The Hindu : Laptops set for strong growth?

Online edition of India's National Newspaper
Friday, Dec 26, 2003

Business

Business

Laptops set for strong growth?

By Harichandan A. A.

BANGALORE DEC. 25. Price cuts on laptops were announced this quarter by multinationals, large Indian companies and even regional `branded' players. The reduced price of Rs. 55,000 laptop (local taxes extra) is expected to help expand the market for laptops in India.

While corporate customers continued to account for some 80 per cent of sales of branded computers, small enterprises and individual professionals find laptops increasingly attractive.

Anyone, who travels in first AC in a train or in Air Deccan (no-frills) can afford a branded desktop for `home' use and a laptop for `mobility'. If this population is conservatively put at some 50 million, then that is the potential retail laptop market in the country.

The challenge has opportunities, and one hurdle — price — even at Rs. 55,000 (local taxes extra) for a Celeron chip based laptop. Predictably, branded sellers, such as IBM, HP, Acer, HCL (Toshiba) and Wipro say the hurdle includes the `grey' market and local levies. They see one ingenious way to kill both — bring down local levies so they can offer their products cheaper, and at the same time narrow the "play" for the smugglers. `Assembled' laptops, however, are a miniscule part of the market.

Vinnie Mehta, Executive Director of the Manufacturers' Association for IT (MAIT), says, "Prices in India are 25 to 40 per cent higher,'' owing to a combination of factors such as customs duty, local sales tax, central sales tax, special additional duty and in a few cases octroi and entry taxes.

No one makes laptops in this country from scratch. The so-called manufacturers import sub assemblies and put them together in places like Pondicherry where they get tax and duty breaks. Interestingly, any buyer with a `C form' which says he is assessed for sales tax, will get to pay only 4 per cent CST, but others will have to pay 10 per cent.

So, a large enterprise such as Metro AG, the German retail chain which has `cash and carry' outlets here, gets to pay 4 per cent, while scores of individual buyers must pay 10 per cent.

Market leaders like HP, IBM and Acer sell imported and/or imported and reconfigured laptops and so (under finished good category) pay a `countervailing' duty of 16 per cent in lieu of the excise duty. The booming cellular phone market, and before that the colour television market, shows that local levies may not exactly be as heavy as they are made out to be. For laptops, in a volumes driven market, the numbers are just not there. Laptops sold in India during the second quarter of 2003 were around 18,300, with IBM and the market leader HP taking more than half the share and with sales to businesses, rather than individuals.

Last week, Acer India took its laptop sales a step further, by opening a mall on one of the upmarket roads in the city. S. Rajendran, who heads the company's consumer product group, says the `touch and feel' is still important for the Indian consumer. The idea is to boost "channel sales" while sales through system integrators concentrated on corporate customers.

Price continues to be a challenge, though Acer hopes that by the second half of 2004 calendar year, "it could come down further, as TFT monitor supply catches up with demand.'' The company planned smaller shops, `Acer Points,' in the so-called Tier 2 cities, targeting the SME businessmen.

The Indian Market Research Bureau, which does a quarterly survey for MAIT says while the four metros accounted for 70 per cent of the notebook sales, the "share of the smaller towns increased to 23 per cent in the first of 2002-03.'' It was 9 per cent for the first half and 8 per cent for the second half in 2001-02. While that is a 139 per cent jump, the absolute numbers are not awe-inspiring at all.

Globally laptops account for about 25 per cent of all computer sales. Some forecasts say this will double in four or five years. However, the laptop continues to be the "exclusive preserve" of the "branded guy", Mr. Rajendran said, "not amenable to garage assembly". On the other hand, in India a businessman travelling in a car hooking his laptop to the net using a mobile phone and a hi-fidelity data cable is already happening. Then, laptop sales are poised to grow, but their use has some way to go before they become a habit like the cell phone has.

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