Saving The Best For Last

This article ocurtesy: IDC India

The Indian IT Industry has recorded the best performance in four years
according to IDC. This is commendable considering that 1999-00 flagged off with the Kargil
war and the Lok Sabha elections. But the IT industry was buoyed by the heavy buying by the
home segment, despite these setbacks.

The domestic spending on IT products and services grew by an impressive
30 percent in fiscal year 1999-00, reveal International Data Corporation’s (IDC)
latest figures. Based on a series of regular research done all through the year, IDC
estimates that the domestic IT market in India stood at Rs.16,538 crore (approx. US$ 3.9
Billion) in 1999-00. This represents the highest annual growth rate since 1995-96.

The performance of the industry is noteworthy in that it is the first
time in five years that the annual growth has shown an increasing trend. The early
nineties were particularly good for the industry as the annual growth rates showed
continuous improvement year after year and reached a whopping 58.9 percent in 1994-95.

It was after 1996 that the continued political uncertainty and a
virtual economic recession started taking its toll. During this period, although the IT
sector continued to grow higher than most other sectors of the economy, the growth rates
were under tremendous pressure.

What makes this performance even more remarkable is the fact that
1999-00 was not a very easy year for the economy in general and the IT industry in
particular. The year began with the Kargil crisis, which threatened to have a grave impact
on the economy. This was followed by the Lok Sabha elections, which brought economic
activity to a virtual standstill for almost a month. Nevertheless, the impact on the
economy as a whole was minimal.

In the third quarter of the financial year, the Y2K issue kept some
major purchase decisions on hold for some time. IDC believes that this did not affect the
IT market negatively as the decisions were only postponed, not scrapped altogether.
However, the IT industry had to face a major crisis in the second half of the year when
the availability of key components was severely affected. This resulted in price increase,
but the overall demand was so strong from the market that the industry continued
unabatedly on its growth path.

Home market to the rescue

Continued buoyancy in the home market was perhaps the single largest
driver for the IT market, particularly PC shipments and related peripherals. IDC estimates
that PC shipments to the home segment grew by over 88 percent in unit terms. Shortage of
components did affect the market for locally assembled PCs, but the overall demand from
the home segment continued to be strong despite an increase in prices.

There was also an improvement in spending by large and medium
businesses and the government segment, which kept the demand for servers and workstations
flowing. The Internet boom also had a positive impact on the overall IT industry. While
Internet access was an important purchase decision criterion for the home segment,
investments by Internet Service Providers (ISPs) and other Internet companies to set up
their infrastructure emerged as an important accelerator for domestic IT spending.

It was the hardware sector, which recorded the highest growth rate
during the year. Consequently, the share of hardware in total IT spending jumped from 53
percent in 1998-99 to over 56 percent in 1999-00. This was a clear deviation from the
past, when the share of hardware was on a decline due to rapidly falling prices.

Personal computers drove the growth in the hardware sector. PC
shipments crossed the one million mark for the first time, as 11,25,235 units of desktop
PCs were shipped during the year. Shortages of components and a faster transition to
higher generation processors were instrumental in restraining the average sales value of
PCs from falling.

As a result, the growth rate of desktop PCs by value was slightly more
than that by units; a trend very different from what has been observed in the past when
declining prices kept the value growth under pressure.

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Given the current buoyancy in the market, IDC expects the market to
sustain this level of growth at least for a couple of years. This would make India one of
the fastest growing IT markets in the world, if not the fastest.

– Courtesy IDC

Table 1

Indian IT Market, 1998-99 and 1999-00

Component

 

Domestic IT
Spending (Rs. Crore)

Annual Growth

 

1998-99

1999-00

Desktops PCs

3371

4825

43.1 percent

Portables

294

435

48.1 percent

PC Servers (Intel)

344

450

30.9 percent

Other Servers (Non-Intel)

431

602

39.7 percent

Traditional Workstations (RISC)

109

128

17.4 percent

Peripherals

1231

1605

30.4 percent

Data Communication Equipment

913

1234

35.2 percent

Total Hardware

6693

9280

38.6 percent

Packaged Software

1335

1620

21.4 percent

IT Services

3326

3916

17.8 percent

Others

1381

1722

24.8 percent

Total

12734

16538

30.0 percent

Note:

  • Personal Workstations i.e. Intel based workstations are included in Desktop PCs
  • ‘Peripherals’ refer to standalone peripherals i.e. peripherals that are sold
    separately and not bundled with PCs and other systems
  • Data Communication Equipment includes Modems, Network Interface Cards, LAN Hubs, LAN and
    WAN Switches, Routers, Multiplexers, Remote Access Servers, Structured Cabling, and other
    specialized data communication equipment
  • ‘Others’ include Individual IT Training and Consumables

Source: IDC (India) Limited, June 2000

 

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