SPEAKERS, SOUND AND GRAPHIC CARDS: Quality Takes Precedence

Speaker vendors shift from 2.0 models to high-growth 2.1 as customers upgrade
their music listening preferences. High-end sound cards find VoIP as a new
customer segment. Graphic cards maintain their business in the niche market.
Presenting a DQCI analysis of the current state of the multimedia market.

Multimedia products (speakers, sound and graphic cards) are no longer an
optional set of components for PC users. Be it an office or a home PC,
multimedia components have become an unavoidable part of it.

Almost 100% of the home segment chose some or all multimedia components in a
PC. But in the case of corporates, the percentage of users choosing multimedia
components is at around 70%. This is a marked improvement compared to 50% in the
last couple of years.

This, according to market feedback, is probably because of the changing work
culture and adoption of multimedia technologies for office work. Many offices
have started to make the fullest use of multimedia components in their PCs by
presenting multimedia-rich presentations and listening to soft music while
working or during lunch hours. The market is also seeing good growth in
multimedia headsets business propelled by the growth of call-center businesses
in India.

The market for graphic cards as a part of multimedia component is still very
low. This area is being patronized by only a hand-full of enthusiasts and
specialized professionals. Sources say that the market size is roughly put at
around 10% of the PC market.

SPEAKERS TAKE THE LEAD

The current multimedia speaker market is dominated by a large number of
local brands which import the products from China. There are just two
multinational brands–Creative and Altec Lansing. Mercury was the leading name
in the speaker business

two years ago, followed by several other brands shared the second spot in
different regions of the country.

"The graphic card market is picking up because gaming is getting popular and we have registered 25-30% quarter-on-quarter growth" PK Sharma, Comnet Vision

But few good names managed to achieve decent success in 2003 with their
entry-level and medium-range speakers. The channel’s popularity includes
Mercury, Frontech, Intex, Creative, Altec Lancing, Artis and iSound.

According to Sandeep Parasrampuria, Director of The Best, there are many
brands playing in the market. "There is no clear leader. Customers choose
the products based on the sound quality," says he.

The total market size for speakers could be around 60% of the total PC
market. Some industry experts estimates sales to be around one lakh speakers a
month. The user segment comprises home and corporates.

Corporates and SME are by default the users of entry-level speakers such as
2.1 and 2.0 models. These are most suitable for listening to music without much
sound distortion. However, movie and gaming enthusiasts from the home segment
prefer owning the 4.1 and 5.1 models. 6.1 and 7.1 are much sought by serious
gamers, as its enhances the gaming effects.

POPULAR BRANDS

Creative has for quite sometime been catering to both the entry-level and
high-end segment in speakers. According to Rajshekhar Bhatt, Sales and Marketing
Manager, Regional Sales, Creative Technology, the last year saw entry-level
products like 2.0 and 2.1 models contributing 90% to overall sales. The
remaining 10% business came from 4.1, 5.1 and very little from 6.1 and 7.1.

"Creative’s revenues have seen a good 70% year-on-year increase in 2003, while on a quarterly basis it grew by 20-25%" Rajshekar Bhatt, Sales and Marketing Manager, Creative Technology

Creative’s revenues too have seen a good 70% year-on-year in 2003.
"This on a quarterly basis must have been a growth of 20-25%," says
Rajshekhar.

Creative’s presence in the market with a wide range of entry-level speakers
(2.0 and 2.1 models) and professional speakers (4.1, 5.1, 6.1 and 7.1 models),
has helped them in becoming a established brand in the country. It is probably
the only brand available across the country. "According to our estimates,
we could be holding 15-20% marketshare in the speaker business," adds
Rajshekhar.

This is also the case with its quality-conscious peer, Altec Lansing, which
made an entry in to India market a year ago. In this short span the company is
neck to neck with Creative as far as presence and marketshare are concerned in
both entry-level and high-end speaker markets.

Tejas Shah of Zeta Technologies, one of the two distributors for Altec
Lansing products in India, says "Altec is the only MNC brand after Creative
that has earned recognition for its quality in India. Worldwide too, these are
the only

two brands which gather respect in the speaker business."

Despite the premium positioning of these two brands as a quality conscious
brands, it has not been able to achieve the top position in terms of marketshare.
This according to Tejas is because of the price factor and the usual tendency of
end-users to buy economical speakers.

"The entry-level market in India is occupied by several Chinese brands.
They are popular for their price competitiveness as they are 70% to 200% cheaper
than brands like Altec and Creative," he adds.

While the entrance of cheaper brands has helped boost business, not all
partners are happy about this trend. Says Chander Shekhar, CEO, Revika
Computronix, "While business has grown with the entrance of cheaper
Taiwanese brands, but it has in a way it has affected the profit margins, as
there is a lot of under-cutting in the market."

"The USP of Altec speakers is that it can be connected to devices like MP3 player, DVD player, CD player, TV, laptops and not just computers" Tejas Sheth, Director, Zeta Technologies

But the premium brands have no plans to combat the brands on the price front.
"We want to make Altec a product of desire since we are the best in terms
of quality. Therefore, this is the USP we are banking on to promote our
products," says Tejas. Altec’s target now is to bypass Creative in the
next one year and move ahead in the marketshare game.

In the entry-level market, Intex is one of the many upcoming local brands.
Ramesh Vaswani, President, Intex says, "We must be enjoying more than 15%
marketshare in the entry-level segment and this volume will see a surge once we
start manufacturing speakers in our Jammu plant." According to him, the
company has doubled its growth from last fiscal.

iSound range of speakers from the stable of The Best was launched about a
year and half ago and has managed to create a good presence in the market.
According to Sandeep Parasrampuria, Director, The Best, the company holds around
9-10% marketshare. It hopes to see good growth in the headset business with more
and more corporates adopting voice and telephony. The company is planning to
launch new models in the near future.

Saurabh Nagpal, CEO, Multilink Computers, terming speakers as the highest
growth sales component, says, "We have grown by over 20% quarter-on-quarter
in the last fiscal and I expect this growth to continue in the coming
fiscal." According to him, Creative is the market leader with 20%
marketshare and Altec is catching up on it fast.

TREND IN SPEAKERS

The market foresees huge volumes in speakers in the days to come. This will
be driven by the introduction of newer products and the entry of new brands into
the market. The emergence of the audio-video channel taking up multimedia
speaker is also on the cards. At the same time, there will be another set of
partners within the existing channel, who will specialize in multimedia.

In the recent past the speaker market has seen a fusion of IT and
entertainment. This, in hindsight, holds tremendous potential for the channel.
Sighting this opportunity, Altec’s distributors have decided to explore this
area.

"The USP of Altec speakers is that all the models can be connected to
any device like MP3 player, DVD player, CD player, TV, laptops and not just
computers. Most other brands are compatible only with desktops. We see this
emergence of the speaker as a convergence product as a very good business sign,
since these products can be sold by the consumer durable channel as well, which
traditionally deal in audio and video devices," says Tejas.

Along with convergence, customers have become very conscious about quality of
sound and getting the best out of a speaker system. Most end-users have already
started making a transition from 2.0 to 2.1 models.

"Customers are becoming conscious about the quality of sound while
listening to music, watching movies or gaming," says Sandeep. Gamers are a
very important, but at the same time, as very small customer segment. These
users are undaunted by the prices of products, but expect the best in sound
throughput.

But a bulk of users, prefers to buy sub-Rs 500 models. "Those are the
budget-conscious people who want sound, but not at exorbitant prices. Around 30%
of buyers go for the sub-3000 or 3000+ category," adds Sandeep.

70% of the customers go for the entry-level products. Now the trend is a
little towards higher end products. This is probably because of the duty cuts
that has brought the prices down for the PC, giving customers an option to
choose a better listening experience.

Altec speaker models range from 2.0, 2.1, 4.1 and 5.1. And these are priced
in the range of Rs 600 to Rs 18,000 for the channel. iSound products range from
Rs 300 to Rs 12,000 with models from 2.0 to 5.1. Even Creative is very
competitive in the pricing of its entry-level speakers with dealer prices
ranging from Rs 425 to Rs 14,000.

In the 4.1 and 5.1 series the prices range from Rs 2,900 to Rs 20,000. In the
6.1 and 7.1 categories the prices range from 7,000 to 35,000.

Other local brands are available for anywhere between Rs 125 to Rs 2,000.

SOUND CARDS

Almost 90% of motherboards come with an on-board sound card. But, only about
10% of PC users go for a dedicated sound card. This is the reason why there aren’t
many players in the sound card business. Even the 10% dedicated sound card that
are used falls under the high-end segment. Currently Creative is the only active
player selling dedicated and professional sound cards.

"Entry-level cards are no longer big business as every motherboard comes
with a on-board sound capabilities," says Rajshekahar of Creative. Creative
hold around 80% marketshare in this segment. The rest could be Chinese imports.

According to Bharat Bhushan, CEO, RR Systems, sound cards business is growing
but not at the same volume as speakers. But Creative, has grown 20% value-wise
in this segment in the last fiscal, with a quarter-on-quarter growth around 5%.

According to Rajshekahar, Creative sound cards are mostly preferred by
enthusiast and professionals in the audio business. However, VoIP users as a new
customer segment are giving a fillip to the sound card market.

Improvement in Internet bandwidth and its increasing penetration has given
rise to VoIP as an alternative for long-distance communication. A good sound
card ensures that voice packet are not lost in transit while using VoIP.
Presently, Creative is one of the few companies that boasts about offering
excellent performance in its sound cards for VoIP applications.

GRAPHIC CARDS

The graphic cards market size is too small and is estimated to be around 10%
of the total PC market. According to partners, graphic cards as a market segment
has not seen any major trends in the business pattern for the last one year.
However, many of them foresee a growth next year. "Business is now picking
up," says a reseller. This is purely because of the ‘price affordability’
and ‘increasing awareness’ factors.

PK Sharma, CEO, Comnet Vision says, "The graphic card market is now
picking up mostly because gaming is getting popular. We have seen around 25-30%
quarter-on-quarter growth and I think AsusTek is the market leader in this
segment." Another reason for a boost in growth is the entrance of
low-priced Taiwanese brands.

However, Pankaj Pamani, PR Manager of AsusTek in India is more realistic
while saying that the usual trend will continue. "Graphic cards are
products used for specific needs, like gaming, or animation etc. So we cannot
expect the graphic card business to boom in the near future. These are
high-priced, so there is not much chance of it getting into the SOHO market
soon," he notes.

As far as the popularity of brands are concerned, Asus has been doing quiet
well in Mumbai. While the channel peg its marketshare at 60%, Pankaj numbers it
to a modest 25%.

However, he reiterates that Asus is the leading player in a largely
fragmented market. According to him, there are many other competing brands like
Gainward, Gigabyte, MSI, Maxforce, Creative and many Taiwanese brand, which is
giving tough competition.

Compared to other brands, Asus cards are higher-priced and are available for
a range of Rs 4,000 to Rs 50,000. But this

cost is justified by its features which include video security, game face and
smart doctor. In the last fiscal, Asus claims to have grown 25 %.

DRIVING SEGMENTS

The graphic card business is driven by two segments: gaming and
professional. Gaming comprises of the young generation of enthusiasts while
professionals belong to corporate houses, advertising, independent/free-lance
designers and the DTP segment.

"The purchase tendency for graphic cards are more of impulsive buying.
Worldwide gaming is the #1 application in a PC. So if that trend catches in
India, we can see great business for graphic cards," says Tejas who sells
Asus graphic cards. 

NELSON JOHNY in Mumbai with inputs from
ATANU KUMAR DAS in New Delhi.