Small and medium businesses (1-999 employees) in India are on track to invest about US $4 billion on computer hardware this year. Last year, overall SMB investments on hardware in India grew 20% to cross the US$3 billion mark, according to a study by New York based Access Markets International (AMI) Partners, Inc.

Last year, notebook PC spending grew at 43% among Indian SMBs. Aggressive pricing by vendors has narrowed the price gap between desktops and notebooks, and the availability of wireless technology has resulted in the mobile computing boom. Desktops however remain the staring point for less IT-savvy small businesses (SBs, or companies with up to 99 staff). However, unlike in the past, adoption now centers on branded computers.

“SMBs are looking beyond the price tag and giving increased weightage to hassle-free maintenance,” says Partha Sarathi Sengupta, Senior Analyst at AMI-Partners. “Vendors such as Hewlett-Packard and IBM who are the market leaders have facilitated the growth of branded desktop market by drastically lowering prices and providing excellent after-sales support.”

Last year, second and third tier cities in India witnessed a tremendous surge in notebook PC growth due to the extensive coverage of vendors’ sales network and aggressive marketing strategies. HP maintained its lead in the SMB space due to its excellent distribution network and efficient after-sales service. Dell and Lenovo emerged as strong contenders in the race for notebook PC market share. Lenovo initially did not have significant brand awareness among SMBs but after its acquisition of IBM’s PC division, it’s established a significant presence.

“Many SBs who previously did not own any PCs, have now begun to build their IT infrastructure by purchasing notebooks straightaway,” Mr. Sengupta says. “On the other hand, many of the larger medium businesses (MBs, or companies between 100 and 999 staff) are replacing desktops with notebooks. Their notebook PC purchases are not simply additional hardware. Larger MBs have more mobile & telecommuting employees and consequently value the benefits of portability.”

Server usage has yet to take off in the SB space. Assembled servers dominate the SB landscape with a significant proportion being white boxes. SBs prefer to buy lower cost assembled servers which are regularly serviced by the local computer stores. In the MB segment, data processing, data storage and faster accessibility are of greater importance.

“Branded servers enjoy far more widespread usage among India’s MBs,” Mr. Sengupta says. “HP and IBM were the market leaders in the Indian MBs segment, we expect server spending to grow exponentially over the next three years. SMB expenditures are set to grow at a CAGR of about 30% over the next three years. Advances in 64-bit, dual-core, and virtualization technologies will also result in increased momentum in server market growth.”