After the Party...

A year ago, this page had said: "Partytime: Sort of." And looked

back at the best growth in four years–a strong market, software exports up

50%...we were looking ahead to a party.

We got it. The year gone by has turned up something that sounds pretty

amazing when you see it against the slowdown in January-March 2001.

An Indian IT industry growth figure that’s the highest ever documented by

Dataquest over these decades–over 50% for the IT industry.

Now, how did that happen in a year when the brakes started coming on?

A lot of the credit goes, of course, to exports, which grew 64%. That

includes a tiny spot of hardware, but it’s mostly software’s 63% growth.

But the domestic market wasn’t bad at all. 37% growth would be the envy of

developed markets in a good year. India bought 50% more PCs, and spent 76% more

on servers, also spelling good times for the networking and enterprise apps

segments, and for Compaq and Sun, et al.

But then came the hangover–the specter of one of the worst years ever. This

April-June quarter threatened to show negative growth for some vendors.

Inventories built up, especially for those who had dumped products into the

channels to build up numbers. Cash began to vanish. Credit lines to resellers,

once at 15 days, went to 30, then 45 days. Negative sales–at below cost–continued.

A grim picture. An industry just waking up from 50% growth and facing a

decline?

Not quite. Things are looking up just a bit. The signs are positive. June was

a far better month than April or May for the reseller community. The consumer

has been buying again. The government has been trying to put tehelka behind it,

even if defense can’t. It’s gradually getting back on track towards

computerizing some, if not all, "major departments and activities by March

2002". Even VRS-wary public sector banks are spending on IT and ATM

networks. Private banks were part of the reason for the server boom. Other large

public sector entities are spending crores on infotech and telecom. Reliance and

other ISPs continue to wire up India with fiber, deploying servers, switches and

other equipment along the way. So even if enterprise IT spending continues to be

a victim of lowered billings and cash supply and long credit lines...

…the bottomline is: we’ve probably seen the bottom of the domestic market

slowdown. Industry growth will go down from 50% this year, perhaps to a sedate

30%. Software revenues will decline while projects move offshore and bill rates

drop (but margins should be stable–or go up). The best of times are behind us,

but then, I believe, so are the worst of times.

pkr@cmil.com