Personal computer (PC) maker Lenovo is planning to start manufacturing servers locally to support its data centre business, leveraging the Production-Linked Incentive (PLI) scheme for IT hardware.
The company considers India a "top priority" international market and wants to use it as a manufacturing hub to export to other markets for its PCs and smartphones. It also wants to export solution-based services from India, leveraging local IT talent.
"We have 35 manufacturing sites around nine countries in the world, India being one of them. We are constantly looking at ways to swizzle that dynamic, whether it's for economic reasons, logistics reasons, or sustainability reasons, to try to ensure that we're building products closest to customers," Matthew Zielinski, President of International Markets at Lenovo, said at the sidelines of the company's annual tech event in New Delhi.
Lenovo, which has three manufacturing sites in India that make PCs and smartphones, is ramping up its capacity to drive exports to newer geographies. It exported around a million Motorola-branded smartphones from India in 2023 to other markets, including North America.
"We want to utilise India's broader manufacturing sites to continue to export products throughout the world," he said.
Vladimir Rozanovich, President of the Infrastructure Solutions Group at Lenovo, said the company aims to double its $10 billion data centre business growth globally. "India becomes a very important partner for us from a manufacturing standpoint when we look at the entire Asian market."
Rozanovich said that it is currently exploring options between using existing facilities or forming a new manufacturing partnership to start the local production of its servers.
"There's so much data centre-type business that goes on here (India)...over the next few years, we need to ramp up our manufacturing capabilities around data centre products, specifically high-end GPU-related products," he added.
Starting November 1, 2023, India has implemented an import management system for IT hardware products, allowing companies to import products such as laptops, tablets, all-in-one personal computers, and servers without any restrictions for a year. However, after November 1, 2024, imports will be restricted each year in a staggered way. This system has been designed to provide companies that do not manufacture these products in India with sufficient time to develop local manufacturing capabilities.
Lenovo is a part of India’s revised PLI scheme for IT hardware.
Local sourcing of components
The company is also ramping up its "localisation" efforts by sourcing components for PCs and smartphones from local vendors.
Amar Babu, President of Asia Pacific at Lenovo, said that the company has a "clear plan" to double the localisation content for its smartphones in the next couple of years. "We are also looking at working with the industry bodies and the government to see how we can develop the ecosystem, especially for PCs."
Babu said that the component ecosystem for PCs and laptops has yet to develop in India, but more component companies are looking to start local manufacturing. "We want to be participating here…we will have to look at all of these as part of our manufacturing strategy in India."
Lenovo now complies with India's preferential market access guidelines (PMA) and recently launched its PMA-complaint desktops. To participate in government procurement, 50 percent of the components must be locally sourced.
“We are one of the first vendors to localise motherboard production in India. We are in the initial stages of discussion and working with the government to see whether we can participate in that business,” Babu said.
Growth in India’s PC market
India's contribution to the global PC market has increased in the last two years. India's PC market hovers around 14-15 million units annually and is now bigger than Japan in terms of the total addressable market, Shailendra Katyal, Lenovo's India Managing Director, said, adding that home penetration, which currently stands at 10-12 percent, will drive sales of PCs, going forward.
“The Indian PC market has been an outlier in the global context, with shipments sharply higher than pre-COVID levels,” Katyal said.
Lenovo was the second-largest PC maker in the July-September period of 2023, with a 17 per cent market share, as per IDC. HP Inc. led the market with a share of 29.4 percent.
Lenovo also expects Artificial Intelligence-enabled PCs to drive its overall sales globally, including in India. Katyal said AI will trigger demand in the country's commercial and gaming PC segments.
The company is in talks with independent software developers and larger organisations in the retail and manufacturing space to create specific AI-based users in India, Katyal said, adding that enterprises are waiting for AI to mature, resulting in a slowdown in PC uptake.
“No CIO or CTO want to sign off on a big asset refresh and then be saddled with inventory that is not AI-ready, which is where the hope is that in the second half, even the commercial demand should pick up,” he said.
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