India: Now It's Hardware's Turn

Long a software dynamo, the country is powering up PC makers

Think Asian software, and India springs to mind. Think hardware, though, and it's China, Japan, Korea, or Taiwan -- just about anywhere but India. The country's manufacturers of all kinds of tech gear totted up just $1.25 billion in export earnings last year, compared with $15 billion in software exports.

Hardware, though, is beginning to catch up. Thanks to reduced tariffs, a surging economy, and all those software writers and outsourcers setting up shop, sales of electronics gear such as PCs, cell phones, and servers last year surged by 19%, to $5 billion. By 2010 the local industry could see $62 billion in sales, including $25 billion in exports, according to a report by consultants Ernst & Young and the Manufacturers' Association for Information Technology (MAIT), a hardware industry group. Spurring the growth: a January decree cutting tariffs on electronic components from 20% to zero, and halving levies on finished products, to 19%. The cuts are "leading to substantial growth in local consumption," says Vinnie Mehta, executive director of MAIT. Another stimulus: a continuing $3 billion project to computerize nearly every corner of the government bureaucracy, from pension funds and state-owned banks to tax offices and driver's license bureaus.

Falling prices are fueling demand for PCs. The average price of a computer has dropped to $500, down from $1,100 in 1997, according to MAIT. Last year, Indians bought 3 million PCs, up 50% from 2002, and MAIT predicts another 50% jump this year. A top-seller has been HCL Infosystems Ltd.'s Linux-based EzeeBee, a robust $300 machine that has sold nearly 25,000 units since its launch in January. "I dream of a computer in every home, and with the tariff cuts it's possible," says Ajai Chowdhry, chairman of HCL, India's No. 2 PC maker.

BY LEAPS AND BOUNDS. The surging demand for PCs has given a boost to component and peripheral makers. Consumer-electronics giant Samsung Electronics Co. is upping production of PC monitors in India this year by 20%, to 1.8 million units. TVS Electronics, a Madras maker of PC power supplies, expects its sales to grow by 40% this year and plans to double its workforce, to 800. Singapore's Kobian Pte. Ltd, a maker of motherboards and graphics cards, two years ago opened an assembly plant north of Bombay. And contract manufacturer Flextronics International Ltd. is expanding its Indian operations, which make set-top boxes for local cable companies and is adding facilities for making cell-phone components. "After China, India is one of the most exciting markets for us," says Anurag Bhardwaj, Flextronics' vice-president for business development.

Even some big PC makers are stepping in. Virtually all the PCs sold in India by market leader Hewlett-Packard Co., for instance, are made in the country. After seeing sales surge 75% last year, to 261,000 units, the company is planning to add a third shift at its Bangalore plant. And No. 3 IBM made the 169,000 PCs it sold in India last year at a recently expanded plant in Pondicherry.

One thing that's not likely to take off anytime soon, though, is exports. Despite the expansion at the component makers, India still lacks the critical mass of suppliers that PC manufacturers typically prefer. And India's lousy roads and ports don't come close to those of archrival China. "No one is looking at India as an export base, because of poor infrastructure," says Sameer Kochar of Skoch Consulting, a Delhi technology adviser.

Indian hardware? It remains far behind software. But if the country wants to be a true technology dynamo, it will need to show what it can do in both sectors. Now, hardware is finally starting to pull its own weight.

By Manjeet Kripalani in Bombay

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