Hardware's Rs 75,000 Crore Opportunity

India wakes up to the very real hardware manufacturing boom engendered by a large domestic market.

Business Today, Feb 29, 2004
By Vidya Viswanathan
Additional reporting by Venkatesha Babu and Vandana Gombar

Sarish Verma wants to build PC monitors in India. No, the 38-year-old who has worked with HCL and American Express in India and the US isn't a crank, although there are enough of the we-have-invented-the-perpetual-motion-engine types around. Verma is earnest and is now busy persuading venture capitalists that there is a future for monitor manufacturing in India.

The man hasn't lost his head. The Indian hardware industry is on a roll, and hardware manufacturing, once written off as unviable, is making a comeback. Numbers provided by Manufacturer's Association of Information Technology show that some 3 million PCs will be sold in 2003-04. And Delhi-based information technology research firm Skoch Consulting expects the market to grow by 50 per cent in 2004. Sanguine execs are already looking at numbers of a far higher magnitude. "There are 170 million PCs sold every year and 20 million of these sell in China," says Ravi Pradhan, an IIT Madras alum who spent over two decades in IBM's PC division in the US, and who now heads the Indian operations of chipmaker Via Technology. "That is the kind of market we are looking at."

It isn't just PCs. Last year, India's mobile telephony companies added 17.5 million subscribers to an existing base of 11.1 million. Even assuming 10 per cent of existing customers change their handsets (read: phones), that's a whopping 18.6 million new phones sold. This year, the corresponding number is likely to be 36 million, volumes at which local manufacturing begins to look conspicuously attractive to phone-makers.

Personal computers and cellular handsets are at the bottom of the hardware hierarchy. Like most other class structures, however, this one is a pyramid, implying that the base contributes the most volume. The emergence of a large domestic market for TVs and mobile phones, then, fosters conditions conducive to domestic manufacture. Once that happens, products higher up in the hierarchy (they sell relatively lower volumes) can be easily manufactured.

Circa, early 2004, India seems to be at this point of inflection. The icing on the cake is the imminent opportunity in set top boxes once the Conditional Access Service (CAS) regime in cable television kicks in-and kick in it will despite roadblocks. That's some 50 million set-top units that will be sold over the next five years. Then here are UPSEs, printers, telecom and networking equipment, digital cameras, medical equipment, even niche products like ATMs, leave alone hardware opportunities in white goods, consumer electronics, and automobiles. Gopal Srinivasan, the CEO of TVS Electronics, is understandably buoyant. "It isn't a question of opportunity here," he says. "It is a question of being able to execute; companies in this space should grow at least two to three times." The number he puts to the "hardware manufacturing opportunity" in India over the next three years: Rs 55,000 crore. That's manufacturing cost. Market researcher IDC, known for its conservative numbers, estimates that the corresponding market-value estimate (for PCs, servers, hand-held devices, traditional workstations, storage, peripherals, and data communication equipment) is Rs 75,000 crore. We'll say that again: Rs 75,000 crore or over $15 billion at today's exchange rate. For the record, India's software exports in 2003-04 are expected to be $12.2 billion.

Noida-based iPolicy Networks, for instance, plans to start manufacturing its internet security boxes soon.

"In four-to-five years, there will be more (such) products," says Ashok Jhunjhunwala, a professor at IIT Madras, who is the moving force behind an incubation engine called Tenet Group. "We ourselves will make a few announcements in the next two months."