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.

Re­vival hopes

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.”

Tech­nol­ogy en­ablers

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.”

Niche mar­kets

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.”

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