Sleepless nights to the Indian hardware industry

At a time when the Rupee’s weakness against the Greenback has spelt relief for the export-oriented software service companies, the local currency is starting to give sleepless nights to the Indian hardware industry.

Driven by escalating inputs costs as a result of the Rupee depreciation, major hardware players such as HP, HCL, LG and Zenith have raised prices between 5 and 12 per cent across various product categories — including PCs, laptops, and peripherals.

“The impact has been bad. Since most of the components that go into manufacturing IT products are imported, the impact has been carried into the product pricing for desktops and notebooks,” says Rajiev Grover, director-consumer products, personal systems group at HP India.

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Adding to the price tag

Simply put, while manufacturers were paying Rs 39 for every dollar worth of imported components (processor, hard disk, optical drive, cabinets, motherboards, and memory products, amongst others) earlier this year, they now have to shell out almost Rs 43.

As a result, HP has already raised the prices for notebooks and desktops by 10-12 per cent. “The rupee is cause of concern for the entire industry today. Component-level manufacturing has not yet taken off in India and locally procured components still constitute a miniscule part of the overall costs,” says Grover, adding if the rupee continues to slide, prices could rise further.

Compounding the problem is the cyclical annual surge in demand for panels globally, which, in turn, is pushing up costs for the product, points out an industry observer. “Globally, the costs rise during this period as this is the beginning of the buying season for panels, which are also used by the consumer durables industry,” he says.

Indian PC maker Zenith Computers has effected a 6-7 per cent hike in product price tags over the last two weeks. “For instance, a Zenith desktop at a certain configuration, which earlier used to cost Rs 16,000, now carries a price tag of Rs 17,000. Overall, the price increase — across product categories — has been anywhere between Rs 500 and Rs 1,000 although we have not seen it hitting the sales volume,” says Raj Saraf, chairman and managing director of Mumbai-based Zenith Computers.

On similar lines, LG Electronics India, earlier this month, announced a price hike owing to the constant escalation of input costs.

The company said the price hike would span categories such as monitors and optical storage devices — the targeted price increase is around 7-10 per cent in a phased manner.

The LCD monitors would have additional impact in market prices. As the customs duty is based on MRP, the dollar appreciation gets further compounded by proportionate increase in duty owing to increased MRP. Additionally, there is an increasing trend of LCD Panel prices. Thus, in LCD monitors, the impact will be a combined effect of dollar appreciation, proportionate duty increase and the Panel price increase, LG said.

Commenting on the price hike, R Manikandan, Business Group Head, Monitors and Optical Storage Devices (OSDs), LG, says a price hike has become imperative for the company due to rise in exchange rate, which spiked significantly in the last one month. “We have already effected a 3.5 per cent hike and this is likely to touch 6 per cent by month end,” Manikandan says.

Enterprise sales unaffected

While most of the players maintain that it is too early to gauge the impact of the move on IT hardware sales, they are quick to say that a slowdown, if at all, will be short-lived.

“The nature of the product is such that consumers do not tend to postpone their buying decisions in the long term as computers are seen as an important productivity tool,” points out Grover of HP.

Agrees Manikandan (LG), says a pricier tag will only be a temporary blip. “The price hike was inevitable. For the PC makers, it was just a question of who blinks first. The market will soon be back on track,” he adds.

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HCL Infosystems — which has increased product prices in the 5-10 per cent range depending on the model — feels the hike will not have any impact on enterprise sales.

“Enterprise buying is a planned expenditure and therefore we do not see a price hike dampening purchase sentiment. There may be some impact on the consumer market, which is more price-sensitive. Here, one may see customers rethinking or putting purchase plans on hold,” says George Paul, executive vice-president, marketing, HCL Infosystems.

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The industry is also optimistic that, going forward, the impact of the price hike on IT products will be offset by the increase in IT usage and rapid technological innovation. “Although the strengthening of the dollar has pushed up input costs, the technological advances in the sector are likely to neutralise the impact over a period of time,” Vinnie Mehta, Executive Director of hardware association Manufacturers’ Association for Information Technology (MAIT), concludes.

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