Lenovo's IBM buy may impact Indian mart only long-term

The acquisition of IBM's personal computing division by China's Lenovo Group is seen having little impact on the Indian market in the short- or medium-term, analysts and industry officials said. IBM is the third largest PC maker among branded players in the Indian market.

"No major impact on the Indian PC market per se," a senior official with research firm Gartner Inc said.

He noted that any likely major impact could be in the long-term as and when the Chinese company has a strong foothold in the India. "And that may well take 4-6 years," he said.

The deal, according to him, has given Lenovo the credibility, reach, and platform to build on IBM's share in India through an aggressive pricing strategy, as Chinese companies have done in various industries across the world. But execution of any such strategy may take time and hence little impact is seen in the short- to medium-term.

On Wednesday, IBM and Lenovo announced that Lenovo will acquire IBM's PC business for a total of $1.75 billion in cash and shares. IBM will acquire an 18.9 per cent stake in Lenovo and the deal will be completed in the second quarter of 2005.

In November, Gartner said the Indian personal computer market grew by 35.1 per cent on year in the July-September quarter. During this period, over 885,000 units of desktops, notebooks and servers were shipped. However, the sharp growth in India comes on a smaller base, analysts noted.

India's share in the Asia-Pacific region is at 10.4 per cent, up from 9.2 per cent in the previous quarter. Desktop shipment grew annually by 32 per cent during July-September, while notebooks registered a 126 per cent growth.

Among the branded players, Hewlett-Packard maintained its top position with 14.3% market share, followed by HCL and IBM at 12.1 per cent and 8.3 per cent, respectively.

Analysts note that any major impact is unlikely in the Indian market because IBM is not the single dominant player. However, the prices may continue to drop though this event by itself may not be the trigger.

In November, Gartner had said the pressures on manufacturers from slowing unit shipments and falling prices could force as many as three of the companies now among the top ten suppliers worldwide to abandon the PC business.

Gartner said there was a 70 per cent probability of the departure of three of the current top ten from the business. IBM has proved to be the first to depart.

Gartner had said price competition will intensify as vendors struggle to maintain growth in a competitive market environment characterised by weak replacement activity and the increasing significance of emerging markets.

Local industry officials said customers may be encouraged to use the opportunity to negotiate lower prices or better service conditions from IBM.

Disruptions and a drop in responsiveness to service issues in the short run also cannot be ruled out and this has raised hopes of some competitors being able to make inroads into the Big Blue's market share in India.

IBM India has a computer assembly unit in Pondicherry, but analysts do not see any capacity expansion post-acquisition. High duty structures have for years left India a less attractive destination for global majors to set up manufacturing units and the Chinese company is unlikely to take a different view.

Morgan Stanley in a note Thursday said , significantly boosting its economies of scale, enabling it to compete on the level of Dell and HP.

Global PC unit growth is forecast to average 5.7 per cent annually from 2006 through 2008, half the 11.3 per cent average of 2003 through 2005, according to Gartner.

The PC revenue growth will average 2 per cent annually from 2006 through 2008, less than half the 4.7 per cent average of 2003 through 2005.