“The PC industry will shrink by 10 % in the current quarter”

The Indian PC industry is bracing itself for a tough quarter. PC players have already had to grapple with multiple challenges in 2011 including a weak rupee, subdued consumer sentiments and massive supply chain disruptions to hard disks caused by the floods in Thailand. Dr Alok Bharadwaj, President of hardware association MAIT, says that all PC and laptop manufacturers are struggling to get their supplies in place. Despite the fact that a lot of inventory has been diverted to India, the shortage continues to be severe, he says, sounding a note of caution that the current quarter could be a particularly challenging one for the industry. eWorld caught up with Dr Bharadwaj to talk about the issues facing the sector and the outlook for the new year. Excerpts from the interview:

eW:What is the update with regard to the supply situation of hard disk drives? Has the situation improved in the last few weeks?

AB: The impact of hard disk shortages due to the Thailand floods, has now started showing with greater intensity. The direct impact is that it has caused 100 per cent price increase of hard disk drives. The indirect impact is that it has also caused shortage of PC and laptop supplies as hard disks are the main component in a PC. For a month or two after the floods, inventories at different levels around the world kept the pipe filled, but now the IT industry is feeling the impact much harder. With fewer PCs and laptops, the impact is visible on peripheral sales too.

eW:Can you quantify the impact?

AB: We have not compiled the exact data but it is estimated to be over 30 per cent at a global level. With regard to the impact on India, all PC and laptop manufacturers are struggling to gather supplies. For October-December 2011, the total market size for PC was flat in India. The current quarter is expected to be even worse as stocks dry up. Our expectation is that the PC industry in India will shrink by 10 per cent in the current quarter. Incidentally, this is the most important quarter since it typically sees a spike in Government procurements.

Even the printer and peripheral market size is expected to shrink by 10 per cent in the current quarter. This is causing a delay in many projects. There has also been a double hit to the IT industry due to rupee depreciation, which has caused a 21 per cent cost escalation for all IT hardware vendors.

eW:Given the current shortage, MAIT had sought an extension in the delivery schedule for the Tamil Nadu laptop tender. Has a breather been granted?

AB: The Government of Tamil Nadu is discussing the timeline individually with all companies. It is obvious that industry will not be able to generate supply as per their schedule and contracted price. This has caused a complex situation. The total order of the Tamil Nadu government in the first phase is over 9.16 lakh laptops. This quantity equals what the whole country consumes in three months. Also, the tender was finalised before rupee depreciation occurred. The industry is requesting an extension until end of the year. We are still in the discussion stages so final picture has not yet emerged. The order is turning into a nightmare for the industry as it is resulting in major losses for all vendors.

eW:When you do expect the supply situation to become normal?

AB: The affected factories in Thailand are starting the production this month after some restoration. However, full production to pre-flood levels will take at least three months. Even after that, it is expected to take additional three months for supply pipes to get completely filled. Hence, the industry is wary of any firm commitment until June 2012. As the supply chain is global, the situation will vary from brand to brand. In fact, we expect all market sub-segments such as education, SME, Government, and consumer to shrink in January-March 2012 as compared to the same period last year.

eW:But are you sticking to market projections given at the start of the fiscal (35 per cent growth in PC sales in FY12 to 12.6 million units) or have you lowered the full year estimate?

AB: The first six months of the current financial year did exhibit good growth. In fact, laptops registered a growth of 25 per cent in the first six months. But the last six months of the year have been disastrous. The year has still not ended but with the supply situation being what it is, MAIT is expecting a decline of 10 per cent in the current quarter. Overall, for the PC market, the new forecast is 10.3 million in 2011-12, which is still a 10 per cent growth over last year. For printers and multi-functional devices, we are expecting a market of 2.8 million units which is same as last year.

eW: Overall, what is your outlook for the hardware industry in 2012?

AB: 2011 had the worst combination of natural disasters causing supply chain disruptions, the euro crisis, depreciation of the rupee, high inflation and an overall pessimistic business environment. The good news now is that worst seems to be over. From macro level perspectives, the business drivers for IT and hardware industry are expected to be strong. The industry is gathering momentum, which will most likely result in the introduction of new technologies, new launches and some new alliances. The Indian government is also likely to speed up implementation of many e-governance projects. We expect 2012-13 to mark a recovery and get the IT hardware industry back to the high growth track.