U.S. PC Firms Slash Prices in India

Electronic News, Sept 4, 2000 by Uday Lal L. Pai

Cochin, India - Traditional market logic says Indian PC prices should be going up, given that the depreciation of the rupee and a global shortage of components are combining to increase costs. But a recent round of price cuts and the offer of freebie PCs are defying all logic.

Leading U.S.-based PC manufacturers in India are slashing prices, despite an increase in manufacturing costs, to grab a larger part of the market share. Freebie PCs are also being offered to woo customers.

It was Hewlett Packard Co. that kicked off the price war by slashing the tag of its 400MHz Pentium II PC to $1,220, down from $1,333. HP also is offering freebies worth $444, including Internet time and accounting software.

Compaq Computer Corp., the largest seller of computers in India, last week responded by slashing prices of its Deskpro 650MHz Pentium III by $45 to $1,198. Added to this, Compaq has bundled in a three-year comprehensive warranty free-of-charge to Indian PC sellers.

Not to be left behind, Acer India is offering 100 hours of Internet free through Indian ISP Sigma Online with a special offer on Epson Stylus printers along with its Acer PowerSe PC series.

IBM India, in a bid to capture the small- and midmarket segment, has launched its lowest-priced entry-level product recently, dubbed the NetVista A10. The NetVista A10 comes with an Intel Corp. Celeron 533MHz microprocessor, 32Mbyte and 64Mbyte DRAM options and a 10Gbyte hard disk drive. It also comes bundled with a 14-inch color monitor, Lotus Smart Suite and Norton antivirus software, said Shashi Mal, country manager for the Personal Systems Group of IBM.

"Though the components shortage can be overcome if a company has a good component supply chain, if the rupee devalues beyond the percentage of profit margin, then one could see a reversal in the price trend," said Vinnie Mehta, director of the Manufacturers Association of Information Technology.

The depreciating rupee will lead to an increase in computer prices, starting in September, experts believe. Few computer manufacturers are forthcoming on their pricing structures and their likely impact on sales. However, market analysts say that prices may rise by about 5 percent.

The rupee has fallen by more than 5 percent since April, putting pressure on industry margins, which are close to only 8 percent at most. It is unlikely, therefore, that PC manufacturers will continue to absorb costs beyond August.

However, none of the computer manufacturers operating in the country have confirmed this. Market observers believe this because most of the components needed for PC manufacturing are sourced from abroad.

"Companies seem to have adopted a wait-and-watch approach before deciding on a price change," Mehta said.

Indian hardware companies are expected to come under severe pressure compared to the international giants, as the latter may be better able to absorb some the price differentiation.

"We are coming under pressure, and if the situation persists, we will be forced to pass on the burden to the consumers," said a representative of one of the largest Indian PC manufacturers.

However, for the time being, companies have decided not to jack up prices due to the price-sensitive nature of the Indian PC market.

Ajay Mittal, brand manager at IBM India, said that statistics reveal that more than 70 percent of PC purchases are made in the sub-$900 category. More than 75 percent of the purchases are made through nonbranded vendors catering to price conscious consumers, he added.