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Channels Frown As Sales Go Down

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DQC News Bureau
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The year 2001 may have marked the start of a new millenium. But for the industry in general and IT industry in particular, things hardly look rosy. Buoyed by the high sales and growth rates of 1999, most companies had made ostentatious projections for 2000-01, which have fallen flat on their faces.

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On the international front, Apple Computer posted a $195 million net loss for the quarter ended December 30. The company had also warned that it would have a revenue shortfall of $ 600 million. CFO Fred Anderson said Apple expected about $ 6 billion in revenues in fiscal 2001. 

Apple had warned in December that an industry-wide decline in personal computer sales would lead to a loss for the quarter and said the company was focusing on reducing inventory backlog in its distribution channels that had ballooned to 11 weeks. 

Apple's forecast of a tough quarter added its voice to that of Microsoft and Intel. Microsoft reported revenues of $ 6.59 billion for OND quarter, but predicted that the next quarter could see a decline to $6.3 billion. Says Microsoft Chief Financial Officer John Connors, "While we are enthusiastic about the breakthrough products and services the company will be delivering in 2001, we remain guarded about the near-term economic outlook and its impact on PC demand and technology spending." 

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Intel earned $2.63 billion vis-à-vis $2.39 billion a year ago. Sales rose a mere six percent in the quarter to $8.70 billion from $8.21 billion last year. Says Avtar Saini, Director South Asia, Intel, "The second quarter was a little slow for us. But in December we caught up with our sales. Again, the first two weeks were slow in January." 

Hewlett-Packard too expects to miss its sales and earnings forecast for the first quarter of fiscal 2001, following a sharp downturn in demand during December.

3M's net income for the fourth quarter was $447 million as compared to $444 million. This means that its quarterly sales rose to $4.1 billion, two percent more than in the fourth quarter of 1999. Here again the reason given was the particularly soft sales in December. The company's Chairman, W James McNerney said that 3M is now reducing its costs in order to achieve double-digit earnings growth in 2001.

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Juniper Networks Inc said a slowdown in communications spending has made coming quarters tougher to forecast. For the 2001 fiscal year, Juniper now expects between $1.5 billion and $1.6 billion in revenue, up from a previous forecast of $1.3 to $1.4 billion and more than double the $673.5 reported in 2000. Despite the improved outlook, Juniper executives acknowledged that it was becoming increasingly difficult to predict future earnings. "It's clear that we're facing an environment of reduced visibility, and Juniper is not immune," says Chairman and Chief Executive Scott Kriens. Fourth-quarter revenues were $295.4 million, up 47 percent from the previous third quarter and up more than six times from $45.4 million in the year-ago period.

Shortages mar sales

While the IT scenario worldwide has not been very encouraging, resellers back home grappled with falling revenues. 2000 could easily be branded as the year of shortages in the country. First came the CPU shortage in March. Then came the monitor scarcity in May. This was followed by the hard disk shortage in October. And to round off the year, there were major price fluctuations with respect to monitors, with prices of 14-inch monitors falling by almost eight percent. 



All in all, sluggishness was evident in the buying patterns. And this was all the more pronounced in the OND quarter. Distributors and dealers admit that the overall sales figures took a southward dip by almost 40 percent. 

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Global scene

Apple  Posted a $195 million net loss for OND
Intel  Earned $2.63 billion in OND 2000 vis-à-vis $2.39 billion last year, showing only six percent growth 
Microsoft  OND revenue at $ 6.59 billion. The JFM revenue would be around $ 6.3 billion 
HP  To miss sales and earnings forecast for the first quarter in 2001
3M  Reducing costs to achieve double-digit earnings growth in 2001
Juniper Networks  Slowdown in communications spending makes forecast tougher

The downslide in sales has led to very little growth. Elated by the boom in turnovers in 1999, most IT players had

expected to grow at the same steady pace. Revenues ran high in the first six months of 1999 largely due to the heavy spending before Y2K by the SME segment and the corporates. 

Even the home segment witnessed a growth in this period - home-users accounted for 39 percent of the market share in 199-00 as against to just 24.2 percent in 1998-99, according to IDC, India figures.

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Sluggish sales 

Delhi-based Fortune Marketing's director Manoj Gupta says that his sales are down as much as 50 percent. However, Rajendra Kumar, VP, HCL Infosystems has a different story to tell, "Definitely the sales have been lower than what we planned. But still a growth of 25 to 30 percent which we had achieved last year should be possible this year too." 



Vivek Kalyan, Business Development Manager, Summit Infotech, chips in, "The peripherals have seen a slowdown definitely. Since the peripheral movement is directly related to the PC market, a slowdown there leads to a slowdown here. The sales have dipped by about 60 percent in 2000 as compared to the previous year and about 40 percent in comparison to the previous quarter." 

Mumbai-based AB Engineers echo same sentiments. Says company's director Bishwajit Singh, "Our turnover for 1999-00 was Rs 1.3 crore. And we had projected 60 to 65 percent growth over this figure for the current fiscal." But now he opines that reaching this target might be difficult, largely because of the various shortages prevalent in the market and the slack months he foresees ahead.

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Besides resellers, even retailers have felt the pinch. Ramesh Jain, CEO, Marks Marketing states that though the market may be growing in terms of numbers, retail sales have dipped by as much as 40 percent.

Prithvi, Reseller Manager, FX Info Technologies agrees that there was a slump in the market during the OND quarter. Satish Sharma, Director, Computer Force too admits that the market is down by 30 to 40 percent. "But since we cater to the market of Punjab and Bihar, where tax and octroi are higher than in Delhi, our sales have not seen that kind of a fall," says he.

Thus, these statements go against the IDC contention that in the first six months of the current fiscal (AMJ, JAS), the Industry Performance Index (IPI) has grown to 159.5 points, almost 35 points over the preceding six months. Perhaps IDC will have to do some soul-searching and number crunching at least for the next six months. This is evident from the fact that even MAIT has revised its projection for the annual sales for 2000-01 from 1.9 million to 1.75 million units.

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Making through with solutions

While admitting that there has been a slowdown in the market, Bangalore-based Krishnamurthy, GM-Marketing, Cerebra Integrated Technologies states that Cerebra has been spared of a downslide. He attributes it largely to the company's channel policies and schemes, which he claims, are designed to motivate channels. But he too admits that sale figures have been anything but outstanding.

Solution-based service providers, on the other hand, did not witness much of a decline in their revenue. Mumbai-based Nitin Shah of Allied Digital Services illustrates this point. "This year we have seen many corporates going in for virtual private networks and facilities management services. Since we concentrate largely on the corporates, our sales have not witnessed a slide yet." He points out that those involved in network management too had a profitable business as service providers also have to look after maintenance and upkeep of systems besides installation of machines.

The government and financial institution segment too contributed to the kitties of network integrators. States Mumbai-based Memphis Technology's Business Manager, Sunil Swarup, "This year, most banks and government agencies underwent computerization of their branches. This was a major revenue-raker for many integrators. This is one of the reasons that the integration business did much better than the entire industry."

Sunil further adds, "Upgradation is a major business area. Most people already have PCs, and it is unlikely they will keep buying newer machines every year. But they will definitely want to upgrade their systems to keep up with the technology."

Prices fluctuate, dealers palpitate

While agreeing that there has been a general slowdown in business, partners feel that the main reason for this was the rampant price fluctuations in the market. There are also instances when partners have sold cost-to-cost, just to keep the turnover going. 

Explains one reseller, "These days most distributors as well as dealers have no qualms selling at cost. This is because margins are any way wafer thin. However if you sell at cost, you will get many buyers and can sell more products. This helps in availing the turnover incentive which amounts to up to four percent of sales." 

To add to this, there has been a shift in the operations of distributors. Many of them have now started local trading. With this move they do not have to block their working capital on ordering products in bulk quantities and can instead divert the resource into other areas. 

Agrees Manoj Gupta of Fortune Marketing, "The situation has been aggravated by big distributors going local and now the warranty issues get solved locally, so the market in Delhi is hit. The smaller players operate under a liquidity pressure and as a result sell below their purchase cost. This further slows down the market."

Stock market blues

Prithvi of FX Info Technologies feels that fluctuations in the stock market too played an indirect role in slow uptakes. "These fluctuations reflected on the purchase expenses of vendors" he explains. 

Biswajit Singh gives another point of view for the slackness in the peripherals market. "Peripheral sales are dependent on the sales of PCs. And with the shortages of CPUs and HDD and monitors throughout the year, sales of PCs were affected. And this in turn impacted the sales of the peripherals market." 

States Yusuf, Regional Manager, Savex Computers, "Factors like instability in prices, CPU's availability becoming volatile, non-availability of hard disks and schemes which were more focused on cutting down the price affected our sales." 

Sumeeth Kumar, Computer Factory too agrees that the lackadaisical attitude towards schemes has affected bottom lines. Says he, "MNCs like Intel, Wipro among others did not roll out any new schemes and lot of their projects, which were for channels got advanced to the first quarter this year." 

However, everyone in the industry is not cribbing. Says Moninder Jain, Business Manager (Printers), Samsung, "Our hard disk drives sales did pick up this year. But this can largely be attributed to the shortage of Seagate HDDs. CDROM drives and monitors too have not seen a decline. This has helped us consolidate our position in the market." 

IDC forecast

According to IDC, 9.5 lakh PCs will be sold in the latter half of the current fiscal. Market leaders have divergent views on this figure. K R Jayakumar, CEO of AmitySoft says that there will be a 10 percent drop in PC sales compared to IDC's forecast.

Byju Pillai, President, Select Technologies, on the other hand, agrees with IDC's claim, "We feel the figure is more or less right. However, IDC figures of October 1999 and September 2000 showed the growth rate at about 33 percent."



Though not willing to venture the number of PCs that will be sold in the year, Biswajit Singh says that the IDC's ratio of first and second half sales could very well hold true. This is because already there has been a slight revival in sales and with JFM being an important quarter, there is a good chance that there will be more sales in this quarter as compared to the previous quarters.

Months that mattered 

Like tides that rise and ebb, the IT industry too responds to certain months differently. The unanimous feeling is that the OND quarter was a bitter pill, which the channels had to swallow. Says Prabhu, Regional Manager, Compuage, "Last quarter has been very dull. The downfall was mainly due to the end user demand, which dropped down tremendously." Sumeeth Kumar too agrees that there was a downfall of 30 percent during the last quarter. 

Paras Shah of Neoteric Infomatique too feels that the going was bad in the OND quarter, though he adds that each month was a bit better than the previous one. However, Neoteric could not achieve the monthly targets it had set for itself.

But the first six months were much better than OND for Neoteric. According to Paras, Neoteric had achieved a 100 percent growth over 1999-00, in the first six months. Rajendra Kumar, Vice President, HCL Infosystems says, "Last year we had a very good January, so this year too, we are confident of roping in many home consumers. For this we might not focus entirely on the corporates." 

For AB Engineers AMJ and JAS were good quarters as they showed a growth of 20 and 30 percent respectively. According to the company's director, Bishwajit Singh, January has already shown a slight increase over the December figures, which could only mean that the slackness is wearing off. "We plan to do over 40 percent of the entire year in the JFM quarter," he adds.

Optimistic expectations Like Bishwajit, most other players are pegging their hopes on

JFM.

Vivek Kalyan, Business Development Manager, Summit Infotech too echoes his feelings. "The first week of January has shown signs of revival and I think by middle of the month, things should pick up. We are targeting a business of Rs 8 to 9 crore in this quarter. But if this pick-up which is evident in the first week continues, we may even touch a figure of Rs 12

crore."

Nitin Shah of Allied Digital Services too is optimistic about the JFM quarter. Says he, "Though we had projected a turnover of Rs 150 crore for 2000-01, we will be able to achieve Rs 125 crore. And over 30 percent of this sales will come in the JFM quarter, because this is the time when most corporates use up their IT budgets for the entire year."

Promotions and drives

In a dash to reach their set targets in the JFM quarter, many players are now devising promotions and schemes. HCL has already rolled out its annual 'HCL Carnival'. And this time, they will focus on consumer finance to entice people to buy their products. Says Rajendra, "We hit the market early with our carnivals. This time around, we will focus on consumer finance in a grand way to ensure that interest remains in the market. We will try to rope in consumers also and not focus entirely on the corporates. So in this way consumer finance will play a very big role for us."

Samsung too has its promotional calendar in place. States Moninder Jain, Business Manager (Printers), Samsung, "We are currently running a promotion called "Mobike se Mercedes tak" which will continue till March 31, 2001. This is expected to get returns for the resellers and us too."

Besides promotions, road shows too have evolved as a major vehicle for pushing sales. Summit Infotech has already arranged three road shows each with Adobe and Quark for this fiscal and are now planning to have more in the future. Says Vivek Kalyan, of the company, "The promotions that we are planning this quarter will also focus on the end customers apart from the channel partners. We wish to create a demand-pull. And these efforts will also help get over the slowdown."

However for resellers in the peripherals market, devising individual promotions are not all that useful. Recounts Biswajit Singh, "Since peripherals are dependent on PCs, the only way more and more printers can be sold is if the sales of the PCs go up. Schemes devised by dealers like us will not have any impact on PC sales and thereby will not affect the sales of peripherals." However resellers like Bishwajit do run the vendor-sponsored schemes for their customers.

Bottom line

The major players have already claimed that the upcoming quarter will be an under-performer. It now remains upon the channel to tighten their belts and use their innovation to devise new strategies for pushing sales. Though this quarter has been a turbulent ride for most partners, there were certain lessons that could be derived from. The first would be to have a tight check on inventory management to negate shortages. Yet another is to focus on promotions and schemes for both the channel and the end-user and to pursue this aggressively. Like in the old saying, "Everything happens for the best", this hard-learned lesson could very well bear fruits if channel partners can work towards a more systematic business functioning, keeping their customers' satisfaction in mind.

Vinita Suvarna, in Mumbai with inputs from Sunila Paul, Bangalore and Mohit Chabbra, Delhi

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