Networking Equipment: A Lukewarm Year   

The year 2000-01 was not a good year for the networking industry as

networking deployments slowed down considerably. The market grew only 53.7

percent in the last fiscal as opposed to 88 percent in the previous fiscal. The

main reason for the slowdown was the lull in activity in the service provider

segment. ISPs and new communications service providers, which were expected to

sink in large investments into laying major networks and expanding their current

backbone, did not generate enough business during the year to meet the lofty

projections made by companies from this segment. If there was anything that

brought the much-needed succor to the industry, it was banks. Both multinational

and Indian banks left a fine imprint connecting their branches and setting up

ATMs all over the place. The other financial institutions, among them the

regulator and the stock exchanges too, contributed to the impressive networking

drive in the financial sector.

LAN Trends

The LAN market has matured in the past five years growing at a CAGR of 32

percent. The LAN segment, which includes NICs, hubs, LAN switches and structured

cabling, registered a turnover of Rs 931 crore during 2000-01. LANs are clearly

abandoning shared architecture, with switches replacing hubs. In the switch

segment, one can see Ethernet consolidating its position as the most-preferred

technology. ATM, which used to be an occasional choice for campus LANs, seemed

to have lost its attractiveness in the face of the popularity of Gigabit

Ethernet. There was a lot of action in the high-end switching arena, with the

entry of intelligent switching.

Almost all the major Layer 3 and Layer 4-7 switching majors made their

presence felt, directly or indirectly. To name the prominent ones, Alteon came

into focus with its acquisition by Nortel Networks, Cisco Systems began talking

of Arrowpoint, f5 opened office, Extreme was getting to be known through MRO-Tek,

and Foundry Networks was just round the corner through Magnum Connect. A market

for such products developed among the nascent market of IDCs and the

traditionally strong deployer of networks–the financial institutions. These

two user segments along with call centers dominated the LAN implementations

during FY 2000-01.

When it came to cabling, enhanced CAT5 solutions was the choice of the middle

and the upper segments of the market while intensive users in sectors like

software took to Proposed CAT6 solutions more favorably. Clearly, Gigabit speeds

were becoming the norm of the day in LANs, with most companies at least having

an upgrade to 1,000 Mbps, as part of their middle to long-term strategy.

WAN Trends

Two distinct markets have developed for WAN solutions–the service provider

market and the enterprises. The service provider market comprised of large

telecom service operators–wireline and wireless. In India, the customers that

can be categorized into this segment are BSNL, MTNL, VSNL, private basic

operators, cellular operators, and large ISPs, to some extent. However, this

sector is to open up even further with the entry of newer players in the form of

additional licensees for existing services and new licensees for new telecom

services, such as DLD services, IPI and IPII.

The other market for WAN solutions is enterprises. In India, this includes

mainly large financial institutions, multi-plant/office manufacturing

corporations, multinationals and software exporters. These enterprises set up

their Closed User Group networks based either on dedicated leased lines or VSATs.

They also got connected through the Internet.

Actually, the two segments do not have an exactly drawn line. Solutions for

the two segments are loosely defined as carrier-class products and enterprise

products. But, carrier class products can be used by enterprises while the

reverse is also true.

While packet-based solutions are established in the enterprise segment, the

last few years, including the last fiscal, have been a debuting phase for

packet-based technologies in the Indian communications service provider segment.

The segment has been traditionally dominated by circuit switch-based exchanges

and transmission equipment. In the service provider scenario, it has been the

core of the network–the transmission layer–that has driven communications

service providers to look at packetization. The promise was that of a network

that will use new packet technologies to create a converged network that could

provide multiple multimedia services.

This new network, however, remained more of a hype than reality during the

last fiscal. Of all the service providers in India, it was just VSNL, which

invested, in a true ‘carrier-class’ router. The deployments that were to

ensue from the new long-distance players and companies laying optical fiber, did

not materialize beyond ducting and the initial blowing of fiber.

On the access side, it was mainly for the Internet access provisioning and

leased line services that packet-based products such as IP routers, ATM

switches, Frame Relay access devices, and Remote Access Servers (RAS)...? The

last was the most deployed among. Due to an explosion in the ISP market during

the previous fiscal, there has been extensive implementation of RAS for Internet

access. This trend continued despite a poor climate for service providers,

especially ISPs.

On the enterprise side, however, wide area networking looked up mainly due to

a decrease in leased line tariffs. There were massive WAN implementations by the

financial sector while the ISP industry (which was a major user of ‘enterprise-class’

routers and leased line modems) disappointed. The drop in leased line prices

also meant that the wireless segment felt a pinch in its prospects. The VSAT

equipment industry especially suffered on account of this.

Networking Products Distribution

The distribution market for networking products, which was mainly worth Rs

687 crore during 2000-01, mainly comprised switches, structured cabling, modems,

routers, NICs and hubs. Falling margins in computer hardware and peripheral

business pushed many companies to look at distributing networking products apart

from their traditional IT business. The competition among these companies was on

two parameters–size and quality of channel network, and competencies like

niche expertise and local manufacturing set-up.

Major Areas of Opportunity

• The financial sector is surely where one’s money ought
  
  to be firmly put. This conclusion is based on the previous year’s trend
  
  and some clear signs for the future. It was this sector that contributed
  
  more than a third of the networking industry’s sales during the last
  
  fiscal. And it is a fact that a large number of the projects that were
  
  implemented during the previous year are of an ongoing nature–many of
  
  which are to be extended this year. Also, this year’s budget has set the
  
  tone for this sector. It clearly spells out a decree to Indian banks to get
  
  their networking agendas and infrastructure in place.

• The government-owned BSNL is likely to spend huge amounts
  
  of money to expand its telecom network for more subscribers. In addition to
  
  this, it has been mandated to usher in a new set of services in both cities
  
  and towns. These services include wireless services like VPTs, WiLL,
  
  cellular and Internet. BSNL is also likely to upgrade the existing
  
  transmission links using new transmission technologies like DWDM and SDH.
  
  All this calls for huge investments.

• Private telecom companies are slowly rearing their heads.
  
  The year 2000-01 was the year of cabling. This year, one of lighting-up the
  
  fiber–the new network implementations are all set to happen this year.
  
  Though one cannot exactly predict the extent of deployment, the potential
  
  players are at least a handful. If this happens, there would certainly be a
  
  windfall in the service provider equipment segment.

• Government spending is another opportunity that companies need to watch
  
  out for. In light of the major slowdown in the overall economy, the
  
  government is under major pressure to spell out major infrastructure
  
  initiatives to reinvigorate the economy. Communications is likely to be a
  
  major thrust for the government.