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HCL to freeze investment in hardware business

Piyali Mandal  |  New Delhi 

HCL Infosystems has said it will not make any new investment in its computing hardware business, as it wants to focus on growth engines such as services, learning and multi-brand distribution.

One of the few Indian personal computer (PC) makers, it is trying to turn its fortunes by betting highly on higher margin businesses. "We will wait and watch...we are not making any fresh investments now," Harsh Chitale, chief executive officer, told Business Standard while discussing his plans for the computing hardware business.

After the company saw profit erosion in the computing business in the first two quarters of 2011-12 due to foreign currency fluctuation and floods in Thailand, there was a buzz that HCL Info might altogether exit the hardware business. According to a research analyst from Sushil Financial Consultants, "For long, HCL Info has been indicating they will move away from low-margin businesses to the services business. Their dependence on low-margin business is almost 90 per cent."

Chitale, however, said the company had no plan to exit the hardware business. "If there is a segment where we are not able to operate in the current volatile situation, we may decide not to operate there and look somewhere else. But, we are not exiting any segment," he said.

About the hardware business, Chitale said it had bagged an order worth Rs 250 crore from the Tamil Nadu government to provide laptops to state-aided schools and colleges across the state, "which shows we are not exiting it".

The company has been manufacturing personal computers, both desktops and laptops, netbooks and tablet PCs. The laptops and tablets are sold under the brand name 'Me', and 'Ezeebee' is the brand name of the desktops. Lately, PC manufacturers have been facing a tough time due to short supply of hard disk drives.

HCL has been reporting a dip in profit over the past four quarters. It had a 56.6 per cent decline in net profit at Rs 23 crore for the quarter ended March, 31. It reported a profit of Rs 53 crore in the corresponding period last quarter.

The company is also opening its telecom distribution business, earlier exclusively used for distributing Nokia handsets. Apart from Nokia phones and accessories, it is now distributing non-mobile brands such as Sandisk, Kodak, Apple iPOD, Hitachi Projectors and TVs, Kingston and Toshiba.

The telecommunications business accounts for 66 per cent of HCL Info's revenue. The business includes telecom distribution, office automation and digital entertainment. Of this business, 55 per cent comes from telecom distribution. Computer systems and other related products and services business account for 33.6 per cent of overall revenue.

"The Nokia handset distribution business contributes 67 per cent towards the revenues of HCL Infosystems. Nokia was losing market share in India, so that business was not generating revenues. Though it has not impacted HCL Info's bottomline much, the margins have started depleting quarter-on-quarter," said a Mumbai-based analyst tracking the company.

The company has also decided to use its current network of service centres to service Blackberry, Samsung, the printers of Dell and others."We are using our existing network of service centres (for Nokia) for servicing other mobile brands. However, we are not distributing any other mobile phone brand because of our exclusive tie-up with Nokia," said Chitale.


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First Published: Mon, May 14 2012. 00:22 IST