Hard Times for Hardware Market

Hard Times for Hardware Market
Hard Times for Hardware Market

FY 2016 was a momentous year as the demand for servers and PCs witnessed an upward trend. Will this trend continue in the coming years? It is difficult to predict

Hardware is the base component for using IT in any form. System software, enterprise software or any app will not work unless installed in a hardware computing device. IT hardware market is still drawing a lot of interest despite the slowdown. India in particular has manifested great hunger for IT hardware in the last one year. Because of the various trends in the datacenter market, the demand for servers have greatly picked up. Demand for PCs and laptops was on the rise in the last year. It was mainly because of the government deals that sparked growth of this segment. Demand for printers has been an area where action was missing in a few sub-segments. The reason is clear. Most of the businesses have adopted digital practices. The print consumption has come down. It has resulted in stagnancy in the printer market.
In the IT hardware segment, the focus would be on the server market in India, PC market in India and printer market in India. Even though there was growth in the PC and server segment, it does not encourage analysts to forecast a rosy ride ahead.

Has hardware become a commodity?
Most of the large enterprises are spending on software part of IT as they have begun to believe that hardware is a commodity. Many enterprises did not even refresh their hardware on the due cycles.
Companies avoided brand hardware, given the innovative part lies in the software and the application. There are a variety of factors driving this trend, including initiatives such as the Open Compute project. The Open Compute Project continues to stimulate interest and participation in open source hardware design, as well as technological innovations that make facilities less dependent on hardware. Experts have mixed views on whether or IT hardware is a commodity. However, they do not rule out that hardware market will pick up with renewed focus and further innovation. The hardware market has hit the roadblock in a few segments because there is nothing new. The traditional hardware is capable of handling the new applications. It is believed that this trend might not continue in the future as applications are going to be heavy and hardware hungry due to more focus around digital and cloud.
Server market in India
Servers are the key component of enterprise computing infrastructure. If we look at the last few years, the market was impacted by recessionary trends. Only last year, the market began to pick up because of the trends such as digital and cloud. As we take an audit of the year went by, the x86 servers saw aggressive growth. The overall size of the server market in FY 16 remained at Rs 4903 from Rs 4488 with 9 % growth. It was x86 market which picked up demand. The non-x86 market declined further as there were barely any takers for Unix servers. The growth demonstrate how the server market has performed and growth in the last one year. Many factors contributed to the growth.

My Brand Book - server market in india
My Brand Book -The Server market in 2016

What pumped the x86 market? An observation from IDC says, “Digitization, refresh and upgrade opportunities, government backed e-governance and other state level initiatives and new implementations are collectively driving the growth for server market in India. There is a visible shift in purchase pattern for Indian organizations where strategic initiatives and involvement from LoBs (in purchase decisions) are increasingly becoming the deciding factors against the earlier transactional approach.”
According to International Data Corporation (IDC) APeJ Server Tracker; x86 server market in India grew in a double-digit year on year growth. A key highlight of this growth was the increased uptake of higher priced density and rack optimized servers that led to an increase in the ASP of the servers and in-turn resulted in a higher growth percentage in terms of revenue rather than units. Professional Services, Communications and Media, Banking and Manufacturing verticals continued to be the major contributors.
The non x86 server market witnessed momentum in both PSU and Private banks contributing to this growth by investing in technology refresh deals. Refresh and upgrade deals are expected from all verticals especially from the telecom organizations even this year.
White box players are gaining traction among e-commerce and cloud providers and starting to figure in the consideration set of some of the traditional customers as well. The primary reason for this is cost and increased control over their infrastructure. Traditional vendors need to revisit their mitigation plans to nullify the impact from white-box players.
Hybrid cloud is fast becoming the need of the hour and this in turn is increasing the penetration of Software defined solutions. Software defined solutions are expected to help organizations access applications from different cloud providers seamlessly and simplify management while migrating some of the on-premise applications to various cloud platforms.
While HP, Dell and Lenovo led the server market, the rise of players such as Cisco and others underlines that the users are not concerned about the traditional server players.
PC market in India
PC shipments (desktop and laptops) in India witnessed a healthy rise after a sad 2015 when the shipments declined. The market witnessed 8% growth in revenue terms. Combined desktops and laptops, the PC market in India stood at Rs 30,420 crore from Rs 28,154 crore. An observation from Gartner says, “The PC market in India is facing some challenging market dynamics .The enterprise segment might witness some growth going forward due to government and education projects, however we do not foresee significant growth in the PC market in India.”

My Brand Book - The PC market in 2016
My Brand Book – The PC market in 2016

White boxes (including parallel imports), which accounted for 32 percent of the overall desktop market, declined 6 percent in the fourth quarter of 2015 compared to the same period in 2014. In the fourth quarter, mobile PCs grew by 27 percent year-on-year primarily due to state government orders.

Lenovo moved into the number one position in PC shipment in India due to the state government order execution which helped Lenovo experience the largest increase in market share. HP Inc was seen going through restructuring after the split and moved to the No. 2 slot in the Indian market. Dell seemed to put emphasis on its enterprise offerings after it bought EMC for a whopping amount. Acer continues to play an important role. However, it has not moved up the ladder to win customer trust. Lenovo and HP have participated in the government deals in the last few years. It is yet not clear if the deals are really profitable bet for them. HP was later seen sulking from the government deals after its stint with the UP government.
Consumer buying continue to remain stressed. It is believed that the government push will revive the PC market further. However, it is too premature to predict. In other words, despite the growth this year, the outlook remains bleak for the market.
The Printer Market in India
A few years back, particularly in the last decade, the printer business was mushrooming at a rapid pace. The paper-driven offices used to drive demand for the printers in all categories, be it laser, dot matrix and inkjet. But things began to change in the later part of the last decade. Businesses and organizations moved to paperless environments. With businesses becoming digital, the printer market began to slow. Similar trend exists across the verticals. In FY 16, the printer market revived a bit and touched a growth of about 10 %. Categories especially dot matrix and single-function printers diminished significantly. The buying was high for the multi-function printers. Among the multifunction, the inkjet multifunction picked up the pace this year.

My Brand Book - inkjet multifunction
My Brand Book – inkjet multifunction
My Brand Book - laser single function
My Brand Book – laser single function

While Epson dominates the inkjet space, HP dominates the laser printer space followed by Canon. The overall printer market in 2016 stood Rs 3,121 crore from Rs 2,812 crore the previous year. HP dominates the overall market with a significant margin of about 43 %, followed by Epson (21%) and Canon (14%). Most of the players pitched new devices in the market to keep the buyers intact. Canon especially launched printers for the government sector.

My Brand Book -laser multifunction
My Brand Book -laser multifunction

Besides, the market witnessed movement from the old player Xerox which rolled out its new range of printers and brought changes into its market strategy. Besides, Xerox is betting big on its new range of inkjet printers in the market. Experts are of the view that it is a delayed move by Xerox to win back customers.
Even Ricoh added new printers to its product portfolio in order to sneak into the HP stronghold. Ricoh has grown rapidly in the Indian market in last few years. However, its growth is majorly contributed by its other business lines.

My Brand Book - Inkjet Single Function
My Brand Book – Inkjet Single Function

Despite the growth in sales this year, the analysts believe that the segment will continue to face challenges as the buyers are inclined to digital. But the scope for growth lies in the small business clusters in the country. According to IDC, “the overall buying sentiments were also weak, specifically in the southern part of India where natural calamity in Tamil Nadu played a crucial role in lowering the overall demand. On the other hand, a decrease in number of large government deals affected the Laser Market complemented by the low pull from the enterprise segment in the A4 printer base segment.”
In essence, the hardware business across servers, printers and PCs will be under stress in the years to come. It depends on how the market evolves in the future with more innovations. In addition, a lot depends whether Indian buyers which surpassed from the PC era straight to smartphone era will show interest in buying notebooks or desktops in the future.

My Brand Book 2016 - Most Trusted brand in india
My Brand Book 2016 – Most Trusted brand in india