Shailendra Katyal
Credit: DH Pool
Lenovo is the largest maker of personal computers and laptops in the world by sales, and the second largest in India. It is now also betting big on servers for artificial intelligence (AI), and will start manufacturing of the same at its Puducherry plant. In a conversation with DH's Sonal Choudhary and Arup Roychoudhury, Lenovo India managing director Shailendra Katyal elaborated on the company’s future plans, the current market conditions, and how the education sector remains under-digitized. Edited excerpts:
How is the demand scenario playing out four years since the pandemic?
The first half of the year (FY25) has been reasonably strong. Covid was a disruptive period. The demand was high but supply chains were hit. After that the market did go down temporarily but has recovered. Right now, there is the sunset for Windows 10, which will go off support and that will impact enterprise laptops and PCs. So there was the Covid refresh, the incoming Windows 11 refresh, and also AI.
Overall demand looks okay globally. On the India side, given that we have a stable government, there is policy clarity and stability, there is PLI, the currency has also been stable. Some supply chain challenges continue because of geopolitical events. But by and large, we are very optimistic and we should end FY25 strongly. Our server business is also growing rapidly and we are excited about the AI use cases that are coming through.
What are your plans to increase market share?
We are reasonably strong, and sales are also cyclical. Mega deals swing the market share a lot. As a company, when we break down the market, there is the public or government buying, which would be a large deal component, and then there is the very large enterprises and the education sector. In the VLE and private education, we have a good presence, and these are addressable markets for us. The government market is something which has not been strong for us, because of the land border clause in the general financial rules of the government, which governs procurement. We have applied under that clause and are awaiting approval. We are supporting the PLI scheme, Make in India, we are bringing high-end design jobs here. But overall addressable market in India, we remain the number two brand.
How has the penetration been in rural sector? One assumes most of the users will come from laptop schemes by various state governments.
Penetration has always been small. If you look at it from a use-case scenario, laptops are first required for education, and then for work. Whether at home or school, penetration is low. The high-end private schools assume that the students have laptops or computers at home, so don’t invest as much. In government schools and rural areas, the priority is teacher shortage, so computer shortage is a secondary issue for them. No single player can improve this low penetration alone. The ecosystem has to come together to solve this, the government has to promote classroom digitisation. The new education policy talks about it, but action has to be seen.
The suggestion that we have given is that why can’t we create a categorization of PCs and laptops for students, to be used for educational purposes, and either make that GST exempt or lower the rate from the current 18%. That will help the market expand.
How is the demand in tier 2, 3, 4 cities, in terms of PCs and laptops?
Penetration has always been higher, around 50- 60% in the big cities, it's at the level of mature markets. People in Bangalore, Delhi and Bombay own 2- 3 PCs also. As we move down to the top 100 towns, which have 10 lakh plus population, it will drop to the 20% and in rural, it's less than 5% or nil at times. That's how the weighted average comes to about 15% for India. So it's grown in tier 2, tier 3 also and we are constantly trying to bring more affordable options to help penetration. However, the size of the problem is vast - a 3 crore installed base versus a 25 crore learning population which brands can't do alone. It requires a regulatory policy, ecosystem and government support.
While 35% of your India demand is met from the Puducherry plant, where is the rest of the demand met from?
We have eight plants across the world with the largest ones in China, but we are very flexible. We cater to our customers needs, if anyone wants a ‘Make in India’ box, we give it to them. If someone wants from our manufacturing plant in Mexico, we provide that too. As a global company, we look at the global supply chain. We have so many manufacturing locations that we are not constrained. Puducherry used to make less than half a million units. After the Make in India push, we took it up to a million units and now it’ll reach a level of almost 1.2 million.
We can't get production-linked incentive (PLI) benefits in Puducherry because it’s an old plant. So, last year when we made the announcement of PLI 2.0 participation through Dixon through which we can balance out capacity. We are also giving one space for server manufacturing in the same plant.
Are you in talks with other states for establishing another plant to expand capacity?
There is enough space available in Puducherry for the server piece and for PC, the ecosystem is already in place. So, right now, if we are expanding to other states, it's through original design manufacturers (ODMs), not through our own factory. Our own factory will continue to leverage Puducherry and we are leveraging India as a hub. So, a lot of shared services and design jobs are moving here. We have enough money coming in as an investment to use for whatever we need to support growth in the Indian market and it will only increase. We are known as a PC company, and in the next few years, you will see us as an integrated tech solutions company.