Good Times

Next-generation communication technologies and feature-rich communication
devices have engulfed the communication industry. Increased complexities in
communication devices and functionalities means an increased demand for
elaborate test and measurement to maintain the standards required for ensuring
quality. With India already crossing the 250 mn mobile subscribers mark, and its
readiness to target the 500 mn mark by 2010, service providers and other
stakeholders have already expanded their infrastructure and operations.

International vendors are setting up shops in the country, and with
attractive policies including SEZs, India can attract many more manufacturing
companies for setting up their GSM and CDMA handset manufacturing units.
Carriers have been continuously investing in tools for network deployment and
upgradation. All these bustling activities in the telecom space warrant tests
and measurements in order to meet the required standards to ensure quality for
the end-user. No wonder the test and measurement segment is on a northward
growth curve in India.

Growth Magic

During FY 2007-08, the T&M industry in India clocked revenues of Rs 586.91
crore, a 26.33% increase from Rs 464.55 crore in the previous fiscal. The growth
magic in this space has continued for India in the last couple of years, thanks
to quality-conscious industry segments including telecom and
consumer-electronics like TV. In addition to the above sectors, India's proven
strength in semiconductor design is also a main driver for T&M growth.

Agilent has topped the ranking this year as well, registering a 26% growth to
reach Rs 197.82 crore in FY 2007-08. Its market share stands at 33.7%. The
increasing subscriber base in India has fueled this growth. Other sectors that
contributed to its revenue include semiconductors and consumer electronics like
TV. A key order the company bagged this year was from Alcatel-Lucent to which it
provided test and measurement services for an IPTV ecosystem.

Spirent Communications clocked revenues of Rs 73 crore in FY 2007-08 from Rs
55 crore in FY 2006-07, achieving a growth rate of 32.72%. The company occupied
the second place in the top order with a market share of 12.43%. Worldwide, the
company recorded sales of about $468 mn in 2006-07. With respect to IP-based
testing, the company claims to have got the majority market share last year and
a year before that. The company's business dealings with chipset manufacturers,
equipment manufacturers, and service providers primarily contributed to its
revenue.

JDSU has registered revenues of Rs 70.2 crore, registering a 30% growth in FY
2007-08. It occupied the third place, getting a market share of 11.96% this
year. Rhode&Schwarz India earned revenues of Rs 52.2 crore in FY 2007-08, an
increase of 16% from the Rs 45 crore clocked during the previous fiscal. It
exhibits that the company is on an upward growth curve. Telecom R&D, production,
and broadcasting were the primary contributors for its growth during the year.
The company has some new launches during this financial year including RF
conformance test system, TS8970, which has been selected by the WiMax Forum as a
reference solution for the certifications of WiMax end-products being built to
the specification of 802.16e.

Tektronix registered revenues of Rs 46.33 crore in FY 2007-08, a 13% increase
from the Rs 41 crore in the previous fiscal. Aishwarya Telecom has grown 70% to
Rs 35 crore during FY 2007-08. Main sectors that contributed to its revenue are
optical testers, data testers, and mobile testers. Major orders include a Rs 14
crore order from BSNL, a Rs 8 crore order from defense labs, a Rs 5 crore order
from Reliance, and a Rs 2 crore order from Indian Railways.

During FY 2007-08, National Instruments (NI) grew about 55.55% to record Rs
28 crore as compared to Rs 18 crore in FY 2006-07. With National Instruments
expanding its vision of virtual instrumentation beyond the traditional areas of
prototype and test, the company will have more growth opportunities to maintain
its growth momentum. Anritsu India has clocked revenues of Rs 15.26 crore during
FY 2007-08, a 9% increase from Rs 14 crore in the previous fiscal.

Fluke Networks grew by 40% to Rs 14 crore during FY 2007-08 as compared to Rs
10 crore in the previous fiscal. The company also exudes confidence in achieving
more than 40% growth in the next three years. PDR Videotronics has clocked Rs
5.10 crore during FY 2007-08, a 100% increase from Rs 2.55 crore in the previous
fiscal.

Trends

Ultra low-cost handset manufacturing targeting emerging markets, along with
ultra-integrated, high-complexity, software-based handsets for the high-end
market, is gaining momentum not only nationally but also internationally. In
addition, the growth of wireless communication standards adds to the cost of
manufacturing at both ends of the spectrum.

The multiplicity of wireless standards can affect the customer in dramatic
ways. As new standards are adopted, manufacturers are forced to replace their
original instrumentation investment with something that can match the new
standards. T&M companies are challenged to give customers the solutions that
allow them to reconfigure their instrumentation systems while maximizing the
reuse of their existing instrumentation components.

At the international level, markets are almost saturated because of the near
100% tele-density. Therefore, only when a new, advanced technology is
introduced, companies buy testers for new products.

In the beginning, most designs were done in developed economies, and
manufacturing was resourced to lower-cost destinations. However, as the talent
and knowledge of engineers is evolving, high-value jobs are gradually following
manufacturing, test engineering, prototyping, and even ODMs. While almost
everything is moving toward Ethernet, massive deployments in the field are
likely to be seen.

As per the global trend, players forecast that a majority of network capital
expenditure will offer data services, wireline, or wireless. Now, a lot of money
and effort is going toward validating the product before deployment. Checking
its capacity, performance, QoS, policy management, latency, and IPv4/IPv6 will
help service providers offer more value to customers. This means, validation
testing during pre-deployment is an absolute necessity.

Apart from this, the demand for broadband testers is also growing. At a time
when the mobile growth story is exhibiting an exciting phase year after year,
broadband is not too far behind. Though the broadband segment has not been
enjoying the same growth as the mobile phone, it is the next big thing, thanks
to newer communication technologies including DSL, WLAN, WiMax, and 3G. As a
result, India does not have to worry about achieving the target of approximately
20 mn broadband subscribers by the end of 2010. There will be large-scale
deployment of broadband network infrastructure in India in the next few years.

Being an emerging market for telecom services, India will become a
manufacturing powerhouse in the near future, dramatically changing the way
companies design, prototype, and deploy products around the world. With over 7
mn mobile subscribers being added each month, and the country becoming one of
the major destinations for mobile handset manufacturing, the demand for mobile
testers is increasing substantially.

For technologies like 2G, 3G, and WiMax, most chip-set designers, protocol
stack developers, and telecom manufacturers are increasing their RF test
capabilities in India. It is expected that some of the major telecom houses as
well as the Department of Telecommunication will open test houses in the near
future to cater to the needs of conformance testing on the telecom products
being developed in India. This has already happened in other telecom ripe
countries like China, Taiwan, Japan, the US, and European countries.

Growth Drivers

With cheap labor and availability of skilled engineers in India, mobile
handset manufacturing for domestic consumption and export is raring to go.

Indian manufacturers need to invest a lot in T&M equipment to ensure that
their products meet stringent international standards. This phenomenon has
become the most important driver for growth in T&M.

Multinational vendors like Nokia and Motorola have set up manufacturing units
in Tamil Nadu with strong investments. Low-cost mobile phones, base stations
mainly for 2G, customer premises equipment (CPE) for WiMax for 802.16e, fixed
wireless telephones for GSM, and CDMA/GSM repeaters and sub-assemblies would be
the main telecom products that are expected to be produced in India in large
volumes.

Existing and new R&D centres in the telecom space offer good business
opportunity for protocol and RF in the upcoming wireless technologies. Business
opportunities for WiMax, one-box testers for R&D on CPE, and BTS testing are
expected to be on a rise. As the deployment of WiMax services begins, coverage
measurement tools and network installation equipment will be high in demand in
India.

Innovations in the world market revolved around WiMax/3G/LTE solutions.
Mobile services are no longer going to be solely focused on voice
communications, as new data-intensive applications like mobile broadband and
mobile TV will be rolled out in large scale with data transmission rates getting
higher and higher.

With IPTV (Internet Protocol TV) expected to be the next big thing, the
broadcast sector is likely to give high growth opportunities for T&M. The
broadcast sector is driving the wireline communications business, with DVB-H and
IPTV being the latest trend.

End-users are more and more discerning about the quality of service and the
products they subscribe. So, there is a continuous emphasis on the quality of
services, deregulation, and bandwidth which become the basic growth drivers for
T&M players. When you have these as basic drivers, it will pave the way for the
growth of optical networks that can carry more bandwidth. And there is a lot of
opportunity for T&M players.

Challenges

In India, service providers spend less than 1% on capital expenditure
whereas developed countries spend more than 5% on testers. One can only hope
that operators will increase their budgets for purchasing test equipment in the
coming years due to the increase in subscriber base and expanding telecom
networks.

As customers are demanding more integrated functionalities for their
products, the challenge for the industry is to lower the cost of test at the
same rate as companies are lowering the price of products.

Technology is changing rapidly around the world. Asia, in particular, is a
very important technology and market driver. In India, however, the focus is on
quick network expansion and bringing low-end, low-cost mobile phones to the
market. Unfortunately, this is resulting in less time and money spent on testing
needs of network deployment as well as quality checks on the items produced. The
investments in production lines on testing equipment have been much below the
expected figures. Almost all production lines in India are made operational
using transferred assets from other countries, and the trend continues.

Earlier, service providers used to define what services they were going to
roll out for customers, whereas today, end-users are demanding and getting what
they want. For test instrument vendors, it is a challenge to design a product
that ensures service providers are able to offer those services to customers.
This means that test instrument companies have to work in partnership with chip
companies, equipment manufacturers, and service providers.

T&M plays an important role at every phase of the product lifecycle (PLC) and
is, therefore, vulnerable to the issues facing customers at every phase of the
PLC. The manufacturing segment is calling for innovations to lower test costs
and policies to increase the turn-around-time from T&M vendors. They are eagerly
looking for solutions that can help them reach the market faster with lower cost
of production and test. The key to their being competitive worldwide also lies
in a faster time-to-market. The above ecosystem needs to be nurtured, protected,
and well served for the overall development of these industry verticals in the
country.

An Exciting Future

Utilizing the mass development of technology from telecom base stations,
virtual instrumentation is quickly realizing dynamic ranges beyond traditional
instrumentation. And FPGAs, which are being developed for use in digital TV,
provide incredible new value to virtual instrumentation-based solutions. We are
already seeing the emergence of very high performance and cost-effective
solutions.

If you envision the consumer-level technology developments, which will be
leveraged by virtual instrumentation, the power of design, prototype, and
deployment tools, which will be placed in the hands of domain experts, indicates
an exciting future.

It is expected that Metro Ethernet and WiMax will head toward massive
deployment during the next four to five quarters. One of the key growth drivers
in FY 2008-09 will be the wireless boom. The wireless industry is growing by
leaps and bounds-from R&D to manufacturing and deployment, investment is growing
across these segments. The future of wireless will be riding on 3G deployment
and value added services.

On the other hand, broadband is another key segment that will help T&M to
grow. The explosive growth of the infotainment industry is another area that
will influence growth of the T&M market. As in the last couple of years, the
coming years will continue to be well placed in the upward growth curve.

Kannan K

kannan@cybermedia.co.in