Trends and challenges for system builders
System builders have been written off several times in the past but system builders continue to survive. That is because every time one door closes for them another one opens elsewhere
At the beginning of the year Gartner India had predicted a market of 2 million-2.2 million white box PCs in 2013. While it currently says that those overall numbers remain more or less the same, it is projecting the market to dip by 10-15 percent over the next 12 months.
According to Gartner, in Q32013 around 435,000 assembled desktops were sold in the country with those sporting Intel processors accounting for nearly 350,000 and the balance being sold with AMD.
“White boxes, including parallel imports, which accounted for 40 percent of the overall desktop market, declined 26 percent in the third quarter of 2013 compared to the same period last year. This is a significant drop, but no one can say that assemblers are completely down and out,” remarks Vishal Tripathi, Principal Research Analyst, Gartner India.
Nevertheless, he agrees that the desktop market is contracting. “A comparison of the third quarters of 2012 and 2013 shows the overall desktop market shrinking by about 15 percent, hence the white box PC market is de-growing faster than the overall desktop market.”
Tripathi says the major reason why the white box market is dipping is the lack of enthusiasm among consumers for desktops—people are instead buying notebooks.
Others point out that MNC brands have been aggressive over the past one year as PC growth rates have dropped. Notes Rajiv Soni, CEO, Opsic Consultants, Jamnagar, “Every major PC vendor has focused on building desktop SKUs costing around ` 20,000-`22,000
SURESH PANSARI CMD, Rashi Peripherals “The white box desktop market continues to sustain in mature markets. While the overall share may be less than 20 percent, it still is a huge number”
and sporting DOS, also models with Windows 8 Home at around ` 25,000. The price-points are very close to the average selling price of an assembled PC, and this is forcing a lot of users to rethink about buying an assembled desktop.”
Another reason has been a lack of excitement around the new technologies from Intel and Microsoft. While a lot of hopes were pinned on Haswell, the fourth generation of core processors which was launched in June 2013, the market response has been less than enthusiastic. “We are not expecting any major revival around Haswell or Windows 8.1,” says Manish Yadav, Market Analyst, IDC India.
Partners and vendors see a number of reasons why the system builder market can bounce back. Some of these are specific to the trends in the Indian market, but even global trends indicate that the desktop market will not die any time soon.
If one looks at mature and large markets like US and Japan, the white box desktop market continues to sustain. While the overall share may be less than 20 percent, it still is a huge number. Hence, I believe that the assembled market in India will continue to sustain, however it needs to be innovative and competitive,” says Suresh Pansari, CMD, Rashi Peripherals.
Partners in India are betting on consolidation because a few local vendors such as Wipro and HCL have quit local manufacturing. Many expect these vendors to now source their desktop requirements from large regional system builders.
“While our vanilla desktop market has dipped, we have seen demand for specialized solutions around small form factors, thin clients, HPC and gaming go up” HARISH KUMAR RP CEO, Connoisseur Electronics
There is also speculation that one or two MNCs will exit the sub-`30,000 desktop market to focus on the higher-margin mainstream desktop market. Channels feel that while vendors will continue investing in low-end laptop SKUs, they will de-focus from entrylevel desktops because desktops are not a growth category. This would help system builders to grow their marketshare.
An interesting point which some partners make is that system builders still enjoy a price advantage over brands in the mainstream desktop market, and a bigger price advantage at the high-end of the market. “While at the entry level some OEMs have taken a conscious call to be very aggressive, as the configurations scale up there is a significant price difference between a white box PC and a branded PC. For example, when a customer requires a Core i5 or Core i7 processor-based system, a white box PC would be upto 20 percent cheaper than a branded PC,” informs Dinesh Nair, Director, BigC Technologies, Bengaluru.
Many point out that the consolidation among vendors in the space has ensured more volumes for the remaining brands. Says P Raghuraman, CEO, Salezart, Delhi, “The news of Intel exiting the desktop motherboard market and of the consolidation among hard drive vendors augurs well for the long run because the vendors who survive will have reasonable numbers to ensure profitability.”
But Raghuraman is quick to point out that vendors need to ensure that the first and second tier channels are also protected. “Channel hygiene will return once there is consolidation at the first and second tier of distribution. This will ensure wider availability of the building blocks required by system builders.”
Many system builders admit that they still make more money selling an assembled desktop than a branded notebook. With online retail cutting into margins, system builders see enough reasons to continue pushing their own white boxes.
AMD India believes that pricepoints matter, hence, along with one of the motherboard OEMs, it is working on introducing an APU-motherboard combination at around ` 5,000 by Q12014. “Our idea is to offer a dualcore APU which can deliver mainstream graphics and computing performance, and which would allow a system builder to configure, build and price a system at ` 15,000,” says Chandrahas Panigrahi, Director, Consumer Business, AMD India. “India still has less than 10 percent PC penetration, so at these pricepoints we will create new markets.”
Gesture control is a technology which Intel has been betting on. It could potentially revive the PC market and in turn revive the system builder market. Intel has been working with vendors such as Creative, Leap Motion and Haptix over the past two years to build devices and peripherals that allow gesture control of a PC. The vendor has also acquired companies such as Omek Interactive. Meanwhile Apple, which is trying to grow the Mac-based desktop market, has purchased PrimeSense, a motion-sensing chip vendor.
Another technology which vendors are working on is voice control. Patrick Moorhead, Analyst, Moorhead Insights, predicts that in three years Intel and others could make gesture and voice control as pervasive as the mouse.
Says Suryanarayanan B, Director, Sales & Marketing, Intel India, “We believe that emerging disruptive technologies such as voice and gesture control could alter the way we use technology. For their effective use consumers will require PCs which would need more horse power and added functionality which we will see in next generation core processors.”
Another market Intel and AMD are likely to recapture is the thin client market where over 80 percent share has been captured by NComputing, clones of NComputing, and cheaper thin clients from China sporting ARM processors. “However, customers across all segments who want real desktop experience are looking at Intel Atom processor-based thin clients,” says Limesh Parekh, CEO, Enjay IT Solutions, Bhilad. “Today, almost 75 percent of the VDI market is adopting thin clients based on Intel Atom.”
Intel has been advising its channels to focus on niche verticals such as digital signage, POS, thin clients and surveillance. However, only a handful of partners have been able to make the transition to sell ultra small form factors as part of a vertical solution. While there still exists some hype around platforms such as Next Unit of Computing, volume ramp-up could be still a few quarters away.
Comments Harish Kumar RP, CEO, Connoisseur Electronics, Bengaluru, “While our vanilla desktop market has dipped, we have seen demand for specialized solutions around small form factors, thin clients, HPC and gaming go up.”
While some of the large system builders have managed to source their own integrated monitor chassis to build AIOs, a majority of smaller systems integrators say they don’t have good suppliers.
Panigrahi believes that while the next 2-3 quarters might see numbers further slipping, the market may see a rebound toward the second half of 2014. “Don’t write off the system builder as yet. We are confident that the market will firm up, and while the excitement may not be the same there’s still healthy business out there.”