New Delhi: HCL Infosystems Ltd, India’s homegrown hardware and software solutions provider, on Friday reported a 5% growth in its net profit to Rs88 crore for its third quarter ended 31 March 2007, compared with Rs84 crore in the year-ago period. Revenues declined 8% to Rs2,954 this quarter from Rs3,213 crore in the same quarter last year.
“Revenues are expected to remain flat until the next quarter due to the restructuring of our Nokia business. After our last quarter ending June, revenues will begin to pick up,” said Sandeep Kanwar, chief financial officer, HCL Infosystems.
Till a year ago, HCL Infosystems was the exclusive distributor of Nokia handsets in India. However, the two companues have now restructured the agreement to jointly and equally distribute Nokia products in the country. Addressing the tier II and tier III cities as well as the large Nokia mobile market are the reasons that Kanwar gave for the 50:50 distribution arrangement with Nokia. Net revenues from its computer systems business was at Rs680 crore for the third quarter, while its telecommunications and office automation business generated sales of Rs2,226 crore.
But analysts said there was more to it than met the eye. The company is facing a tough time since early last year due to its dropping market share in the desktop market and its inability to keep pace with the competition, particularly close rival Hewlett-Packard (H-P), which has dented HCL’s price warrior image.
According to research firm Gartner’s estimates, in the first three months of this calendar year, HCL Infosystems’s PC sales dropped 14% over the same period last year. While in the first quarter of 2006, HCL—with desktop sales at 1.93 lakh units—was ahead of H-P’s sales at 1.91 lakh units, its was overtaken by the latter from the second quarter of the last calendar year onwards.
“Earlier, HCL had a low-price advantage as its products were cheaper than other vendors. With their (competitors) prices also having come on par with HCL, the company is losing its consumers,” said Diptarup Chakraborti, principal analyst at Gartner’s Mumbai office. He said the January-March quarter is generally the best quarter for PC sales because the government as well as enterprises are on a major buying spree.
“That HCL has not been able to perform well even in its best quarter gives an indication of what the coming quarters hold. They will be rapidly losing their market share to H-P,” Chakraborti said.