Networking Masters



The dot-com bust. The general IT industry slowdown. And the collapse of ISP
activities and data centers. That was the state of affairs when fiscal 2001-02
began for the networking industry. The overall mood was that of caution, chaos,
and catastrophe. The industry decided to take all this in its stride. Players
set out to beat the sluggishness, pushed hard, stayed focused, did business
realignments, and looked for other emerging opportunities. As a result, the
industry managed to beat the recession.

The initial quarters of the year were sluggish but later major orders really
revived and changed the situation. Orders like the BSES Telecom’s MAN project,
bank projects, and defense and government deals pushed up the networking
business in the country. Those who were prepared and confident made the
difference. The business for networking vendors grew by 4 percent over the
previous year’s figures of Rs 2,852 crore. The network integration market grew
by 14 percent to Rs 1,906 crore. The total size of the overall industry is
estimated to be Rs 3,235 crore. The distribution market fell by 14 percent and
was estimated at Rs 591 crore.

Despite the general market conditions and a precarious situation at the
beginning of the year, the year ended on a better-than-expected note. This was
primarily because the companies focused on improving margins and generating
significant revenues from services on one hand and looking at minimizing
operational costs on the other hand. The strategy was to have better project
management and cost control. Also, sectors like banking and finance and call
centers were major contributors to growth.

In the market analysis this year, we have considered the business from the
LAN and the enterprise WAN segment. The product categories under review have
been NICs, hubs, switches, structured cabling, routers, RAS, modems, spread
spectrum radios, and VSATs.

This year we have not taken the transmission segment for our analysis.

Vendors: Direct Deals Pushed Sales
The overall vendors business was Rs 2,852 crore. Clearly, big got bigger in
this space. Cisco, Enterasys, D-Link, Nortel, Avaya, and CommWorks all
consolidated their businesses. The top 10 vendors alone contributed Rs 2,215
crore in revenues. Despite the pressure on various product categories and stiff
competition, the big three managed to retain their market positions. Mainly
because they continued to get repeat orders while they also managed to fetch new
direct deals. Their strategy has been that of instilling more confidence in
their partners. Also, each of these vendors focused on their strength areas
only. For example, Cisco put a thrust on VoIP and security besides its switch
and routers portfolio, Enterasys was aggressive with its SAM (security,
availability, and mobility) strategy, and Nortel went all out for the call
center space. D-Link laid focus on the SME segment.

Segment
Performance

Segments

2001-02
(Rs crore)
2000-01
(Rs crore)
Growth
(percent)
NIC62.9782.94-24.07
Hub3849-22.44
Routers4234083.67
RAS170198.4-14.31
Structured
Cabling
27022520
Leased
Line Modems
136136.6-0.43
Dia-up
Modems
116198.16-41.46
VSAT252.4214.7417.53
LAN
Switches
78361227.94
Spread
Spectrum Radios
94.373.727.95
Network
Security
150
Multiplexer10981.433.9
V&D
Estimates

The story is self explanatory. The top 10 vendors succeeded in grabbing the
largest shares in one or the other segment. Cisco was the leader in switches and
routers with revenues of Rs 335 crore and Rs 353 crore, respectively. Enterasys
did strongly on the switches front and recorded Rs 283 crore in revenues from
this business. D-Link was the leader in hubs, NICs, and dial-up modems and did
well in other segments like structured cabling and switches too. Its revenues
was Rs 25 crore from hubs, Rs 28 crore from NICs, Rs 65 crore from dial-up
modems, and Rs 48 crore from structured cabling, among others. CommWorks was the
clear leader in RAS products with revenues of Rs 105 crore. Nortel did all-round
business in switches and routers, but its call center solutions clearly pushed
its cause. Avaya was the leader in structured cabling with Rs 110 crore in
revenues while RAD (MRO-Tek) was the frontrunner in leased line modems. A
focused approach led to this consolidation.

Integrators: Focus on Consultancy, Services
The industry saw a strong shift towards outsourcing and services. Storage
and security were becoming inevitable. Expected arrival of VoIP and wireless
LAN, continuation of WAN implementations, and centralized computing really set
the ball rolling. Here too, what separated the winners from the rest was the
ability to clearly rebuild and refocus. For example, Wipro’s strategy was to
be a partner of preference to all its principals and move to the Asian region;
NetSol added people and software skill sets to consolidate itself post the
acquisition of its consultancy and design division by Intel. Similarly, a
significant stake in CMC was bought over by TCS. Datacraft concentrated on its
Millennium strategy while Ramco focused on end-to-end solutions.

As a result of such focused activity, network integrators actually feel they
did better than the expectation. The heartening trend has been that the margins
have gone up. This was mainly because the network integration market has finally
arrived to the point where consultancy, design, and implementation services
revenues came in significantly. There were several projects that involved just
consultancy and implementation services, while the products were coming from
different suppliers. This year, about 30 percent of the revenues came from the
consultancy and integration services.

Wipro continued to be the leader with a total business of Rs 244.5 crore.
Wipro, Datacraft, HCL, and NetSol have been the top integration providers
without presence in the VSAT domain. HCL Comnet and HECL have substantial
revenues coming from VSAT connectivity and services too. The significant
attribute of the VSAT providers has been their ability to elevate themselves to
offering value-added services in security, remote management, and facility
management as addition opportunities.

The banking and finance sector was the most promising one for all players.
This segment alone accounted for above 25 percent of the total revenues. IT and
telecom sectors, which were the top sectors in the past few years on deployment,
remained sluggish. This year, for the top integrators, revenues from these
segments accounted for less then 40 percent of their total revenues. Also, the
call center market opened new opportunities. Most of the vendors rushed to
harness this new gold mine.

Distribution Business: Falling Margins
Although the vendors and integrators managed to fight the recessionary
conditions, the distribution business was affected. Unit-wise sales grew but the
prices really came down. The reason clearly was that most of the distributors
have been handling the products on the low- or mid-end and in this space,
price-performance is always the most important consideration while making buying
decisions.

The distribution revenues saw a dip in revenues from Rs 687 crore to Rs 591
crore. As mentioned earlier, the margins were depleting. For example, Avaya
drastically cut down prices in the structured cabling space. Similarly, prices
of hubs, NICs, and dial-up modems were all down. Except for i2i Media, almost
everyone faced dipped revenues or flat growth. Tech Pacific suffered a decline
of about 22 percent, MRO-Tek of 32 percent, Ingram Micro of about 17 percent,
and so on.

Segments: Switches Ruled the Roost
Switches on account of high value have clearly been the largest revenue
generators. While LAN switches, routers, spread spectrum radios, multiplexers,
VSATs, and the structured cabling segments grew, the dial-up segment, NICs,
hubs, RAS, and leased line products saw negative growth. LAN switch revenues
were Rs 783 crore and grew by about 28 percent. Routers generated revenues of Rs
423 crore and growth of 4 percent. The VSAT segment grew by 17.5 percent to Rs
252.4 crore, the structured cabling segment by 20 percent, multiplexers by 33.9
percent and spread spectrum radio revenues by 28 percent to Rs 94.3 crore.

While RAS and leased line modems have been big markets by size, the revenue
growth dipped. RAS at Rs 170 crore was down by 14.3 percent while the leased
line modem segment was marginally down by 0.4 percent with Rs 136 crore in
revenues. The hubs market was Rs 38 crore, down 22.4 percent. Dial-up modem
sales generated Rs 116.4 crore–a negative growth of 41.4 percent. The negative
growths were primarily due to price reductions and also on account of slowdown
in some verticals like ISP and IT.

Outlook
Many experts believe that the worst phase is over and with most of the
vendors and integrators taking a different approach, this year could be a
different one. In particular, new technology deployments in network security,
remote services, storage etc
are coming up while verticals like telecom, datacenters, government, and
education are intending to go for increased deployment. Sectors like banking and
finance will continue with renewed buying on the WAN front and the big telecos
are also in the set-up stage. This gives the industry more space to grow.

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