NETWORKING - Entering big time

The e-juggernaut rolls on. With 'e' and 'i' all over

the market space, and with the network emerging as the hub for ecommerce and

ebusiness, it is only natural that the companies providing the infrastructure

for them grow at a rapid rate. Well, that exactly was the case for the

networking industry of 1999-2000. The top five networking vendors surged at an

average rate of about 120%, while the industry moved up by about 35% to break

the Rs 1,000-crore mark. Add the VSAT component of Rs 282 crore and the market

is pegged at north of Rs 1,500 crore.

The key drivers



For the internet service providers (ISPs), liberalization arrived in 1997-98,
but its full benefits came only in 1999-2000. The swing in demand for ISP

services continues unabated even today.

In the last fiscal, the number of ISPs swelled from about 15

in March 1999 to around 90 by March 2000. This led to whopping growths in

networking products like remote access servers (RASs) at about 380% and leased

line modems at 400%. The existing ISPs are now ramping up their infrastructure

while others are still putting it in place. This means that the demand for ISP

business will continue to rise in the current year, driven by the numerous

upcoming B and C class ISPs. Corporates too have decided to ride high on the

e-wave, putting connectivity at the top of their priority lists. Many of them

are busy setting up their intranets and extranets, to put their net supply chain

management systems in place. This has also helped the industry to notch up

sizable gains. Needless to say, a regular stream of demand for networking

products is also from dotcoms, portals, and the all-new wortals (WAP-enabled

portals).

Indeed, the opportunities for networking companies–the

backend providers–have been tremendous. One significant demand generator for

them has been the spawning new breed of aggressive banks like ICICI Bank and

HDFC Bank. These banks are furiously bringing in the 'anywhere, anytime'

concept and linking up their branches. Taking up the challenge, the otherwise

staid pubic sector banks have also displayed a lot of interest in improving

their connectivity. Another factor that is bound to create a lot of interest in

the current year is banks going for WAP-enabled transactions.

Along with ISPs, the country is witnessing a huge broadband

network being put in place by biggies such as Punj Lloyd, SitiCable and Bharti,

and public sector heavyweights like Gas Authority of India, Power Grid Corp and

Indian Railways, among others. This segment is going to witness an increasingly

competitive trend with companies announcing mega plans to connect cities across

the country.

Channels



Channels have become an important success criterion for the low-end networking
products like network interface cards (NICs), hubs and dial-up modems.

Confirming this are D-Link's figures. The company's revenues jumped by over

125% to touch Rs 147 crore, about 50% of which came from low-end products like

hubs and modems. The company has about 31 distributors and many reseller

partners across the country. On the other hand, Compex, which had some

distribution problems, saw its share in the NIC market fall. However, in the

higher end of the market comprising routers, remote access servers and switches,

partnerships with leading network integrators (NIs) and systems integrators (SIs)

had a direct bearing on revenues. Bigger players like Cisco, Nortel and

Cabletron rode on the back of major SIs like Compaq, Wipro and Datacraft RPG.

Cost



Like the cost of PCs, prices of various networking products have dropped
continuously over the past few years, and 1999-2000 was no exception. Prices of

traditional networking products like hubs, NICs, switches, routers and dial-up

modems saw an average drop of about 15-20%. The drops implied that in spite of

huge volumes, growth in value gains was restricted in some of the segments. For

example, as per our estimates, though the NIC market grew by about 30-35%, the

growth in value has been below 10%. However, markets for switches and routers,

inspite of the price cuts, rode the boom on the back of heavy demand from ISPs,

carriers and corporates. The market for switches grew by about



75-80% to touch Rs 440-450 crore, while that for routers grew by about 115% to
touch Rs 212 crore. In both these key networking segments of routers and

switches, Cisco was the undisputed leader. This was also reflected in Cisco's

growth rate of about 143% to touch Rs 360 crore in 1999-2000, as against Rs 148

crore last year.

next >>>

Barring traditional networking products, prices in other

spaces like remote access servers (RASs) and leased-line modems maintained

stability without many cuts. The market for RAS, for example, grew both in value

and volume to clock a growth rate of about 380% to touch Rs 164 crore. Thanks to

the liberal internet policy, this segment–a virtually non-existent market a

few years back–has really taken off. With banking on the internet on rise, the

market for leased line modems too has grown substantially–by over 400%.

For the very small aperture terminal (VSAT) players, who

constitute a set of connectivity providers too, 1999-2000 remained a bad year as

the key infrastructure remained at status quo. The bandwidth crunch continued to

affect the possibility of high growth in the industry. Although the government

had promised new transponders with the launch of Insat-3B by October, it could

not deliver the promise and launched the satellite only in March 2000.

Meanwhile, the industry continued to starve for the most vital infrastructure,

bandwidth. This was reflected in the growth of key VSAT players like Hughes,

Bharti BT and Scientific Atlanta. Global mergers and acquisitions continued to

make their impact felt. While last year GE Spacenet had merged with Gilat, this

year it was the turn of Scientific Atlanta to merge with Viasat. This brought a

streak of consolidation in the industry. Viasat, with HCL Comnet as its sole

representative, will now be able to leverage the Scientific Atlanta's

partnership to make a strong foray in the Indian market. Until then Hughes

Escorts remains the number one player in the market with revenues of about Rs

104 crore.

Outlook



With the trend clearly towards the IP-based packet switch architecture,
supporting both voice and data from users like new carriers, ISPs and even the

enterprise, expect a heavy competition in the market space. The convergence is

happening fast in this segment with the pure data communications and voice

communications companies trying to offer both voice and data capabilities.

Last year's key drivers will continue to drive the industry

this year too. Corporates, big and small, are fast logging on to the ecommerce

bandwagon and driving their connectivity efforts across all branches in the

country. This will see a considerable demand for the industry. However, the

immediate and bigger demand is expected from private carriers, including ISPs.

Basic telephony infrastructure is expected to be rolled out by more and more

companies, and the long awaited opening up of the long-distance segment will

generate significant demand for the industry. Another key driver for the

industry is the huge demand for call centers and other IT-enabled services. Call

centers have taken off in a limited way and their initial success is prompting

international companies to seriously think of setting up their global call

centers in India. On the price front, the industry will witness the usual price

cuts of about 15-25% across the traditional products. Look out for the RAS

segment too as volumes explode this year. With cable networks being set up by

various ISPs and cable operators, rising cable modem volumes could lead to a

fall in their prices.

In satellite communication, the year did end on a positive

note. The long-felt bandwidth crunch appears non-existent. With the successful

launch of Insat 3B, the players are expected to get a fresh lease of life. Also,

the industry expects the government to allow use of C and Ku-band from foreign

satellites this year. With all these developments, we expect the VSAT market to

take off. This year will also see the implementation of SKumar's ambitious

ecommerce network with VSATs at the backbone. The order, bagged by Hughes, will

ensure that the company dominates the market for the next few years. Also, with

bandwidth no longer a problem, one expects more companies moving to VSATs for

connectivity. This too will ensure the growth of the networking industry.

So, as long as there exists a need for connectivity–be it

the 'i' or the 'e'–the networking companies will continue to enjoy a great run in the next few years.