The light at the end of the tunnel is not the headlight of an oncoming train. While the Megaspender 2004 growth rate of 5.5% was the first sign of IT spend recovery, there was caution in the air. However, the Megaspender 2005 analysis of growth, of 11%, shows beyond doubt that the caution was misplaced. While the growth is far off from the projected 26%, it would have been close to 22% but for the huge drop in IT spending by the oil and gas major, ONGC. The traditional IT spenders, BFS, Insurance, and telecom led the IT spend charge in 2004-05, with each showing a robust IT spend growth in double digits.

The Top Spenders in Key Verticals In the BFS vertical, Punjab National Bank (PNB) has taken the top slot. At the second spot last year, PNB continued its investments, scaling up this year as well. Recently, it announced the successful migration of its 1000th branch to core banking solution. We expect PNB to be amongst the top investors in IT in the current year as well, given its drive to bring about 2000 branches under the core banking solution. Other players in the BFS segment also saw investment scaling due to the implementation of Real Time Gross System across the banking segment. However, among the Top three IT spenders in the banking segment, the nature of investment was very different. While services accounted for about 40% for PNB, the other two saw higher investment in hardware. Moreover, this was the case of the BFS segment in general, barring a few cases like Oriental Bank of Commerce and ING Vysya Bank, where the non-hardware investment was relatively higher. Investment in hardware continued to be a major focus area for most top players and accounted for plus 40% of total IT spend in most cases. In cases like Indian Post and Allahabad Bank, it was as high as 60%. For telecom major BSNL, the major investment in hardware was in servers and networking, and the trend is expected to continue in the current year as well. ITC, another top investor in IT, clearly has 'services' on its mind in terms of IT spend. ITC's IT spend covers virtually everything: from supply chain management, and sales and inventory management to scientific/statistical models based procurement, and processing of tobacco leaf; from CRM for agri-business to anywhere, anytime access to IT applications.

Like mentioned later in the survey, investment in hardware was the key to growth this year as well. Almost all the segments showed an upswing in hardware investment. However, the structure of IT hardware spend seems to be shifting. Till last year, the clear spend areas were PC & PC servers and non-x86 servers, however, few verticals are moving towards networking as one of the key areas for investment. Looking at the three broad areas of IT spend-hardware, software, and services-there seems to be some shift in the investment pattern. Unlike the past years, where hardware accounted for over 50%, this year's survey shows the spend on hardware falling to the 40% level. And, software moved to the 30% level. Also, in software, the enterprises are looking at investing in application solutions. No wonder then that ERP application is still on top of the wish list for IT spend in the coming year. Higher software and services investment is a sign that
the Indian enterprises are maturing and looking at IT beyond its traditional role of automation. In one of the other parameters, it is interesting to note that, increasingly, companies are looking at IT investments more from a business consultancy perspective (read, business change) rather than just from the IT consultancy preview.

What's next
For the current year, DQ-IDC estimates a robust growth of 17% in the IT spend of the Indian mega spenders. So, while hardware will continue to be the driver, application deployment is expected to be on the rise. Companies will look at ERP and other related applications like CRM, SCM to complement their decision making process. Investments by the BFS segment will continue to be hardware dominated, as remote location connectivity is yet to happen for a majority of the players. However, for the hardware vendors, it is not going to be an easy task. Given the cost pressures on hardware and the usual vendor strategy to cut costs to ensure a win-even as the CIOs will ensure that he gets the cheapest price- the market will get dirty on the hardware side. Vendors will have to look at innovative bundling solutions and, maybe Linux, especially on the desktop, which might start looking very attractive for vendors.

The Dominant Brands All companies in the sample are large enterprises Source: DQ-IDC India Survey: Megaspenders 2005 This year there were some changes in the Dominant Brand category. IBM has moved up to the number one position in desktops with a 33% share, compared to 25% last year. HP's dominance in the printer and MFD segments continues unabated. Megaspender 2005 has added a few categories this year like OS, and ERP apps. No surprises there as well, with Microsoft and SAP dominating the space, respectively. Barring the printer and desktop space, it is a clear dominance of MNC brands amongst the Indian top IT users. On the desktop OS, while Microsoft need not loose sleep yet, it seems that it has lost a few points to Linux. While organizations like National Insurance have some deployment of Linux on the desktop, Linux desktops, in spite of its maturity level, and cost economics, have a long wait to find mass acceptance amongst Indian corporates. While Ramco did come out as a surprise winner in DQ Customer Satisfaction Audit 2005, as the topper, but its deployment amongst the top users in India is still very low. Given the convergence of the printing and copier media, Canon, with its array of product has moved by a notch, however, Xerox has fallen by over 10% as compared to previous year.

Hardware: The Reign Continues How did they spend their IT budgets? All companies in the sample are large enterprises Source: DQ-IDC India Survey: Megaspenders 2005 Again, no surprises this year as well, and DQ estimates that the trend will continue for the foreseeable future. Hardware will continue to be the major component of IT spend by the corporates. As banks are moving on to the next stage of automation, the vertical will see some increase in the services spend, even as hardware dominates. As the growth in the telecom segment continues unabated, there will be a thrust on hardware spend, as seen in the graph above. However, it will not be in the conventional PC & PC servers but more on networking. Verticals like pharma and insurance saw increased software investments compared to the other verticals.

Applications on the rise
Like the year before, where hardware gave way to applications, it is expected to continue this year as well. Applications like ERP, CRM, and SCM will see increased CIO interest. This will also see an increase on the services side, and DQ estimates that business consultancy will go hand in hand with application solutions. It is time for vendors to look at managing the business side with IT, rather than to just sell IT solutions. Another accompanying trend is the increasing role of the CXOs in the decision making cycle. While CXOs are getting active, DQ expects that this year will be a year where the IT vendors will be forced to sell solutions to CXOs, and not the CIOs. Interesting times for the industry, the enterprise, and us.

Up Ahead (What they'll spend on in 2005-06) Source: DQ-IDC India Survey: Megaspenders 2005 Like mentioned earlier, hardware would continue to drive the growth in the Indian IT industry. Hardware, like in the past, will account for about 40% of the IT spend by enterprises. However, the spend structure in hardware will change from vertical to vertical. For example, in telecom and insurance, the spend will be skewed towards networking and not PC & PC servers. However, in comparison with the previous year, it is clear that the hardware will fall as a percentage of total spend (49% last year), as investment will move towards software and services

All companies in the sample are large enterprises Source: DQ-IDC India Survey: Megaspenders 2005 RFID is still being talked about, but it is interesting to know that about 12% of the sampled enterprises are already using some form of it. As one would have expected, manufacturing has taken the lead in RFID implementation, with about seven companies deploying RFID within their organization. Wi-Fi/WLAN has also moved out of the shadows and is going mainstream. The last survey indicated that about 26% of the sample organizations have deployed some form of it. This figure has now shot up to 46%. Again, one of the key verticals, which has taken this technology, is manufacturing.

Yograj Varma in New Delhi With inputs from Nikhil Pant (Analyst end-user research, IDC India)

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