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Small machines, megabyte action

Surajeet Das Gupta | August 30, 2004

It's a relative pygmy in the Indian laptop business. But last week Mumbai-based Zenith Computers took the IT industry by storm when it went on the offensive with seven new models including a super low-priced entry-level machine for Rs 32,000. If that wasn't enough it slashed the price of its high-end model from Rs 72,000 to Rs 54,000. That was a Rs 18,000 price cut and it was a clear signal that a laptop war is underway.

Zenith's not the only company that's changing the rules of the game and aiming to make it big in the laptop market. At one level, aggressive and savvy giants like Samsung and LG are muscling their way into the world of laptop computing.

And, at an entirely different level, there are relatively unknown newcomers like Allied Computers International (Asia) commonly known as ACi which is threatening to drop prices to as low as Rs 15,000. ACi, owned by UK-based NRI Hirji Patel, is opening a factory in India and hopes to export laptops to different corners of the world from here.

Are these the opening shots in a no-holds-barred hi-tech battle? The answer is both yes and no. A slew of new players is hoping to double-click swiftly into the world of mobile computing and they'll be fighting fiercely for market share.

But there's plenty of room for everyone -- at least for the time being -- because the laptop market has suddenly exploded into action. After years of relatively slow growth, mainly because of high prices, customers are putting down their money for the sleek, lightweight computing machines.

Industry experts reckon that laptop sales will double from 89,000 in 2003 to over 160,000 by end-2004. Some companies reckon that sales might even touch 200,000 and Samsung, the most optimistic of all, believes they could even zoom to 250,000. What's more, sales are likely to at least hit the half a million mark to a million mark by 2007.

That's why everyone is lining up big plans for the future. Zenith, for instance, last week launched seven new products and it's hoping to sell 1,000 laptops a month. It aims to get 15 per cent of its turnover from the portable machines -- that's up from 5 per cent currently.

Says an upbeat Raj Saraf, chairman and managing director, Zenith: "We have been offering laptops for the last two years but we had only two models. Of course we expect the MNCs to drop prices by 20 per cent to 25 per cent."

Also moving swiftly off the blocks are the Koreans who are hoping to blast their way into laptops as they did in consumer electronics. At one level, there's Korean giant Samsung which entered the market only four months ago and which is focusing on the premium end of the market.

But even if it is selling expensive machines Samsung has ambitious targets -- it hopes to sell 10,000 laptops by year-end. Says Vivek Prakash, vice president, Samsung India: "We want to leverage our technology strength and not fight Taiwanese on price where we cannot add any value. So we are looking at the over Rs 100,000 laptop market where we want to be the leaders."

At another level, there's LG, which is bulldozing into a new market and hoping to leverage its far-flung distribution network stretching into the smaller towns and cities. LG hopes that its success in consumer electronics will have a hi-tech rub-off and enable it to sell laptops.

By November LG will launch laptops in the Rs 60,000 and above range. Later it may also move into entry-level computers. Inevitably, LG has an ambitious target from the word go: from virtually nothing it wants a 10 per cent share of the market.

But there are plenty of small-time players like ACi and Singapore-based Kobian, which are also trying to corner a share of the market with lower-priced Rs 29,000 laptops. How do they stay so low-priced? By using chips made by Via Technologies, a chipmaker headquartered in Taiwan, which makes processors that are cheaper than Intel's.

Says Ravi Pradhan country manager, Via Technologies India: "There is a mass market waiting to be tapped which is looking at low prices and do not need so many features in their laptops. We are aiming at that market."

Kobian, a $100 million IT products company which sells Mercury brand laptops is also hoping to sell around 10,000 this year. The company says that about 30 per cent of its turnover comes from India.

It's also trying to carve out a new mid-market segment that will be priced between Rs 50,000 and Rs 60,000 and these new models will probably be launched before yearend.

Says Rajesh Bothra, the Singapore-based CEO of Kobian: "There is enough space for everyone in the market because the laptop market is growing so fast, unlike few years ago when everyone was eating into someone else's market."

The established players aren't about to be out-computed without a fight. This week HP India fired the first counter-salvo -- it slashed prices of its entry-level business laptop by a substantial Rs 10,000.

That was a drop of over 12.5 per cent on its model which sold at around Rs 69,990 (HP insists the move had nothing to do with Zenith). Another industry giant IBM isn't planning to cut prices but plans to offer more features on its laptops -- so that upgrade costs are lower for users.

Are these optimistic forecasts for the future justified? Well, keep in mind that more laptops have been sold in the first two quarters of 2004 than during the whole of financial year 2003. In sharp contrast, total personal computer sales are expected to grow by only 25 per cent this year.

The reasons for booming sales aren't tough to understand. For a start, laptop prices are falling (that's because laptop sales have soared worldwide and also because duties in India have tumbled). Average prices fell from Rs 80,000 to less than Rs 50,000 in less than a year. That has reduced the yawning price gap between desktops and laptops.

There's also another factor at work. Around the world the computing game is moving in favour of laptops. But the ratio of laptops to desktops has always been lower in India than in other parts of the world.

The ratio is a mere 1:40 compared to an average of 1:6 in Asia Pacific and 1: 3, which is the global average. But in terms of value it is 1:10. That is because average realisation on laptops is higher than on desktops.

Also, some players like ACi's Patel are employing innovative tricks to bring prices down even further. Patel will emboss corporate ads on the outside of his low-priced laptops. That way he hopes to bring prices down next year to around Rs 15,000. Also, he's bringing out a variety of entry-level models and a wi-fi enabled laptop for Rs 44,900 with an Intel Pentium chip.

Why do customers prefer laptops to desktops? There are many factors involved but new technological innovations mean that laptops are truly mobile devices for customers on the move. Says P Raghuraman, country manager, business notebooks, HP India: "Notebooks needed killer applications. And that has been provided by technology which has made it into a truly mobile device and is perceived as a productivity tool."

Raghuraman believes that a key driver of growth has been the launch of Intel's Centrino processor, designed specifically for notebooks. About 60 per cent of HP's laptops sold in India are fitted with Centrinos.

The Centrinos have two huge advantages: they reduce power consumption so average battery life has virtually doubled to five hours. Two, Centrino has made notebooks wi-fi enabled: so customers no longer need cumbersome wires to connect to the net.

As a result, new market segments are opening up and this is driving volumes. To give one example, many companies are distributing laptops to their salesmen. At another level, Indian management institutes are helping their students to buy laptops.

The result is that management institutes account for 15 per cent of total sales. The institutes have added the laptop cost into the fees but students take it home when they finish studies.

So how are companies differentiating themselves in the market? And how are they wooing customers? Samsung for instance wants to sell its notebooks as lifestyle products for customers willing to pay a stiff price for technology.

The company plans innovative marketing methods to reach an expense account audience: it will be sending direct mailers to owners of luxury automobiles like the Sonata and the Toyota Corolla. It also hopes to set up kiosks in lifestyle stores.

Says Prakash: "We want to sell it as a lifestyle product-with MP3s and camcorders and have created a common separate sales force to do so."

Samsung's products will, of course, have some fancy add-ons. Its notebook PCs, for instance, are targeted at customers who want entertainment on the move.

So it comes with surround-sound speakers, a 120 Gb large hard disk which can store movies, a larger screen (17 inches) with better picture quality. To make mobility easier, it has also launched the lightest laptop in the world weighing only 900 gm.

LG, by contrast, which has 500 regional distributors is looking at aggressively getting into untapped markets. The company hopes to push sales strongly in B and C class cities and towns rather than only concentrating on large cities.

Says Mani Tandon, product group head (IT products): "We expects over 50 per cent of our laptop sales to come from B and C class cities. That is because we have a strong distribution system which we can leverage."

ACi also hopes to follow a similar strategy. The company currently has around 100 dealers and hopes to take that to 1,100 in the coming months. Again it will aim at B and C class cities where prices will be an all-important factor.

ACi hopes to sell 20 per cent of its laptops in these markets. It's even throwing in attractive extras like a three-year warranty and an insurance scheme that comes into play if the machine is stolen, at only Rs 3,000 extra.

Of course Via could become the price warrior to watch in alliance with its partners in India. It's already scouting for new partners and in October will organise a series of roadshows in over 20 cities to showcase laptops working on its processors.

But the market, according to many players, won't only be for the price warriors. In fact, it's shifting quite sharply. This year entry-level laptops will form 50 per cent of total sales. That's expected to drop to 30 per cent by next year. Both the mid- and premium segments are expected to boot up quickly.

That's why established companies like IBM and HP are not too worried about falling prices at the lower end of the market.

IBM prefers not to play the pricing game by offering stripped down products. Says Sanjeev Menon, brand manager, mobile computing, IBM India: "Though entry level prices have dropped the market is not moving over towards that price. Our volumes are coming from price levels between Rs 60,000 to Rs 80,000 because customers are looking for features and value and want to use it as a mobility tool."

IBM has also played a smart game with its laptops. The company's entry-level laptop at Rs 49,900 is powered by a Celeron mobile processor (not the cheaper desk processor), a DVD combo drive (others have a VCD drive) and pre-loaded Microsoft Home software (most of its rivals are equipped with Linux).

Menon says IBM's strategy is to ensure that customers spend less in the long run even if they pay a premium upfront. That's because IBM notebooks can be upgraded cheaply as they already have key features built into the basic model.

Similarly, HP India is wooing customers on the mobility platform. For instance, its bluetooth enabled notebooks offer customers wireless connectivity with their mobile phone, printer and camera.

HP is also developing usages for the tablet PC where users can scribble on the screen with a pen. The company has sold 400 tablet PCs and is looking at innovative new usages: it is talking to hospitals where doctors can scribble a few lines and then store it in their patient records.

The company is also addressing the growing need for data security on laptops by offering smart card authentication and security chips that encrypt data.

The rest of the world has already gone mobile in computing terms. Now India is playing catch-up. And as the game heats up in the computing world, this will, no doubt, turn into the hi-tech war of the future.


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