Wipro is shutting down its hardware manufacturing business because it offers no competitive advantage. Its decision comes just weeks after fellow market player, HCL Infosystem, made the same move.
The Indian IT services firm said it evaluated the "changing market scenario and customer needs" and decided it would no longer build Wipro-branded desktops, laptops, and servers, including the SuperGenuis line of PCs and NetPower servers. It would now look to beef up its footprint as a systems integrator and increase its focus on IT services.
"Our vision is to strengthen our position as a leading systems integrator [and] manufacturing our own PCs was not giving us a competitive differentiation in our systems integration offering," Soumitro Ghosh, senior vice president and head of Wipro Infotech, the company's manufacturing and IT services arm, said in a filing to the Bombay Stock Exchange.
Currently India's third-largest IT services vendor, Wipro began its hardware business in 1982 but its market share in the PC market had dropped in recent years to just 2.5 percent. Enterprise-wide, it clocked revenues totaling US$7.95 billion for the year ended March 31, 2013, employs 145,000 worldwide, and operates 72 delivery centers across the globe. Employees affected by the latest decision will be redeployed within the company, Wipro said in its filing.
Over the years, the company's PC business could no longer keep up with changing market conditions and customer demand. Raghavendra Prakash, Wipro's general manager and business head for systems and technology, said: "It turned out to be a commoditized business losing differentiation. It was not a critical link in the IT strategy any more. We were a profitable product, but there was no differentiation between one PC to the other except for the branding."
Exit should have come earlier
According to a Forrester Research analyst, the move should have come much sooner. In an e-mail to ZDNet, the research firm's vice president and country manager for India, Manish Bahl, said: "Wipro should have taken this decision long ago when IBM decided to exit from the PC business, which gave a clear market direction that the future will be in software and services. Also, the lack of Indian government support to encourage technology hardware industry in the country was an indication enough that PC manufacturing will never be a high margin business for players.
"Wipro could have leveraged the lost time and resources in innovation and developing next-generation software and services business model from growth perspective," Bahl said. "The late exit from the PC business will not give any significant advantage to Wipro on software and services, but will likely create a short-to-medium term positive impact on company’s balance sheet."
According to a report in The Times of India, Wipro's hardware business saw margins of just 4 percent compared to 20 percent for its IT services unit. The company said it would honor warranty and annual maintenance contract obligations, and continue to provide support services to the current installed user base affected by the move.
The decision comes just weeks after HCL Infosystems also exited the PC manufacturing business to focus on IT services and hardware distribution. In January, it had announced plans to spin off its hardware, leaning, and services businesses into separate business units to achieve a learner corporate structure and improve operational efficiency.
Harsh Chitale, CEO and director of HCL Infosystems, said last month in a report by The Hindu: "Manufacturing of PC is becoming less and less a part of our business. It is not our focus for future at all.
"The hardware manufacturing story has definitely struggled, and there is no cost and competitive advantage today in manufacturing hardware in our country. Rather, we will do what we are good at. We are definitely going to continue to be a dominant distributor of PCs," Chitale said. Over 50 percent of the company's revenues come from distributing PC and mobile phones for customers such as Dell, Lenovo, and Nokia.