Hardware Companies: The Forgotten Sector

With a strong revival of the domestic economy and fueled by the continuous
growth in the services sector, the hardware sector is slated to make a strong
comeback in 2005. While the software services and BPO sectors have moved from
strength to strength, somewhat insulated from the tech meltdown, the hardware
sector has been prodding along in the last couple of years. With both demand
from consumers and businesses slated to increase in the current year, we believe
that investors should not ignore this sector.

With increasing economies of scale and falling duty structure, this industry
is slowly becoming globally competitive and, in the medium term, we could start
seeing higher growth in medium term.

HCL Infosystems

HCL Infosystems manufactures PCs, servers and high-end storage products in
addition to services that include IT consulting, software development, system
integration, setting up call centers, technical helpdesks, system support,
facilities management and networking. However, its major source of revenue is
hardware and systems integration.

The
company reported consolidated revenues of Rs 1985.9 crore during the quarter
ended December 2004, as against Rs 1013.6 crore in the corresponding quarter of
the previous year. Net profit for the same quarter was Rs 60.1 crore as against
Rs 41.4 crore. The computer systems business revenues grew to Rs 493.2 crore as
against Rs 344.6 crore in the same quarter of the last fiscal year, up 43%. The
office automation and telecom business revenues grew 125% y-o-y to Rs 1,481
crore, as compared to Rs 658.4 crore. Revenues from internet related services
grew 9% amounting to Rs 11.7 crore in this quarter as against Rs 10.7 crore,
y-o-y.

During the quarter the company won a Rs 76 crore order from the Department of
School Education, Punjab, for 18,200 PCs, servers, printers and UPS, wherein HCL
will supply, install and maintain the IT Infrastructure in 1,287 government
schools. It bagged orders for its enterprise business from LIC and Tata
Teleservices, and received a system integration project from BSNL. In the
telecom area, the company bagged orders from Tamil Nadu Police, Accenture, HDFC,
the Indian Army and ICICI Bank. The share of the company is currently traded at
Rs 805.

D-Link India

Incorporated
in 1993 in Goa, as a part of the D-Link Corporation Group of Taiwan, which holds
a 34.51% equity stake in the company, D-Link India Limited is primarily into
networking and internet working products. Networking products comprising of
ethernet cards, hubs, PCMCIA cards and print servers constituting half of the
total sales. Internet working products comprising modems, internet servers,
routers, etc, constitute around 28% of sales, while structured cabling products
and high end products together constitute the remaining. The high end products
are traded items, which it procures from CISCO. As far as the software services
are concerned, D-Link is into the voice over internet protocol segment. The
suite of products includes low cost IP Phones, Modem IP Phones, Terminal
adaptors, Gateways etc.

For the second quarter ended September 2004, D-link reported consolidated
revenues of Rs 64.5 crore as compared to Rs 60.0 crore in the same quarter last
year. Net profit for the same quarter was down at Rs 6.9 crore as against Rs 9
crore, y-o-y. D-Link received major orders from organisations in banking,
insurance and defence sector. It also entered into an allaince with Taiwan based
Gigabyte Technology for the marketing and manufacture of motherboards. Currently
the share of D-link India trades at Rs 120.

MRO-TEK

The
Bangalore based company was formed as a private limited company in 1984 and went
public in June 1998, as MRO-TEK. The company, which started as an indigenous
manufacturer of line drivers and modems, offers an entire range of LAN and WAN
products, in addition to providing end-to-end solutions and hardware products in
data communications, data access and networking fields. MRO-TEK's customers
are public and private enterprises in insurance and finance sector, internet
service providers and cellular companies.

MRO-TEK reported consolidated revenues of Rs 364.3 crore during the quarter
ended September 2004 as against Rs 310.5 crore in the corresponding quarter of
the previous year. Net profit for the same quarter was Rs 29.9 crore as against
Rs 12.2 crore.

MRO-TEK recently launched a new in-house division called ESAND (Engineering
Services and Networking Designs) to focus purely on offering network design and
implementation services and, in addition, has initiated trials at various
locations to enter the field of wireless network. MRO-TEK's share currently
trades at Rs 28.