Forbes/Asia: Booting up in India

FORBES-ASIA

Booting Up in India; Tech companies battle it out for the Indian market.

Elizabeth Corcoran

1141 words

19 June 2006

Forbes Asia

Volume 2 Issue 11

Copyright 2006 Forbes Inc.

Computer makers are betting on the lagging giant being a sweet spot for personal computers. HP is getting a jump.

Suresh Kumar has been selling computers in Bangalore at his shop, Karthik Business Machines, for eight years and he's never had it so good. Situated in a historic building on the bustling Mahatma Gandhi Road, Kumar offers the latest Hewlett-Packard computers, printers and related gear. Two years ago, he sold 50 PCs a month; now he's up to 150--maybe 2,000 for the year.

India is giddy with growth, and both businesses and consumers are using their new-found wealth to snap up computers. As long as the economy keeps up its 7.6% pace, computer makers expect to see India begin to mirror China's voracious appetite for technology. Last year the industry sold only 4.4 million PCs in India, according to market research firm IDC. By contrast, China bought 19 million. But between now and 2010, analysts expect to see India's sales double.

For years, doing business in India was a headache for international technology vendors. In the 1970s, the Indian government made the restrictions on foreign ownership of companies so tight that many firms, including IBM, quit India. As the PC gained steam in the U.S. in the mid-1980s, companies including Wipro--which got its start selling vegetable oil--began selling Intel-based PCs. Even so, until 1999, annual PC sales were well under 1 million units.

The success of India's outsourcing and software business began driving PC demand, heating up other sectors of the Indian economy. Banking, construction, telecommunications and biotechnology are growing strongly. Consumers, determined to provide the best education they can buy for their children, are buying PCs in record numbers. Another powerful kick: In 2004 the Indian government stripped away some historically high tariffs leveled on imported computers.

As a result, India has become a powerful magnet for computer and chip makers. Both Intel and rival chipmaker AMD are jousting to prove their commitment to India. In February an industry-government consortia, SemIndia, announced plans to build the country's first chip-assembly-and-test plant outside Hyderabad, at a cost of $3 billion. AMD has been a key player, pledging to contribute its manufacturing know-how. That deal left Intel scrambling. It subsequently pledged to spend $1 billion over five years to strengthen its research, venture capital and community activities.

Intel has also developed computer-board technology that it is sharing with domestic PC makers including Wipro and HCL aimed at producing sturdy, lower-cost PCs for rural areas. Ashutosh Vaidya, vice president of Wipro's PC division, says that his company began testing the new PC designs with clients in March and expects to make them widely available by the end of the summer. The systems are designed to withstand the rigors of daily life in rural India: temperatures hot enough to fry an egg, dust and intermittent power outages. (The new computers can run for up to six hours after recharging off a car battery.) Vaidya expects the units themselves will cost 3,000 to 4,000 rupees ($65 to $85) more than standard PCs but notes that customers will save money because they will not need to install air conditioning, extra power generators or other equipment just to keep the machines working.

HP, which started a research lab in Bangalore in 2002, is also designing technology for India. In March HP unveiled a "gesture" keyboard--it looks like an electronic slate--that lets people use a digital pen to take notes in Hindi and other scripts. HP has licensed the technology to an Indian-based vendor, which is already selling the items.

Last year HP continued to strengthen its position as India's top PC vendor, extending its lead over HCL. Over 200 retail outlets, such as Karthik's Bangalore store, exclusively carry HP gear; another 1,000 shops carry HP as well as other brands. HP's deep expertise in setting up and running computer systems has also helped it win key corporate accounts. "We believe that to succeed in this marketplace, you need to fire from all cylinders"--the consumer, small business and large enterprise marketplaces--says Doraisamy Balu, managing director of HP India. "For us, all three are growing."

HP began building PCs in India in 1999 in Bangalore and now churns out 50,000 units a month. Along with more than 75 support and service organizations, Balu contends that HP can reach just about any corner of India.

For many Indian customers, starting with banks, that kind of reach makes all the difference. Two years ago, for instance, the Bank of India decided to put computer technology into 900 of its branches throughout India. "We needed a partner with experience in hardware, software, implementation, as well as training in banking and services--and competitive pricing," says D. Krishnamurthy, general manager of information technology for the Bank of India. HP beat 21 other bidders for the ten-year contract. Other banking contracts have followed.

Competition is heating up, however. Acer offers some of the lowest-cost PCs at about 13,000 rupees ($280). (Although there has been much discussion of "10,000 rupee" computers, most industry executives dismiss such machines as much more limited than PCs.) "We expect India to become a key market for Lenovo," says IDC's Ma. He added that Lenovo has been testing some of its latest models in India, including PCs that easily switch from playing games to displaying television.

Lenovo executives say they believe small and medium-size businesses will provide them the greatest opportunities for growth. "We have very localized marketing campaigns," featuring local celebrities as ambassadors for Lenovo products, says Deepak Advani, chief marketing officer.

IBM has continued to build a presence in India, focusing on midsize business and enterprise customers. Even Dell is now showing its commitment to India. Although it employs thousands of people to handle its customer support lines, the world's largest PC vendor has so far imported all its computers into India. In the latest quarter, Dell even lost a bit of its scant market share. That could change next year when Dell plans to open an assembly facility in India. The company has yet to announce the plant's location.

"Part of our success is being here all the time," says HP's Doraisamy. "Customers that were once small have become big"--as has HP.

Gaining Ground
In the most recent quarter HP has widened its market-share edge as the Indian market rapidly grows.
VENDOR          MARKET SHARE
Hewlett-Packard 20.5%
HCL             15.8
Lenovo          7.7
Acer            6.0
Dell            4.4
Others          45.6
Sources: IDC.

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Forbes: A Bad Spell for Dell

A Bad Spell for Dell; Lots of little changes are in store to halt the swoon of this famous model of efficiency.

Elizabeth Corcoran

1767 words

19 June 2006

Volume 177 Issue 13

Lots of little changes are in store to halt the swoon of this famous model of efficiency.

Kevin Rollins had a lot of explaining to do on Friday, May 19. The chief executive of Dell had just announced the company's most disappointing quarterly revenue growth in four years, and its stock had hit yet another 52-week low. Rollins went from a boardroom where he briefed senior managers on plans to regain momentum to leading an hour-long "town hall" meeting called earlier to field employees' questions. Over the course of the day he answered 250 e-mails, including this one from a once disgruntled customer: "Kevin, Thank you for your concern and assistance with my request. I was contacted by the Care Resolution Center, [who] apologized for his team dropping the ball on a response to my inquiries and recommended a satisfactory solution to my problem. My confidence in Dell and product loyalty are strong again."

Rollins has pulled Dell out of jams in the past, but personally solving customers' problems one by one is an impractical way to run a company with sales of $56 billion. Dell has lost $40 billion in market value since last July. Until early May its executives had refused to say publicly what investors knew all along: Dude, you've got a problem.

The law of large numbers has caught up with Dell. Once worshipped for consistent performance, Dell has had seven quarters of declining revenue growth and missed its own revenue predictions in three of the last four quarters. It finally gave up giving quarterly guidance (arguing that its competitors don't do so, either). Its competition is on its back: HP, now nimbler, is gaining share in the U.S. and is improving its profitability. Lenovo continues to gain share in fast growing China.

In Round Rock, Tex. Rollins impatiently waves off criticism. "We're still gaining share, we're still growing faster than our competitors, we're still more profitable by a long shot," he says in an interview. "Still, we're human. We tripped. And we're not happy about that." Dell has grown faster than HP in businesses where it is smaller, such as services--but lost share in its biggest segment, desktop PCs. Although Dell executives are loath to be pinned to a timetable, neither the company nor its founder, Michael Dell, who still holds 9% of its stock, is not known for patience. "I believe the things we're doing now will be successful, and a year from now we'll be able to talk about how they've been successful," Rollins says.

The changes being made are medium-size but manifold. In a first, Dell will abandon its Intel-only policy and begin offering corporate customers high-end servers running microprocessors from Advanced Micro Devices, an option Hewlett-Packard has been offering for years. But more deals with AMD could be down the road.

Dell began cutting prices on PCs and servers in earnest in early spring, but Rollins pledges he won't jeopardize the entire business by setting off a price war. In the last few years, Dell simply got greedy and tried to grow profits and ultimately sacrificed revenue. Now that's changing. In its most recent quarter, Dell's operating (Ebitda) margin sank to 7.7%, while HP's climbed to 10.7%.

"This isn't an excuse for why the margins are down--it's an explanation," Rollins says. "We are going to take [prices] down to ignite growth. So it wasn't a mistake. And we'll stay with it for the foreseeable future."

Rollins is accelerating the construction of a new assembly plant in India, due to be operational by next year. Dell also struck a deal with Google, reportedly worth hundreds of millions of dollars over three years to Dell, to install the search giant's software on nearly every PC. Dell also recently said it will open its first retail stores, in Dallas and New York, where people can configure PCs for delivery a few days later, an idea that the company says has worked well at the 160 kiosks Dell now operates in shopping malls. Retail stores can go either way. They flopped for Gateway but have added sparkle to Apple Computer.

Then there are the big fixes, like improving customer service for U.S. consumers. To save money Dell had moved toll-free service and tech support to India in 2001. Consumers started grousing, but executives downplayed the complaints, pointing out that corporate clients, who provide 85% of Dell's business, were happy. (Dell did shift customer support for business clients back to the U.S. in 2004.) "The consumer business was having some trouble," says Rollins, "but we thought that was in containment."

He got a splash of cold water to the face last November from Dell's own employees. In the semiannual "Tell Dell" survey, workers bluntly signaled they were losing confidence in their leadership. "They felt we might not have been listening enough and that they didn't think we were positioning the company for success," Rollins recalled. "We felt terrible. We thought we could do better."

Late last year Dell hired 2,000 people in its U.S. call centers and stepped up its training programs for 5,000 other reps. The company will spend an additional $100 million this year to improve customer service. It is already seeing some gains, with call-wait times down 50%. "We get it," Rollins says.

Dell has always been at its best when under attack. Alone among PC makers, it grew through the industry slump that began in 2000. It is still extremely profitable. Last year it netted $3.6 billion, to HP's $2.4 billion.

And Dell's efficiency remains tough to match. It takes under an hour to assemble a laptop or desktop PC. This year Rollins wants to whittle down $3 billion in costs without laying off employees, in part by scraping a few dollars off the material costs of every PC.

But Dell no longer has the benefit of an archrival distracted by merger drama. HP now builds laptops in its China plant in under three hours. It is capitalizing on the extensive network of partners it has in Asia, where it was the number two PC vendor last year, with 11.6% of the 41 million units shipped. Dell is third with 8.2%. (Lenovo holds 18% of the market but is in perilous shape outside of China. It snared Dell's Asia boss William Amelio as its new chief executive late last year.)

"HP understands Asia," contends Ann Livermore, an executive vice president at HP. "We've passed our twentieth year in China. We have 4,000 partners in China and 2,000 retail centers," she says. Those partners help introduce HP's newest technology and provide service. In India HP has retail outlets in 100 cities, as well as extensive support and service centers; 200 shops carry only HP's gear. Equally critical: the deep expertise in setting up and running computer systems.

HP brought all those elements into play when the Bank of India was looking for a partner to put computers into 900 branches. "We needed a partner with experience in hardware, software, implementation, as well as training in banking and services--and competitive pricing," says D. Krishnamurthy, general manager of information technology for the Bank of India. HP beat out 21 other bidders and is now two years into the ten-year program, which it is using to showcase its work with Asian banks.

Rollins has been looking for such service deals to help fuel Dell's growth. And for the past few years they have grown: Even in its tough first quarter, Dell's services business rose 28% to $1.4 billion. Dell uses its affordable hardware as its calling card, then offers services along with storage and networking.

Boeing and DaimlerChrysler are leaning on Dell to manage and update thousands of their PCs and printers both in the U.S. and worldwide. TRW Automotive standardized all of its 24,000 PCs in 165 sites using Dell. "We decided that the PC was a commodity and we could get the best price from Dell," says Joseph Drouin, a vice president at TRW Automotive. Dell also put together a service package for TRW that includes software updates and a server network that runs cheap open-source software.

Dell executives say they find plenty of business without channel partners. "Every time we went into a new market, people would say, 'Oh, the direct model won't work,'" says Rosendo Parra, who now heads Dell's Americas group. "When we first went to Japan [in 1991] we actually listened to what the market said. Our initial implementation wasn't a pure, direct model. And we failed," he says. "We actually had to hit the reset button and began to apply the elements of our model."

For consumers Dell's "buy direct" model means you have to place an order over the phone or via the Web. For businesses Dell's "direct" means you get to hear from Dell's sales force and then order PCs off a customized Web page. Direct sales are always the best way to get to know customers, points out Stephen Felice, who now runs Dell's operations in Asia. Even so, if necessary Dell will deliver its products through another company, something that happens to about 20% of Dell's products in China, where Dell has been actively selling since 1998. Felice is trying to reduce that number. "We're adding infrastructure," Felice says. "You won't see cost-cutting here."

Dell managers concede that growth comes hard to giant firms, which is one reason why they might consider splitting the company into autonomous chunks. One possibility is to operate its brands more independently, just as Toyota does with the high-end Lexus and budget-priced Scion. Dell took a step in this direction by acquiring Alienware, which makes expensive PCs for gamers. Dell will leave that brand alone.

Rollins is staying mum about other plans. "Dell is a very dynamic company," Rollins says. "So if anyone says, 'Well, that's not what you said a month ago,' I'll say, 'You're right.' And I'm not going to apologize for that. We'll change things the minute we have new data."

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Column: Gates' World Of Good

Letter From Silicon Valley

06.19.06, 6:00 AM ETBurlingame, Calif. -
So why'd he do it?

Why did Bill Gates decide to walk away from full-time work at Microsoft--the software giant he founded 30 years ago--in favor of a new career as a full-time philanthropist?

Gates himself didn't offer much of an answer last week. Most commentators have been so busy picking apart the strategic implications for Microsoft (relatively minor) that they haven't tried to probe the private motivations of the world's richest man.

But for those of us who have watched Gates redefine himself over the years, there are plenty of clues. No younger upstart pushed him out; after all, Gates is still Microsoft's biggest shareholder and can do anything he wants at the company. Instead, his choice reflects how much his dreams and opportunities have changed in the two main arenas of his life.

Walk around Microsoft's Redmond, Wash., campus, and you can tell right away that you're at a mature, slow-growth company. Huge teams of people worry about how to upgrade long-established products so that existing customers will buy them one more time. There's a dash to the parking lot at quitting time. Employees grumble that the stock isn't going up and that their once-magnificent equity compensation packages have lost their luster.

It didn't used to be this way. When I first visited Microsoft in 1990, engineers and even marketing managers were filled with a change-the-world zeal. I remember one young engineer telling me in awed tones how he felt knowing that the code he wrote could change the lives of people he had never met in places he barely knew existed. He could literally feel power surging from his typing fingers into the world.

OK, so maybe that guy had an exaggerated sense of self-importance. But the Microsofties believed in something bigger than themselves. And Gates, who lived, breathed and slept Microsoft, was the most energized of all.

If you want to find that sort of enthusiasm in the Seattle area today, cross Lake Washington and visit the unmarked gray and glass building that houses the Seattle headquarters of the Bill & Melinda Gates Foundation. There, scores of program officers are running the world's largest private foundation. They talk excitedly about ways to improve education or to battle Third World diseases such as malaria and AIDS.

Their ideas are audacious, teetering right on the edge of genius and possible failure. In philanthropic circles, the Gates crowd is seen as brash--chock-full of a belief that technology will cure the world's problems. And their budget is enormous. Led by the threesome of Gates, his wife, Melinda, and former Microsoft comrade Patty Stonesifer, the foundation is hiring teams of the "smartest" people it can find.

Sound familiar? For Gates, stepping inside this foundation is a lot like turning back the clock to 1990, when Microsoft was young, proud and daring.

At Microsoft, the top job is not about changing the world--it's about reinvigorating the company and sustaining the stock price. That's no place for someone with big dreams.

When Gates has talked over the past couple of years, he has doggedly described the importance of software, how Microsoft is fighting Internet hackers and how it can help make companies more efficient. But his heart hasn't been in it.

Even within internal meetings at Microsoft, people say they see the old Gates passion light up his eyes when he talks about the mind-numbing statistics of mortality due to diseases like diarrhea, tuberculosis and malaria.

But doing good, especially with a lot of money, is surprisingly hard. It's not enough to simply want to do good. You need a plan, a willingness to cope with setbacks, the brains to figure out how to recover when things go awry, and the stomach to deal with misfortune, incompetence and, sometimes, sheer fraud.

Gates believes technology can help save the world--not by handing out computers but by doing hard science to develop new vaccines and by crunching data to understand the supply chain of getting life-saving drugs to remote villages. That makes him unusual in the world of global public health, which typically has been driven by medical workers who started their careers working in rural clinics and ministering to one person at a time.

Gates isn't a one-at-a-time kind of guy (see: "The (Almost) Exit Interview"). Imagination drives great philanthropy--a techno-colored vision of how the world can be a radically different place, writes Mark Dowie in American Foundations: An Investigative History, one of the few hard-hitting books on the subject.

At the Gates Foundation, there are big visions: a world where every child can be vaccinated; where the age-old diseases that cripple developing nations finally can be quashed; and where high-school students everywhere will be excited about school and their opportunities. These ideas are bigger than serving the enterprise. Bigger than software itself.

And this time, the world is probably going to thank Gates.

http://www.forbes.com/home/columnists/2006/06/16/gates-retires-microsoft-cz_ec_0619valleycolumn.html

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Column: Who's Really Running Google?

Letter From Silicon Valley
06.05.06, 6:00 AM ET

This is the first in a series of dispatches from Silicon Valley from Forbes magazine Senior Editor Elizabeth Corcoran.

BURLINGAME, CALIF.--Imagine that the earth's magnetic field flip-flopped: Instead of compass needles pointing north, they'd quiver around the "S."

That's what's happened in Silicon Valley. Since the early 1990s, entrepreneurs and engineers in the Valley have compulsively looked north toward Redmond, Wash., peeking over the shoulder of Microsoft. Writing a business plan? Start by finding out what Microsoft is doing. Dreaming up a product? Better calculate how much time you have before Microsoft makes it part of its operating system.

Now the compass needle has swung south and points to Mountain View, Calif., home of the Googleplex. Microsoft is still around, of course, just like the Grand Canyon. But it's not likely to slink around in the middle of the night and trip you up. Microsoft has become more predictable. Now it's Google that people obsess over; Google that has become the great vacuum cleaner of talent, sucking up all those "really, really smart" people; Google that dreams up dozens of nifty ideas a year and plugs them into its dominant search engine.

In a Microsoft-oriented world, it was easy to figure out who was in charge: First , and later . But who's running Google?

Eric Schmidt, of course, is the chief executive, the guy who cheerfully called himself the "adult supervision" when he signed on. And he puts on a good face for the outside world: "The only way we'll deal with our growth and scale is with a systematic approach to each and every thing we do," he declared at Google's press jamboree in May. The company's focus, Schmidt assured reporters, is really on search. "We have more people working on search than ever before," he said.

But as charming as he is, Schmidt runs Google about as much as much as the Dalai Lama runs the world's spiritual life.

Google hardly has a classic corporate command structure. Instead, Google executives seem to carry themselves with all the authority of an overindulgent parent, constantly worrying about what employees think. Before Google announced that the company would obey the Chinese government by censoring the results of some searches, senior executives knew they'd take heat from human-rights advocates for the decision. They could cope with that. More nerve-wracking, however, confided one senior executive, was what people inside the company would say.

This attitude draws snickers from outsiders. "I've heard that they have a lot of cacophony in the development process. I'm not surprised," deadpanned Microsoft's Ballmer at a recent Silicon Valley gathering. "It's important to have lots of flowers--but important to have coherence, too."

Peek inside the Googleplex, and what you'll see looks more like swarm behavior than a military drill. In many families, everyone has to pitch in and do some grungy work to keep the household running. But at Google, every engineer acts like the favorite child. From a Google employment Web site: "Because great ideas need resources to grow into reality, at Google you'll always get the resources you need to make your dreams a reality." (As my 9-year-old son would say, "Swe-eet!")

According to Peter Norvig, who directs Google research, "We rely on the Lake Wobegon Strategy, which says, 'Only hire candidates who are above the mean of your current employees.' " Managing people who are told from the minute they pick up their ID card that they're probably smarter than their boss is like supervising the wind. Ever think your boss was wrong? Well, if you're smarter than he is, then clearly you must be right. The logical conclusion: Just ignore him.

Once inside the Google tent, engineers are free to spend 20% of their time on projects that they're passionate about. But hey--no one's standing around with a time sheet. Just imagine the conversations:

Google boss: "Hey, how about getting that Google toolbar to work with the next version of Firefox?"

Engineer: "Oh, that." Yawns. "Yeah, I'll get to it. Right now, I'm passionately working on a mash-up that will help you plot a trip to Elvis festivals all over the world!"

Even Schmidt has conceded that the balance between gotta-do's and wanna-do's has gotten a bit out of whack. Google managers recently surveyed their workers and discovered that they weren't quite spending 70% of their time on the company's "core" areas--namely, search and advertising. "So, we're taking steps to encourage people to shift their energy back to that 70%," Schmidt assured reporters.

Schmidt has been through this before, with mixed results. He spent his formative years at Xerox's Xerox Parc, that incubator of brilliant ideas that sadly made only marginal dents in the corporation's bottom line. And at Sun, Schmidt helped promote Java, which turned out to be quite handy for much of the tech world but did little more for the company than provide a cool advertising campaign. By the time Schmidt reached Novell, that company was in dire need of forceful leadership. But oddly enough, all the leadership in the world rarely produces innovation--just better execution of what you already know how to do.

What those experiences have shown, time and again, is that innovation comes from contrarians, from the folks who pick a different path, who could care less about the rules, who aren't good soldiers.

One of Schmidt's great strengths is that he accepts that fact. As a result, he has defined his job not so much as leading Google but as running interference for it--placating the investment community, soothing nervous regulators and policymakers and doing whatever it takes to create a magical force field protecting Googleteers, so they can follow their instincts and invent new stuff.

The Internet, Schmidt has said, turns power relationships upside down. That's true inside the ultimate Internet company--Google--as well as out on the raw and woolly Web. As long as the masses are running Google, innovation will flourish. When management forcefully steps in, the pace of change will slow.

So, no, Schmidt isn't in charge--and for that, we should all thank him.

http://www.forbes.com/2006/06/02/internet-microsoft-google_cz_ec_0605valleyletter_print.html
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