5 - Moody Blues

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align="left"> align="center">PRESIDENT: MUKESH AGHI

T size="2">he sky just turned a hue of gray above the Golden Enclave headquarters of Indian

Big Blue. With a modest growth of 13 percent and a slowing down of the domestic hardware

business, Tata-IBM has turned in a performance which will not make its CEO Dr Mukesh Aghi

a very happy man. The general slowdown of the economy has put a speedbreaker on the

aspirations of this company, which had once publicly announced its intentions of reaching

a revenue target of $ 1 billion by 2001. By all odds, this date may have to be shifted by

another year, or even two, if the market conditions do not improve.

Not that there was anything particularly wrong with the

company’s strategy. What went wrong was the calculation of its customers’

ability to invest. When the credit squeeze happened, most of Tata-IBM’s customers,

the larger alt="https://img-cdn.thepublive.com/filters:format(webp)/dq/media/post_attachments/d7e235feb0515ccbafac4ed7afdbc56c6984e707b71634c19ea576a50bc6219a.jpg (12389 bytes)" border="0" hspace="2" vspace="2" align="right"> size="2">enterprises of the Indian corporate world, were the first to feel the impact (as

was the case for other hardware vendors). And the first repercussion of the squeeze was

pulling back of IT, especially hardware investments.

The preoccupation with the corporates seemed to be

extending the life of the box rather than add new boxes, by extending the application

cover of the already available hardware. As a result, most customers were willing to

discuss solutions (read software solutions) and if some additional hardware had to be

bought for that purpose, so it was.

Some of the trends that are visible stand

testimony to this shift of emphasis from systems to solutions. For one, the value of

upgrades that IBM sold last year was a healthy percentage of the total system sales.

Secondly, the value of revenue from services category has been leaping up for Tata-IBM in

the last three years. From a modest Rs 25.9 crore in 1995-96, it shot up to Rs 104.92

crore in 1996-97. Last year, the revenues rose to Rs 196.13 crore. As a result, the share

of systems revenue in the overall revenue of Rs 553 crore came down to 72 percent of the

total. Third, and possibly the one indicator of the fact that IBM India may be rebounding

next year, is the completeness of the coverage of industry segments that the

‘solutions’ mantra envelopes. Between manufacturing and banking segments, the

company reported revenues of close to 42 percent of the total revenue. Add to this the

not-insignificant presence in travel, distribution and telecom and you see the

‘solutions’ focus of the company placed comfortable.

Not that there are no issues. The PC gameplan of

Tata-IBM will have to come under the microscope. The company sold fewer PC desktops than

it sold the previous year, in a year when the PC numbers actually went up by 31 percent.

Somewhere down the line, there seems to be an incongruence between the needs of the market

and the marketing strategy of the company. On the face of it, the PC strategy of the

company is in tandem with the overall company focus of selling solutions. However, in case

of the PC market, despite 1997-98 being a tough year, PCs shipped in volumes. The PC

market which works on prices and volumes probably paid scant attention to the solutions

end of the proposition that IBM put forth. As a consequence, IBM’s marketshare dipped

marginally and is currently at 4 percent.

Another reason for the PC debacle of IBM in India was

its inability to prise open the home and the home office markets last year. While Compaq

and HCL invested significant amount of time and money in talking to the homes, IBM, with

its Aptiva range, was probably priced out by the high-voltage acts of its competitors.

In fact, if there was one clear winner in the

company’s product portfolio, it was S/390. The company doubled the number of

mainframes (17 for Rs 50 crore) that it sold in the previous year. In effect, IBM seems to

be capitalizing on the rebounding high-end server market. The company is targeting the

system at two different markets. The first, and probably the biggest currently, is the

software houses themselves. Among them, the Y2K solution developers constitute a good

market for the product, as the bulk of the Y2K bug sits on IBM platforms, due to sheer

numbers sold in the past. The second market where IBM is targeting S/390 is the telecom

segment, where high-end servers are needed for large volume processing. As the telecom

markets unfold in the country, S/390 would gain an advantage that would be truly enviable.

While ThinkPads have retained their top slot, IBM would

do well to rethink its notebook strategy, as it will continue to be hounded src="tataibm3.jpg" width="373" height="146" alt="tataibm3.jpg (21605 bytes)" border="0"

hspace="2" vspace="2" align="right">by competitors like Compaq, Acer, and

Toshiba in the current year, especially as these companies are planning to unleash a price

war.

This year will be critical for Tata-IBM. While the

company is on a good wicket, it will be an acid test for it to push the server business

onto a faster growth track. Another challenge will be to play the PC market to the tunes

of numbers rather than sing the solutions mantra. Most important—and everybody is

sitting on the edge for this one—will be the company’s reaction to a combined



onslaught of Digital and Compaq. Like we said earlier, the clouds over Golden Enclave will
have to be made to turn blue.