PC makers shy away from govt contracts as rupee slides

The depreciating rupee is taking a toll on the enthusiasm of the personal computer (PC) makers who are actively participating in many of the government contracts in various state and national level projects.

Owing to the steep fall of rupee against the dollar and their inability to convince the government to relook at the rate cards which thay had quoted while bidding for the projects, many of the leading PC vendors including Dell, Acer and HCL are considering to shy away from government contracts. Rather, they are preferring to focus on corporations who are willing to revise the rates owing to the increase in the material cost.

“If we find that the government or government bodies are not taking cognisance of the forex rates, our enthusiasm in participating in their contracts will be muted,” said S Rajendran, chief marketing officer, Acer India.

“Given the tough times we are going through, we may up focus on some particular segments and be slightly muted in some others. This is a kind of mid-course moderation, although we are not changing our strategy completely,” he added.

Acer India decided to increase its focus on segments like companies and retail consumer.

During its earnings call recently, Dell had said the company did not participate in a government order for supply of 900,000 laptops as it would have squeezed its rofit margin. “We chose not to participate because it was not a part of the strategy. There has to be a balance between revenue growth and margins, and we will focus on sustainable growth,” said Amit Midha, president (APJ), Dell.

According to industry players, by the time the PC vendors quote rates for a contract to the time when it is executed, there is a gap of 6-12 months. If a PC vendor quoted a rate when the rupee was trading at 45 against a dollar, and the project was getting implemented at a time when it is trading at 56, the import cost goes up substantially. And this in turn affects profitability.

“Typically, in case of government contracts, most of the PC vendors operate in a narrow profit band. Because of the steep depreciation of the rupee against the dollar, it is now becoming very difficult for these companies to keep their operating profit and the bottomline was getting severely impacted,” said Vishal Tripathi, principal research analyst, Gartner India.

This is the reason why most of the PC vendors who were given the letter of acceptance for the supply of laptops for the Tamil Nadu government contract were dilly-dallying to execute it. The free laptop programme to students in Tamil nadu involves the supply of 6.8 million laptops to students in the next five years, including 912,000-odd laptops in the first phase. The total size of the project is estimated to be about Rs 10,200 crore.

Industry body Manufacturers’ Association for Information Technology (MAIT) decided to raise the issue of PC manufacturers at various platforms.

“Government contracts are time-bound and long-term, and are locked-in without the possibility of re-examination. In a situation where the currency is fluctuating, it is not possible for the suppliers to revise the rates. As an industry body, we are requesting the government to consider a realistic approach and allow the vendors to re-examine the rate if rupee depreciates more than three per cent,” said Alok Bhadwaj, president, MAIT.

He said the operating profit in PC business was about three per cent. “It is not possible for companies to absorb this kind of hit.”

The IT hardware market in India is estimated to be about Rs 70,000 crore, of which personal computers market accounts for about 42 per cent.