Enterprise Equipment: Switch: Gaining Momentum

The Indian switch market has changed with wide adoption of world-class IT
networks across verticals. Large MNCs are setting up their data and DR centers
in the country. The market continues to increase due to higher PC penetration
and adoptions, boom in ITeS, call centers, and the BPO market. Adoption of metro
Ethernet is also leading to growth. Switch makers have also made strong inroads
into sectors like manufacturing, while the government is emerging as a big
spenders on e-Governance projects as is the banking sector has seen huge intake
of switches.

The market grew by 24.7% to Rs 1,980 crore during FY '06-07 up from Rs 1,587
crore in FY '05-06.

Cisco continues to be #1 with a market share of 73% (including the unmanaged
switches market, a segment wherein it does not have a presence) in fiscal
2006-07, improving its market share as compared with previous fiscal's 71.8%.
Revenue is up by 27% at Rs 1,447 crore during FY '06-07 as against Rs 1,139
crore during 2005-06. D-Link touched revenue of Rs 129 crore in FY '06-07
compared to Rs 117 crore during the previous fiscal, registering a growth of
10.3%. Nortel is another major player, which has improved performance in the
market, with a turnover of Rs 126 crore during the last fiscal, up from Rs 101
crore in FY '05-06, a growth of 24.7%.

The market share of D-Link and Nortel was 6.5% and 6.4%, respectively. Dax
grew by 26.3% at Rs 24 crore from Rs 19 crore. 3Com revenue is up by 19.7% at Rs
79 crore from Rs 66 crore in the previous fiscal. Enterasys touched a 13.3%
revenue increase at Rs 17 crore as compared with Rs 15 crore during FY '05-06.

Others like HP Procurve, Accent Net Technologies, LinkQuest Telecom, Raychem
RPG, etc contributed Rs 158 crore to the total switch market worth Rs 1,980
crore.

Major Contributors

Investments in the IT/ITeS space and outsourcing still continue to be
the key growth drivers. In addition, FY '06-07 witnessed a lot of government and
defense led IT infrastructure initiatives, and expansions by telecom service
providers. Commercial mid-market was another large growth driver.

ITeS contributed a huge 24% to the growth; while BFSI and BPO sectors were
among the large buyers of networking equipment. Competitive pressures in BFSI
resulted in continued investments being made towards expansion of communications
infrastructure.

Switching Trends

Technology additions have dominated market trends during the last
fiscal. The key technology additions have been blades, which now form a part of
the switching technology on security, IPS, IDS, wide area application systems,
and on application oriented networking. Metro Ethernet switches, 10G, more
security related features, quad gigabit switch, that enables the carrier
Ethernet to connect over a WAN, Giga to desk, unified switches, unified
communications, and IP surveillance are some of the latest technology additions.

The recent major trends in switching will be migration from 10/100 to Giga
switches and also a lot of up gradations from unmanaged to managed switches. The
access layer contains devices that allow workgroups and users to use services
provided by the distribution and core layers. From an access layer point of view
access speeds would triple and we would see a transition from 1 Gb to 100 Gb.
The core layer is responsible for fast and reliable transportation of data
across a network. The speeds here would move from 1 Gb to 10 Gb and, with 40 Gb
in the offing.

With emerging services such as IPTV, there is an increasing trend of
multilayer (L3/L4) Ethernet switches being deployed in the aggregation. Layer 2
switches are popular in last mile and in CPEs, continue to be widely deployed.
Layer 3 switches are used more in value-added networks.

The Indian economy is growing multifold, and same is the case with IT
infrastructures. India is almost in the same track as the US in terms of
technology deployments. Even in the US, Giga switching and 10G at the backbone
drive the switch market.

Pricing Pressure

Competition and looking for cost effective solutions are definitely a
global phenomenon. However, customers in India do not necessarily want to buy
cheapest products but just require good value for their money. Though few
players at times face some price pressure, owing to the unique marketing
approach, most of their transactions are healthy. Some vendors offer products
and solutions that are innovatively designed, which results in customers saving
20-40% on the total cost of ownership over three years.

Few companies invest a large portion of their revenue on R&D. Right from the
R&D stage, their product philosophy is governed by the Indian philosophy of save
and share. They do not necessarily recommend customers to always replace old
with new. They find ways and methods of extending the current product usage over
newer applications which comes back as a saving to the customer.

Despite the pricing pressure, Dax, the fourth largest vendor in our ranking,
has bagged a major order from the education segment. All Techquip funded
colleges in Tamil Nadu have deployed Dax switches. In the BFSI segment, Dax
switches were deployed extensively in UBI, Allahabad Bank, Central Bank of
India, and Federal Bank. In government projects, Tamil Nadu, Punjab, and
Jharkand were the major users of Dax switches for their e-Gov initiatives and
departments.

Bright Future

The high levels of connectivity, along with the convergence of voice
and data, and user-enabled features will contribute highly to the switch
industry growth in the next couple of years.

A lot of markets are getting organized and expanding. Almost all MNC's are
entering India in a big way, have a large investment to share the Indian growth
story.

With India showing an 8-9% GDP growth, the switching story cannot be
different. It will continue to gain momentum. The switches industry will see a
good growth this financial year too with many new deployments and upgradations.
State WAN, IPTV, and ITeS industries are the likely drivers for switching. The
desire for higher speeds with ever increasing data flow will lead to migration
to Giga switches. Also, switches with security features and wireless management
capabilities will be a new trend in the coming months.

Baburajan K

baburajank@cybermedia.co.in