stronger across pan-India com pared to
the PC assemblers. All these gains of the MNC and Indian brands have
been at the expense of the assembled PCs. The share of assembled PCs
has been observed to come down during FY10, as compared to previous
years, observed Alok Bhardwaj, member of MAIT.

Sushmita
Das,
country manager India, Kobian, said, “Desktop PC business size has
shown a slower growth rate and thus the total marketshare has
dropped. In the last 2 years 'white box' PC manufacturers have
seen a lot of filtration in the number of active players. There is a
more marked shrinking in the number of manufacturers rather than the
size of the existing manufacturers.”

Similarly,
Eric Kuo, MD, MSI India, said, “From MSI's experience, the share
of 'white box' shipment has started to decline. However, the dip
in the numbers has to be co-related to the fact that the desktop PC
market has had a flat growth for the past few years. Nevertheless,
'white box' manufacturers contribute around 40%-50% to MSI's
overall sales in country.”

Contrary to
Bhardwaj, Raghuraman P, director, transaction business, AMD asserted,
“Assembled
PC market in India is here to stay. India consumes approximately 3 mn
assembled PCs a year and many more upgrades of older PCs. Local
sellers and distributors receive better margins on 'white boxes'
than branded PCs and are keen to promote them. Especially in smaller
towns, sales are typically governed by suggestions of local sellers.”
According to market experts, difference in the prices of a branded PC
and a 'white box' with same configuration is almost 20%. It is no
denying that laptops due to its extremely affordable prices and
advantage of mobility are moving many desktop buyers to laptops. But
many experts say that assembled market will continue to thrive
because of its sheer flexibility and choice it gives to the
customers. With 'white boxes', customers can get latest
technology at the nearby store and configure to his choice. He is
also assured of personalized services.

POSITIVE
OUTLOOK

The key thing
about 'white box' vendor is that they are opportunistic. They
change their market model depending on market conditions. Reacting to
de-growth without pressing any panic button, there are a number of
'white box' PC makers who are simply not giving up. Companies
like Vardhaman Technology, Xpress Computers, Connoiseur Electronics,
Sai Info Systems and many more are in quest to carve a niche position
and create products that can help them differentiate themselves from
rest of the crowd, and even make them look and perform better than
the best branded products. Majority of the 'white box' vendors
are catering to the products' range from embedded devices, thin
clients, security and network appliances, PCs of small form factors,
blade servers, 3D notebooks, and NAS and SAN solutions, etc.

Speaking on
the positive side of the decline, Mumbai-based Amit Rambhia,
director, Vardhaman Technology said, “It is a fact that numerous
'white box' manufacturers have given up
over the past decade. However, we have been able to survive because
of our continuous effort to increase our footprint and to achieve
this we identified new areas of computing needs in different industry
verticals and custom-build machines as per customer requirements. The
reason for such a trend is unsustainable growth. Nevertheless, the
sustainable growth in this segment can be achieved through continuous
innovation, stringent cost-control measures, environmentally
responsible business processes and economies of scale.”

He added,
“With the advent of new technologies, we were the first one in
India to invest in
these technologies. Today we have state-of-the-art infrastructure in
place and are in strategic alliance with Intel and Microsoft for
technology support. These technologies have matured enough to find
application in different industry verticals and we are all set to
shift gears.”

Bengaluru-based
Connoiseur
Electronics started looking beyond the traditional desktop
and server market, once it figured out that to stay alive against
stiff competition by MNC vendors you need to create innovative
products. Over the past decade, Connoiseur has ventured into creating
specific products to address specific situations.

RP Harish
Kumar, director, Connoiseur Electronics said, “We need to
differentiate and specialize into niche product range like 3D and
high-end gaming machines with high values, which will yield higher
margins overall. We have opted to go for eco-friendly products by
introducing small form factor PCs, low powered yet powerful nettops,
netbooks, class mate PCs and educational products for educational and
health verticals.”

Ahmedabad-based
Sai
InfoSystems is also one of the established system builders which
is having large customers such as the Indian Army and Ministry of
Defense, BSNL, MTNL, Oriental Insurance Company and many more in its
fold. The company has set up a plant at Kandla in Gujarat from where
it has exported servers and small form factor PCs. The vendor was
also one of the first to ship integrated AIO PCs for the enterprise
market. Kirit Joshi, senior VP, Sai InfoSystem India mentioned,
“Being a mid-sized player, we have more flexibility and can offer
new product faster than bigger players. It is a race between size and
speed. Our challenge is to continuously leverage speed as a winning
proposition. In addition to customization and speed of introducing
new products, we also pay attention to affordability as our value
proposition.”

EMERGING
OPPORTUNITIES

The use
of desktop will not diminish completely. It might remain flat and
will not grow at the pace of laptops, but smaller towns, especially C
and D-towns, are fueling the growth of desktop PCs. As per MSI's
experience, the entire mobility concept is yet to trickle down to
these regions. Kuo of MSI said, “Distributors and channel partners
say that the pattern of sales of desktop in smaller towns is still
governed by the recommendation of local sellers. Distributors also
get better margins on 'white boxes' than on branded PCs, and so
promote them.”

lang="en-US">Vardhaman
Technologies over the years have extended their product line from
thin clients to
small form factor computers; point of-sale solutions to digital
signage solutions. Recently, the company has entered into Unified
Threat Management (UTM) space with its own firewall. Rambhia said,
“The most recently identified opportunity has come with
'sandybridge' line of core processors from Intel. Small form
factor machines powered by 'sandybridge' would help reduce carbon
footprint even more.
Energy consumption shall reduce further, but not at the cost of
performance. In fact, performance bar would be raised by this
technology.”

Chetan Shah
of Xpress Computers said, “Green technologies/products is the area
that will create new opportunities for 'white box' manufacturers.
Hence, this shall be a necessity for a sustainable growth model.”
Even the vendors are giving right directives to these system builders
to think out of the box. Ajay Kogta, country manager, Indian
sub-continent, Strontium Technology said, “There are immense
opportunities for 'white box' manufacturers. Major opportunities
can be in the segment of gaming/overclocking, education sector,
designing, etc. We also see a big opportunity in the upgrade market.”

“PC
penetration is still very low in India compared to mobile penetration
and the market is yet to grow big. An upcountry customer is more
concerned about cost and after-sales support which a local 'white
box' manufacturer can provide better. Servers, designs and gaming
workstations need high level of customized system building. These
will be the emerging opportunities in the future,” pointed out
Raghuraman of AMD. “Hence the future of the system builders depends
on their focus on delivering high performance products at low-cost,”
said Shah.

INNOVATION
IS
A MUST

Rambhia said,
“Our core business models have not changed much and the focus has
been on innovating new products. We have a very good R&D
structure in place. We continuously monitor new technological changes
within and even outside our industry segment. Our marketing team
identifies market gaps and together they create new innovative
products which satisfy the wants of a particular segment.” Shah
said, “The PC has largely become a commodity product with little
differentiation between vendors. We have tried to focus on delivering
added value with our products such as focusing on higher-end systems
and workstations. Also, we have bundled our premium
support-xpresslive offering free with all our systems. Apart from
vanilla PCs, we are focusing on selling high-end SKUs offering higher
performance, small form factors and higher cost savings.”