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.

Enterprise
IT Spender*

This
Year
Next
Year
Overall
Industry
23%t56%
Auto
Industry
1%t69%
Manufacturing12%t66%
IT
Companies
30%t14%
Finance3%s42%
Services28%s189%
Insurance73%t161%

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.

Top
Enterprise IT Spenders 2000-01
Rank

Company

YearYear
2000-012001-022000-01*2001-02*
15Life
Insurance Corporation of India
14035
22Infosys11080
391United
India Insurance Pvt Ltd
90
41MTNL85110
54Bharat
Heavy Electricals Ltd
6050
638Tata
Internet Service Ltd
505
78Bharat
Petroleum Corporation Ltd
3515
816Gujarat
National Fertilizer Corporation
3525
93Indian Oil
Corporation
3030
107The
New India Assurance
3060

*DQ
estimates

Roll out the red carpet for
PSUs
: Eight out of 10. That’s the score of the public sector units (PSUs)
in the DQ-IDC India survey on enterprise IT spending. More surprises–all
Indian insurance companies figure in the list, though not difficult to
explain, especially in the life insurance segment. Given the vast network
and the imperative to connect quickly before private players start
cannibalizing the marketshare, LIC rolled out it’s IT deployment plans
and connected all of its 2,000-plus offices across the country in line
with it’s ‘Anywhere Anytime’ campaign. However, the surprise in the
list is Infosys, with an annual spend of Rs 112 crore, with Rs 80 crore
more budgeted for the current fiscal. While this seems huge, it accounts
for only 6% of the company’s total turnover for the FY 2000-01. The
trend among top players is to beef up on hardware, with seven top
companies spending over 50% on this front. Top players LIC and Infosys had
hardware spend in the 60% region. Amongst the top IT-savvy companies,
barring Tata Internet, which started operations last year and hence needed
to build up hardware infrastructure from scratch, it seems that other
companies have also followed suit. Given the huge size of public sector
companies, the vast number of offices and the number of employees, there
still seems a continuous need to build up the hardware infrastructure and
this, therefore, should continue.

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

Sector-wise IT
Spending
(Percentage)

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.

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