Will UP's 15 Lakh Laptops restore HP as the PC market leader?

The UP-HP deal has shaken up the domestic PC landscape, and holds the potential to re-crown HP as the PC market leader

Hewlett Packard India seems to have found the holy grail that will spark new life into its business and help it reclaim its old glory.

The Uttar Pradesh government's `2,858 crore laptop deal with HP comes at a time when analysts and peers were about to declare HP's PC business a ‘sick'. While the deal might not help overcome HP's overall worry but it will surely give a much needed boost. It also happens to be the biggest PC order ever in global history.

With the deal, everyone involved in the ecosystem and part of the industry, is going to experience a change.

It was not easy for HP, first of all, to participate in the deal and secondly, to emerge a winner. It needed absolute transformation, even at an ideological level.

Transformation

HP has consistently pitched itself in the mid-premium and standard range of products. And that was the reason why it refrained from participating in the ELCOT (Electronics Corporation of Tamil Nadu) deal in Tamil Nadu. While Lenovo was the biggest gainer in that deal, HP served a part of that.

In the ELCOT deal, the price of the product was something that questioned HP's premium range image.

But the irony is that while in the ELCOT deal it did not show much interest but for the UP deal, it quoted a price of `19,058 per notebook.

It was unusual that HP suddenly joined the sub-20k PC segment, which it always was averse to. It seems the company has succumbed to market behavior with dwindling market share and business.

When Dataquest shot this question to Rajiv Srivastava, VP and GM, HP India Printing and Personal Systems (PPS) Group, his words in reply were carefully chosen.

Of course, this did not take us anywhere because whatever he said was obscure in nature.

"The project is going to have great social impact, and we are proud to partner. We never thought that we would be able to associate so deeply in this manner with a social project of this scale. We are committed to make this project a grand success," Srivastava says.

He was wary of being too vocal about the market conditions that were forcing the company to look at options and bring in necessary changes in its policy.

It's all about Gaining Market Share

The biggest gain for HP might not be in rupee terms but in terms of market share. The deal is the biggest in the world, if analysts and peers are to be believed. HP has been trailing behind in the PC market share for the last 3 years. Lenovo, Dell, among others are eating into its business.

Vishal Tripathi, principal research analyst, Gartner India says: "It is a fight for the market share. The UP deal is less about revenue. The configuration at which the PCs have been sought leave little space for making money."

For HP, the laptop deal is a great opportunity to win market share. "The deal will impact the market dynamics in a big way. In the PC space, it will give an edge to HP over its competitors," adds Sumanta Mukherjee, lead analyst, IT practice research, Cyber Media Research (CMR) India.

Market share affects the reputation of a company. In a market like India, which has a lot of scope for PC penetration, deals of this scale will play a major role in shaping the reputation of a company. "If HP successfully fulfills the orders, it will be a feather in its cap. All of a sudden, it will be respected for its capability to handle projects of this scale," adds Mukherjee.

In the latest IDC numbers, HP boasts to have emerged the market leader in PCs after close to 12 quarters and that too, with a significant margin between HP and its #2 rival.

"We are taking measures to strengthen our position in the market. The proof of this is in the regained leadership position which we lost 3 years back. The gap between us and the #2 is pretty significant. We are relying upon few things and focusing on inherent strengths. The UP deal will further help us stay a leader," says Srivastava.

Lucrative Deals

The volumes at which the government is buying PCs for free distribution are high. This attracts several vendors to these deals. "Given the demand for lakhs of PCs in the free laptop programs, it is obvious for companies like Acer to get serious. The whopping scale is something that cannot be overlooked," says Saji Kumar, director, product management, Acer India. He clearly points at the market share that falls in one's kitty through these deals.

While ELCOT helped Lenovo to stay leader in 2012, HP is poised to move ahead with the UP laptop deal. In addition, the government deals have started flowing in at a time when the global and domestic PC buying trends have touched bottom.

The domestic computer market grew 3.5% to 11 mn units in 2012 compared to the previous year. And even this 3.5% growth was driven by projects such as ELCOT.

"Manifesto buying has revived life into the PC market. And the stakeholders involved in these deals suddenly gain much more than the revenue," shares Vinay Sinha, director and country manager, enterprise business, South Asia, AMD India.

Infusing Confidence

HP will deliver 1.5 mn laptops in a stipulated period of 7 months. This will reinstate its leadership position in the global market. Plus its potential to handle projects of large scale will be recognized throughout.

"As of now, the UP laptop project looks like the biggest ever, though it is yet not clear. Among other things, HP's reputation will grow manifold if it completes the project well in time. Even if it does not gain much in revenue, it will gain market trust and reach," opines Mukherjee.

The trend of free laptops gained impetus after the Tamil Nadu government's move to distribute free laptops. In 2011, the Tamil Nadu government had awarded the contract to 6 vendors for supply of 9,14,000 laptops under the first phase rather than giving it to just one vendor.

Others Deals in the Pipeline

Several states such as Goa, Karnataka, Chattishgarh, are expected to float similar tenders.

The UP and TN projects have given impetus to manifesto buying and opened doors for other political outfits in states like Rajasthan and Goa, where these deals are expected to happen.

"Manifesto buying is going to happen in a big way, post the UP and Tamil Nadu free laptop programs. We were part of the TN project which we successfully completed. Acer looks forward to government deals in other states," shares Kumar.

"So at first glance and even at the second or third, the deal is a political stunt. But the good thing is that this stunt is helping masses and students at the grass root level. Secondly, the stunt is expected to be repeated to gain political mileage in other states. We see further deals coming up in Goa, Odisha, and Jharkhand where polls are yet to take place. In short, manifesto buying is set to take off in a big way," says Sinha of AMD India.

Facts about the Tender

When the tender was first floated, the UP government did not attract any bids for `2,800 crore laptop deal. Then the terms were revised to invite fresh tenders. In the revised tender, the bidders were asked to submit 2 sample laptops each: one with Intel processor and one with AMD processor.

HP bagged the deal beating HCL, Lenovo, and Acer (who quoted `21,983, `23,919 and `25,199, respectively for a single machine).

The biggest factor that helped HP win the deal is the company's capability to supply laptops. "We have a strong supply chain-global and domestic-to meet the demand. The Pant Nagar manufacturing facility in UP has an installed capability of 3.6 lakh," says Srivastava.

The Road Ahead

There is no doubt that the UP deal will help HP to regain its lost crown. Besides, it might infuse a dose of innovation in the market not only in the laptop domain but also in the associated areas. With 1.5 mn laptops, the UP market will open up a world of opportunities for stakeholders like ISVs (internet service providers), application developers, and content providers.

"Laptops rendered to students will rejuvenate the entire market sentiment. It is up to ISVs and content developers how they reap the opportunity," opines Mukherjee.

However, on an election promise, the government's move is set to trigger a number of things. It is on to private stakeholders to further jump in with their innovations that touch the masses and boost the digital inclusion.

The story was first published on www.dqindia.com