In the last week of December 2010, research firm IDC India reported PC sales numbers that painted an optimistic picture for the Indian market. For the first three quarters of 2010, unit shipments stood at 7.4 million pieces working out to a year-on-year growth of 31%. IDC expects overall PC sales in 2010 to also record a growth of 31% with close to 10 million PCs being shipped.

Within overall PC sales, desktop sales were placed at 4.68 million units, a 19% increase. Notebook PC sales were at 2.72 million units, recording a 60% growth over the previous year. This was not a one-off story. In the July-September quarter, Indian PC sales touched 2.79 million. Adding to the cheer, for the first time, notebook PC sales crossed a million units in a single quarter (1.1 million units of notebooks shipped in Q3). Further, notebooks recorded a 52% sales increase.

PC shipments in India are expected to total 13.2 million units in 2011, a 24.7% rise from 2010, according to Gartner. Although that may be a tad slower than 2010, the fact is, it remains a healthy growth rate.

While analysts churn out their numbers, a trend in the background is going unnoticed. According to the Rajiv Gandhi Institute of Youth Development, it is estimated that the current proportion of the population under 25 years of age in India is 51% and that the proportion under 35 stands at 66%. Add to that the fact that the average age of an Indian in 2020 is expected to be 29 years and it reflects the emergence of a new breed of consumers.According to IDC and other industry watchers, it was the Indian consumer who made the biggest contribution to the rise in PC sales. It is interesting to note that the purchasing power of the Indian consumer in 2010 was the highest that it has been during the last 30 years. According to a World Bank report, the purchasing power parity of India stood at almost $3,000 in 2010. Sumanta Mukherjee, Lead PC Analyst, IDC India stated that the overall sales growth of 31% was largely led by consumer spending. “Consumer PC sales continue to rise as a proportion of overall Indian PC shipments,” he added. Agreed Tony Rizzo, Mobile Master Number One, Antenna, a mobile technology research firm. A number of recent studies have demonstrated that there is a rapidly growing middle class in emerging countries and that India is due for huge growth in its middle class over the course of the next decade. Thanks to all of this, purchasing power is expected to rise significantly.

In the overall PC (notebooks and desktops combined) market, Dell retained its market leadership with an increased market share of 16.7% while both HP with 13.7% and Acer with 10.6% retained the second and third spots respectively, albeit with reduced market shares as others like Lenovo began making inroads.

In terms of desktop PC sales, which even now form the bulk of PC purchases, Dell clinched the top position in the Indian PC market for the first time with a share of 9.8%, followed by HP and Acer in the second and third spots respectively during the third quarter of 2010, according to the IDC study.

Similarly, for notebook PCs, Dell retained its top position with a market share of 27%; HP and Acer remained at the second and third places, respectively.

According to Gartner, PC demand is growing beyond India’s largest cities. Demand from smaller cities, where PC penetration has grown considerably, is on the rise. Rising income and declining PC prices are being attributed as significant factors contributing to this growth. “We see consistent growth across the spectrum, whether it's consumer or corporate, and have a strategy in place depending on whichever segment sees an uptick,” said Rory Read, Chief Operating Officer, Lenovo. Recognizing this, HP has doubled its number of stores to 180 in the last three years. Acer has over 100 exclusive stores and Lenovo has 157.

"The requirement for desktops is still strong in verticals such as education and government as well as in smaller towns and cities when it comes to consumer sales,” said S. Rajendran, Chief Marketing Officer, Acer India. With a rise in PC penetration in smaller towns, desktop sales will continue to be strong, he added.

“The younger generation is contributing to the large scale adoption of PCs in India in a significant way,” said Vishal Tripathi, Principal Research Analyst at Gartner. “Besides reading and surfing the Internet, the use of PCs for watching movies, listening to music and gaming are playing a pivotal role in driving demand,” he added.

Interpreted another way, these numbers point to the fact that corporate spending (especially that of small and medium businesses) has been flat. This trend is not restricted to PCs alone. Most enterprise-related purchases have been flat for the past couple of years. This is witnessed in the IT spends in verticals such as telecom, which had a de-growth of 1% in 2009 and grew by 13% in 2010, according to data from Gartner. It said that the IT industry would continue to show steady growth with IT spending projected to surpass $3.5 trillion in 2011, a 4.2% increase from 2010. Chip giant Intel, in its predictions for the year, said, “2011 will mark the point where we see a blurring of consumer and enterprise devices. We saw it in 2010 with the iPhone and Droid brought inside the corporate firewall.”

It went on to add that employees would want to use their personal solutions for work productivity and that enterprises would want to augment the corporate environment with devices to drive productivity.

The numbers, when dissected into separate categories, clearly point to laptops and other mobile Net-connected devices as the way ahead. According to Rajendran, while the demand was relatively stagnant in the beginning of the year, sales started picking up during the last few months. “The consumer segment has always been much stronger when compared to the other segments,” he asserted.

Flashback to 2008 and a lot of pundits were waxing eloquent when netbooks were first introduced in India. With affordability, longer battery life and simplicity as their plus points, these devices were positioned as a first-time computing device for a vast majority of Indian consumers. The growth of netbooks is increasing and vendors are going all out to drive volumes, like in 2009, when this category grew in excess of 200%.

Intel will go all out to push the Atom. Then there’s the fact that Intel is betting big on its app store for netbooks with the vision of it supporting devices across the spectrum including netbooks, tablets etc.

Gartner predicts that by the fourth quarter of 2011, mobile PCs will outgrow desk-based PCs in India, although the total number of desktop-based shipments will be higher than that of mobile PCs for the year as a whole. In 2011, the desktop PC market will grow by 5% totaling 7.2 million units and mobile PC shipments will grow 61% to tot up 5.9 million units.

What would the growth propellers for the coming decade be? Industry observers opined that computing would change drastically, with further netbook penetration and the advent of tablets and other Mobile Internet-connected Devices (MIDs). At the start of the last decade, computing was still fairly straitjacketed and mobility was just starting to gain mainstream acceptance. “The PC as we traditionally know it will be challenged in the coming decade,” asserted Nitin Khanapurkar, Executive Director, KPMG India. He added that, while emerging markets like India would be the growth hub for PCs, globally this product category had already reached a plateau and, deep into the coming decade, smartphones and tablets would become the first-time computing devices for a lot of Indians. “2011 will see absolutely flat growth as far as PCs are concerned,” said Rizzo. He reasoned that the economic downturn of the past few years has caused many people who would otherwise have upgraded their PCs to keep them for 'just one more year of service,' which they have then often extended over two years. As new users come into the market, the older users that have traditionally gone through 3-4 year refresh cycles are now extending use to 4-5 years and flattening out overall growth.

PC sales have always risen from repeat buying sectors including the government, education, BFSI etc. Considering the low penetration of PCs in India, repeat buying sectors have helped vendors expand their market share.

Tweaking business strategies

The story is different for mobile PCs. According to Gartner, in 2009, mobile PCs accounted for 55% of all PC shipments globally and by 2012, mobile PCs are expected to account for 70% of shipments.

Shipment growth in 2010 was largely driven by the advent of low-priced consumer mobile PCs, both in regular notebooks and mini-notebooks, according to Gartner. It went on to add that, as economic weakness continued, buyers became extremely price sensitive and low-priced PCs were good enough for many consumers.

Between June 2008 and July 2009, 97,480 netbooks were sold, according to IDC. By June 2010, those numbers had shot up 243% to 335,018 for the preceding 12 months, IDC said.

Companies like Lenovo, Acer and Asus became competitive in the Indian market by dropping prices and improving distribution reach—either through channel partners or through their own retail outlets. “While we do not give out India-specific numbers, we have been the fastest growing PC vendor in India with triple digit growth rates,” claimed Read. The company brought down the prices of its Edge and Ideapad netbooks from Rs. 25,000 onwards to Rs. 20,000 onwards.

Similarly, Acer slashed prices of its netbooks to Rs. 14,000 that included a full sized keyboard and battery backup of three hours. “A majority of the sales volume came from the retail segment, which grew by almost 70% based on growth backed by channel partner support and interest shown by consumers,” said Alex Huang, Country Manager for System Business, Asus India.

He added that an additional source of demand came from consumers who bypassed the option of buying desktops and instead bought a netbook or notebook as their first computing device.

Vendors adopted different strategies to push their wares. Acer, decided to follow the worldwide strategy of tying up with a telco to sell its netbooks. “We launched AspireOne 532h with Reliance Broadband. Such campaigns have helped Acer increase its market share in the netbook space,” said Rajendran.

But despite these efforts, netbook sales have been slightly below expectations when compared to the category's massive success in other Asian regions such as Indonesia and Thailand. PC makers point the finger towards the Indian broadband scenario as the reason for a relatively slow uptake. “One key reason could be the absence of pervasive connectivity and another could be the increase in the number of players in this space,” said Rajendran. Huang of Asus India had another rationale. According to him, netbook sales as a category of mobile computing device are not really dipping in terms of interest. “There is a lot of consolidation happening in this segment with the advent of newer technologies and the creation of newer product categories such as smartphones and tablets,” he reasoned. Asus is trying to align the netbook models and subcategories. For example it has placed netbooks into different categories based on screen size and it has launched netbooks including the Asus 1008P Karim Rashid edition and the Lamborghini VX6 netbook for style-conscious consumers. Similarly, Acer has launched candy pink, lavender purple, lime green and Hawaii blue colored netbooks. According to Mukherjee, the launch of multi-color models, complemented with aggressive promotions and discounted bundling schemes augmented consumer spend, especially in the portable computing segment.

“Ultimately, netbooks will undergo a metamorphosis of sorts and the ones with more features at an extremely attractive price point will take the cake in the Indian market,” said Khanapurkar. The netbook category will continue to expand and innovations will continue within this space in terms of both pricing and features. Some believe that the notion of telecom bundles, which has been prevalent in Europe, might be offered in India as 3G/BWA services are rolled out.

The distribution model when it comes to the retailing of PCs in India is being questioned. “There is a need to look at retailing PCs in a different way and vendors need to ask the question as to how mid and high-end mobile phones are finding more takers than netbooks,” said Sunil Dutt Jha, CEO, iCMG. Vendors have started to address another pain area regarding after-sales service, but more needs to be done. Asus India is offering an on-site warranty for netbooks and it has started to bundle 320 GB external hard drives along with some of its Eee PC models at no additional cost.

9 -10% sales of Acer India comes from organized retail and 10% of the sales of Asus India come from this channel.

3G reboot

With 3G services and broadband (post the BWA auctions) set to take off in 2011, netbooks and other MIDs are set to enter a new growth phase. “We might end up witnessing an increase in netbook sales post the roll out of 3G services in India,” averred Rajendran. Agreed Khanapurkar. “3G will definitely boost sales of MIDs. A drop of 10% in tablet prices is expected.”

“Devices that offer mobile Internet capability would drive growth,” pointed out Read. According to Nitin Smitha, Research Analyst, Juniper Research, even though India’s smartphone ecosystem has only just rolled out 3G services, it has strong growth prospects.

3G would give a definite push to netbook sales, according to Amar Babu, Managing Director, Lenovo India.

Netbooks face competition from thin clients and smartphones. While some PC makers including Dell and Acer have already launched their version of smartphones in India, others like Lenovo have yet to join the party. “In 2011, Acer will also focus on expanding its presence in the smartphone segment, bringing in a new range of smartphones to address this market,” said Rajendran. He added that, to drive this business, there could be a possible rise in marketing investments as compared to 2010. Industry watchers opined that, once the broadband ecosystem with 3G was in place, it could help drive sales of Internet-connected devices with different form factors. This is where netbooks and smartphones will line up against each other. “Ultimately, it is what the user wants to do with the device, which in turn would challenge the definition of a traditional PC,” said Khanapurkar. He added that if a user wanted to create something, he could look at the netbook and for Web surfing, a smartphone would suffice.

“The netbook will remain a significant part of the broader market for Internet connected devices and the uses that the netbook and tablet are put to differ significantly,” said Smitha.

He added that, in the future, several tiers of devices would exist with the tablet at the top bridging the gap between the computer market and the smartphone market. According to data from Juniper Research, installed base forecasts based on a three year replacement cycle, suggest that the installed base of tablets and connected devices in the Indian subcontinent is slated to reach 0.6 million by the end of 2011. “Anywhere, anytime access with near laptop quality capability will be the fundamental market growth driver for Net connected devices in the next five years,” asserts Rizzo. Khanapurkar underlined the fact that some schools were already running thin clients and that unless netbooks offer greater functionality, the category's future could be in jeopardy.

Devices such as netbooks will continue to drive demand as both enterprise and personal consumers move towards high performance, low-cost mobile computing devices, said Smitha.

However, analysts warned that before getting carried away with the 3G hype, prices of 3G services coupled with the price of the device had to be attractive for it to succeed in the Indian market.

It does not make economic sense to pay Rs. 20,000 for a device and then spend Rs. 12,000 per year on 3G services.

According to Gartner’s PC installed base forecast, the total number of PCs in use will reach 1.78 billion units in 2013 by which time the combined installed base of smartphones and browser-equipped phones will exceed 1.82 billion units. Gartner expects that by 2012, the split between desktops and notebooks would be 50% each.

Apple CEO, Steve Jobs, earlier this year, had said that the PC is set to become yesterday's technology. While that is a bit far-fetched when it comes to the Indian market, one thing is certain. With the rise of Web-based service delivery and new operating systems like Android gaining mainstream acceptance, this decade might see Internet-connected devices doing to the PC what mobile phones did to landlines.