DQ-IDC INDIA SURVEY: Mega Spenders

The party is long over. And good news seems distant. Rather, it seems that

heads are still buckling under the hangover. There is no respite from the

hangover so far, it just gets worse. So, are CIOs spending or not? To find the

answer, DQ commissioned IDC India to conduct a survey among CIOs of top

companies, to learn their perspective on the slowdown. The outcome? A little

disappointment, and the proverbial light at the end of the tunnel.

While this fiscal seems on the downside with a 23% fall in IT spending since

last year, IT spending is expected to move up by over 50% by the end of the next

fiscal. Barring the IT industry, where sentiments will continue to be negative

even in the next year, CIOs across the other segment are optimistic that their

IT spending will go up in the current fiscal. Some good news, finally. Not that

CIOs are really worried about the slowdown. While budgets are being slashed, so

are prices. With vendors outdoing each other in offering discounts on software

as well as hardware, CIOs are having the last laugh.

So, despite the budget slashes, CIOs are still rolling out their projects and

meeting their IT requirements with limited investments. Besides, most of the

investments today are being channelized in buying hardware. Services and

software are expected to move up the requirement chain in the coming years. It’s

already happening in a few segments like finance, where services are estimated

to move up from 19% of the total IT spend to nearly 35% by the next fiscal. The

same is true in the IT segment. Hardware spending is expected to move down as

software moves up marginally by 3%, while service ramps up by 6% by the end of

fiscal 2002-03. Another interesting trend is that IT-intensive industries like

finance and insurance will continue to top the IT spend charts for some time. As

the Indian insurance market opens, new players are aggressively setting up

infrastructure and existing players are ramping their own–a case similar to

the banking industry, where the arrival of private banks like ICICI and HDFC not

only saw rapid IT deployment, but old hands were forced to ramp up their IT

infrastructure quickly. Interestingly, it is the public sector units– PSUs

(often dismissed as inefficient)– that have been spending heavily.

While CIOs are using the slowdown to negotiate good bargains from vendors,

another low-cost option, Linux, is fast finding acceptance among these Mega

Spenders. CIOs are keen to experiment with this open source software in their

organizations. While Windows NT and Unix have cornered the market, 38% of the

CIOs polled are using Linux. We had expected Linux deployment sporadically in a

few organizations, but the survey ratified the fact the CIOs were increasingly

looking at Linux as an alternative system worth a dekko. Strangely, storage

seems to be absent from the CIOs’ list of priorities. In fact, 88% of CIOs do

not intend to invest in storage even in the next year. WTC or not, a majority of

CIOs still believe "it cannot happen to me".

Time to wake up! For detailed findings of the survey, read on…

Mega Spenders: A Graphical Analysis

Hardware Is the driver: Hardware continues to top the list in the CIOs’

purchase list. Apart from topper LIC and Infosys, other companies with

significant FY 2000-01 spending in hardware included a state-owned telecom giant

with 60%, Tata Internet (65%) and India’s largest oil major with 70%. This is

likely to continue in the coming years. With an estimated budget of over Rs 100

crore, the telecom giant expects to spend about 60% on hardware. Within this

segment, the highest growth is in desktops and servers. For fiscal 2000-01, PCs

accounted for about 40% of the total hardware spend, followed by servers at 25%.

DQ estimates that while desktop spending will continue to grow (but on a

diminishing percentage), servers will continue to post strong growth. As per the

data available in the current year, CIOs expect to increase the server spend to

30%. While investment in desktops remains the top choice, the fall is evident as

its share slips by a percentage point. The same is evident in the vertical

spend. Barring insurance and services, there seems to be a downward trend in

hardware spending by other segments. For example, in the auto sector, from

42.58% spending on hardware in FY 2000-01, the number is down to 40.2% in the

current fiscal and further still to 36.2% in FY 2002-03. Companies in other

segments, after reaching the necessary hardware infrastructure, would channelize

most of their investment into software and services. Again, the auto software

component is up from 40% to 46%. Services have shown rapid gains in the past few

years and as per DQ Top 20 estimates, services (including facilities management

and maintenance) have grown by 33%. The survey reveals that services have

stabilized over the 15% range, but in terms of major verticals, services seem to

be on the upswing. The lead has been taken by finance, as expected, where the

service component is expected to jump to 35% in FY 2002-03, from 19% in FY

2000-01. DQ estimates that this component will shoot up in the years to come as

large corporates, after building up the required hardware base, will

increasingly resort to facilities management services. The trend is evident as a

few companies like Ballarpur Industries are outsourcing the complete IT

infrastructure to IBM. Indo Rama, too, recently announced plans to outsource its

IT systems to Accenture.

Penguin at the Gates...

No Stopping Linux: While it was expected that Windows NT and Unix

would share the top honors, Linux, with 38% penetration among top Indian

corporates, was a surprise. Companies ranging from the IT segment (ST Micro

Electronics) to banking (Centurion Bank) to automobiles (Bajaj Auto) and others

were found using Linux. As per the data available, two major corporates–Gujarat

State Fertilizers and Britannia Industries–are completely on the Linux

platform. DQ expects that as more and more companies come out to support Linux

on the lines of IBM, the percentage share will shoot up in coming years.

SAP-ping out the competition: Of the 49 companies with ERP deployment,

SAP is the clear leader. Oracle is a distant second with nearly half the

marketshare with SAP. While the branding has obviously helped SAP, the favorable

response to Mysap.com’s e-business platform has also helped in consolidating

its leadership position. Companies are going in for best-of-breed ERP solutions

and use two different brands of ERP. It is interesting to note that the Indian

home grown ‘Marshall’–Ramco System ERP suite–is at number three, with

over 6% of the market-share. Ramco counts Chennai Petroleum and Jindal Iron and

Steel among its major customers. Besides, Ramco has made inroads internationally

and among its major coups, is a 15-year contract with Boeing.

The Most Dominant Brands

Monopolies in some, stiff competition in others: As expected,

a near monopoly situation is still a normal phenomenon in some segments like

printers, desktop operating systems and photocopiers. CIOs attribute lack of

alternative systems (in case of Windows) and/or very high visibility and good

brand recall in others. The obvious leaders in desktop operating systems (OS) is

Microsoft Windows, while HP leads the printer pack and Xerox is the acknowledged

leader in the copier segment. However, in segments like desktops and servers,

competition and cut-throat pricing make it difficult for dominance by a single

player. For example, in the desktop segment, HCL Infosystems, which lost its

number one desktop vendor status in unit sales (DQ Top 20), still rules the

roost as the most dominant brand of PCs across organizations, closely followed

by the current number one brand based on unit sales, Compaq. Also, Compaq is

fast closing the gap with HCL. IBM, with its strong server branding and high

services and consultancy focus, pipped Hewlett-Packard India to the number three

spot (number 4 in DQ Top 20). Of course, most of these companies also have a

strong presence in the home segment and the DQ Top 20 numbers reflect the same.

The assumption that assemblers and small-times players only

cater to the home market and SMEs takes a beating as assemblers rank way above

the likes of Wipro and Dell. Well, price is still a strong selling point in the

desktop business.

In the server segment–the other surprise is IBM as the most dominant

brand... Call it the after-effect of IBM’s ‘eServer’ campaign. Given the

fact that no other vendor has a similar campaign, IBM continues its thrust on

the eServer campaign and seems to have the desired effect on CIOs. Thanks to the

global services division, IBM has the edge in providing ‘total solutions’

and the results reflect the same. This seems a great achievement, given that in

fiscal 2000-01, IBM seems to be lagging behind in terms of revenues at the

number three spot in the desktops and server segments.