Thriving Market

The traditional voice and Internet services are providing TV and integrated

video services over DSL broadband infrastructure in India. Even satellite

operators are looking at the Internet as another distribution channel to expand

the type of services they can offer. Over the past few years, there has been a

lot of excitement and speculation over the growth of broadband in India.

The network integration market has witnessed substantial growth during FY

2007-08. The market grew by 20% to touch Rs 8,079 crore as compared to Rs 6,734

crore in FY 2006-07. The gigantic steps taken by the government to bridge the

digital divide, diversify e-governance schemes, and increase PC penetration have

contributed dramatically to this growth.

This year has been particularly good for network integration companies. Among

the network integration majors,Wipro Infotech won the race this fiscal, with a

revenue of Rs 1,0891 crore, growing by 47.4% over the previous fiscal's Rs 738.7

crore. HCL Comnet captured the second position, registering 24% growth to touch

revenues of Rs 1,006.9 crore as compared to Rs 812 crore during FY 2006-07.

Datacraft is at the third position with a revenue of Rs 960 crore against Rs 675

crore in the last fiscal. HCL Info has registered revenues of Rs 690 crore as

compared to Rs 524 crore in the previous fiscal.Tulip's revenue decreases by 3%

and the revenues slipped to Rs 508 crore as compared to Rs 525 crore during the

last fiscal. Targus Technologies, a network integration major, has registered

revenues of Rs 14 crore as compared to Rs 5.37 crore in the last fiscals.

Growth Drivers



The major growth drivers in the domestic market are adoption of IT in the

retail segment, expansion in the communication field, government investment on

IT projects in non-IT fields, network re-engineering, and value added services

offered by the services industry. With enterprise IT witnessing robust demand,

there has been a major shift toward services, and many integrators have been

adding or expanding their services portfolios.

Service is a key growth driver of the network integration space. In services,

most enterprises are focusing on remote management services, making it an area

that would experience a lot of growth in the days to come. Large integrators are

focusing on this aspect and differentiating themselves with end-to-end offerings

with more managed service solutions.

Also, in the enterprise space, companies have started investing on either

revamping their infrastructure or putting up altogether new setups. The SMB

space is also witnessing tremendous growth. As far as other verticals are

concerned, the BFSI, ITeS, education, government, and SMB segments are fueling

the growth of this market to a large extent.

Another factor that will drive the market is the expansion of branch offices

and intra-branch information sharing. Quick adoption of new technologies by

users, suppliers, and buyers is also playing a significant role in the growth.

As far as application is concerned, digital signage and surveillance will

also contribute to the growth of the overall market. Also outsourcing has

further added to the revenues of the network integration companies

substantially.

With the government looking proactive in its plans, the growth gets further

impetus. Besides, videoconferencing, fixed-mobile convergence, WAN optimization,

acceleration service, and IPAD Microsoft Interconnectivity with IP network are

some other major growth drivers.

Defense, government, BFSI, service providers, and ITeS still continue to be

the key contributors to the growth. Other major contributors include cafeteria,

malls, railway stations, e-gov, apartments, hotels, multi-location organized

retail stores, and data centers.

There are huge plans to build new airports, ports, SEZs which would fuel the

demand for IT.

Market Dynamics



The technology for the enterprise and service industry in India is moving

toward total convergence of voice, data, video, and security. Compliance,

multi-protocol label switching, unified communications, and data centers are the

new trends of the day.

At the service provider's level, there is a fusion of network, data

storage/processing, and communication-related infrastructure.

There is a definite shift toward the way enterprises are looking at their

sourcing strategies. Multi-sourcing is increasingly being looked at as a key

trend by enterprises to manage their networks. Enterprises in India will be

undertaking technology refresh to upgrade their IT infrastructure to ensure

adoption of innovation through technologies like unified communications, new

security management protocols, etc.

Collaboration is one of the major market trends. Today's business users

really want more effective communications. They need information control and

unified technology solutions. Collaboration represents the presence of

information of the end user, single source of data, voice and video, and

flexibility to use multiple devices seamlessly and simplified application

access. Hence collaboration results in applications that enable user controlled

productivity anywhere, anytime with any device-either wired or wireless.

With the rapid growth of broadband, it is expected that DSL broadband will be

the real leader in terms of technologies and VAS; high-speed Internet with VoIP

and IPTV combination will actually drive the business. Overall, there is a huge

potential for network integration with respect to Internet activities.

International Scenario



International markets are moving toward security, compliance, and total

convergence. The advent of total outsourcing and remote management services is

another international trend. The market place has become exceedingly competitive

and there is severe pressure on winning projects. To win, integrators have

quoted extremely low prices. This has seen depleting margins on products. But

service revenues from facilities management, design, and implementation are on

the rise. This trend toward solution and services is universal. WiMax, VoIP, and

turnkey solutions in voice, video and data domain will dominate the global

market by network integrators.

Hottest Technologies



There has been a significant technological change in the market in recent

years. The latest technology additions for Targus Technologies have been unified

communications, managed security, and Cat 7. For Datacraft, fixed-mobile

convergence, WAN optimization, acceleration services, and telepresence are the

latest technology additions in FY 2007-08.

According to VOICE&DATA survey, Zyxel Technologies belives that, all major

telecom operators are interested in deploying WiMax solutions but due to

spectrum allocation limitation, it is still not clear where the industry is

leading. It is expected that WiMax technologies would stand second after DSL

broadband and, thus, help convergence. However, it will take some more time for

WiMax to be a popular technology. Till the time frequency and related security

concerns are not addressed, WiMax will be moving slowly.

For Wipro Infotech, unified communications, telepresence, wireless mesh, and

virtualization are key technology addition for this fiscal.

With respect to Tulip, the latest technological additions have been in the

form of fiber and data center SWANs. With ground-breaking business lines

looming, major network integrators will be able to bring top-notch solutions to

customers and will succeed in maintaining profit margins.

Achievements



In terms of achievements, this year seems to be very beneficial for major

players in network integration. Wipro Infotech have had wins across industry

segments. Some of the key wins include CRIS, RailTel, and Bharti; they also

bagged orders from companies in BFSI and IT/ITes space. HCL Infosystem network

integration initiatives saw the company winning a number of projects across

different sectors like eGovernance, BFSI, power, airports and health.

Targus Technologies, a major player, has opened offices in Ludhiana and

Mumbai dedicated to network integration and have consolidated their network

division. It has bagged clients such as HFCL, Spice Telecom, Idea Cellular, NFL,

HPCL, Dainik Jagran, and Rajasthan SWAN project.

Datacraft India has marked a significant achievement and has become the first

company in the Asia Pacific region and third in the world to achieve master

specialization in unified communications. During the last fiscal, Zyxel

Technologies won major orders from telecom service providers for broadband, VoIP,

and L2 and L3 switches. Many enterprises are even demanding Zyxel products for

their infrastructure requirements.

Zyxel provides metro Ethernet switches with OAM features and MSAN solution.

These products are certified by industry standards. And India being a huge

market for metro/building Ethernet switches and IP DSLAM and accessories. Zyxel

has already done successful testing and expects to grab a major chunk of the

market in the days to come.

Key Concerns



The network integration market faces some challenges that are hindering its

growth. Increased costs of operations are putting pressure on margins. The main

concern is that original equipment manufacturers (OEMs) are taking orders

directly and cutting the margins of the channels. This forces the players to

believe that they need to either become an OEM themselves or move into services

that will be built around some infrastructure that they own.

Slowdown in investments by the IT/ITeS segment, in the background of a

slowdown in the US economy, is another major concern for the industry.

Bright Prospects



The outlook for the network integration industry for 2008-09 is very

positive and bullish as the government is taking gigantic steps toward putting

its basic IT in place for which network integration is a key enabler. On a

conservative front, the network integration market is likely to grow by around

125% in the current fiscal year.

Companies like Wal-Mart and other retail giants are coming to India. Also,

VAS providers are setting up base to cash in on the telecom boom. This will

provide enough scope of growth to network integrators to increase their

networking business.

Pricing pressure may continue, since it is evident that a lot of

customization is required and margins are very thin. However, the industry is

booming and will continue to grow this year.

Arpita Prem



arpitap@cybermedia.co.in