First-time buyers may opt for cheaper desktops rather than laptops.
The fall of the rupee against the US dollar and some Asian currencies is good for software exports. However, it's spelling trouble for the hardware sector, where margins are thin. Having triggered a rise in prices twice last year, the depreciating rupee is now prompting hardware players to contemplate another price revision.
The problem becomes acute since personal computers (PCs — both laptops and desktops) are assembled in India with imported parts (even at the manufacturing units in the country). Any currency movement, hence, impacts the prices of hardware like laptops, desktops, keyboards, monitors, central processing units (CPUs), etc. In fact, laptops have almost 100 per cent of their components imported. Even in the case of desktops, a mere 20-30 per cent of components are indigenised.
“Technology innovation and its tendency to get obsolete in a short period generally keeps hardware or technology prices in check. However, for the full calendar year, the rupee has depreciated by over 20 per cent. The industry works on very thin margins to absorb this kind of fluctuation,” explains Vinnie Mehta, executive director, Manufacturer’s Association for Information Technology (MAIT).
From January 1 to March 6 alone the rupee has depreciated by 6.3 per cent. The price hikes that were announced last year came when rupee was around 48. The first price hike came in May, when the rupee touched 42.8 after the lows of 39.9. The second rate increase came around October 2008, when the rupee was hovering between 46 and 49.
“We are watching the rupee very carefully and if the situation persists, then we will revise the prices. Usually, when the rupee weakens, prices go up,” said George Paul, executive vice-president (marketing), HCL Infosystems. Paul says that because each component is billed from a separate component vendor, the total price increase will depend on that and it will hit the vendors hard, as margins are thin. Margins in the notebook and desktop segment is between 2 and 5 per cent and in case of high-end products it goes to 10 per cent.
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Raj Saraf of Zenith Computers says: “The dollar has gone up by almost 5 per cent. The obvious impact will be a price increase. While it is difficult to say anything now, it is the only way to tackle this situation,” said Saraf.
HP, which had already introduced a price hike of 7-8 per cent in October to rationalise the currency movement, might look at this measure again. “Prices of products will increase soon due to the dollar appreciation in the given environment. HP’s endeavour is to provide customers with the best products and innovative offers that create great value for their money at all times,” says Rajiv Grover, director, consumer products, personal systems group, Hewlett Packard, India.
The situation is almost similar in the consumer durables segment as well. In June 2008, LG Electronics had announced a price hike on its products like monitors and optical storage devices in the range of 7-10 per cent. Similarly, Samsung too had increased the prices of its LCD monitors by 5 per cent.
“We have not linked our price structure to the currency movement so far. Our effort will be to hold on to prices as long as possible,” said a company spokesperson. The company had then said that the depreciating rupee and the rising input cost had compelled it to effect this price hike.
However, analysts have a different take. “This will not have an immediate impact but surely is a cause for worry. In boom time had the rupee touched 52, it would have hurt because sales would have been faster and imports would have increased. But now there is already an inventory pile,” explains Diptarup Chakraborti, principal research analyst, Gartner.
Market experts also opine that this increase could give a spurt to the falling growth of desktop sales, as well as the white-box market (assembled PCs). “If you look at the growth rate of notebooks for the period of March 2007 to March 2008, it was 114 per cent and desktops were flat. But if you compare April-Sept 2008 to April-Sept 2007, desktops grew 14 per cent whereas notebook sales were just about 13 per cent,” says an industry expert.