Networking: No Brakes in a One-Horse Race

Networking is the backbone of any IT infrastructure; any year of healthy
growth in IT consumption implies a bumper for the networking vendors. FY 2005-06
was no exception. Though the growth rate came down by a few points as compared
to last year, the overall networking adoption pattern showed little signs of
slowing down, either for large enterprises or for the SMBs.

In fact, even the drop of these few points (from 34% growth in FY 2004-05 to
26% in FY 2005-06) could be attributed to the significant bases achieved by
almost all categories of networking products, especially routers and switches.
Both these categories grew by 22%. Though much lower than previous year figures,
their overall market sizes have crossed the Rs 1,000 crore threshold. Among the
other categories, external modems were on the verge of being phased out, while
WLANs had a year of consolidation following a euphoric FY05. Structured cabling,
however, showed significantly higher growth than in the last year.

Though, Dataquest in the current analysis would restrict itself to routers
and switches, the overall networking segment obviously included other facets
like modems, structured cabling and WLANs; these categories are being analyzed
separately.

In 2005-06, Cisco continued to be the undisputed champion with over 70%
market share in each category, wth at least ten other players fighting for the
rest.

Extensive deployments in the government and defense sectors, data centers,
BPOs, banks and converged networks of telcos were the main surge areas for the
networking industry. The trend has been towards bigger deals, not only
increasing the number of locations, but also the average size of the deal. The
average deal size witnessed a significant upward swing with many of them going
well beyond the million mark.

Cisco Routs Yet Again

BFSI remained the most important segment for the router market, pegged at Rs
1,047 crore. Crossing the Rs 1,000 crore barrier was a big thumbs up for the
industry. Government and defense sectors were rolling out greenfield deployments
and spending big bucks on replacing or ramping up their old networks. Heavy
deployment of MPLS-based networks was also seen. Banks and private
organizations, too, have been investing heavily in data centers, DR sites and
business continuity. Application vendors in niche areas like BI, data
warehousing and security have largely driven the market.

The market witnessed a shift towards unified security and routing gateways.
With the onset of next-gen and intelligent networks, the focus shifted to
application-performance optimization through the networks. Thus, there were more
and more appliances and technology being integrated into the backend routers.
Cisco smartly aligned with the shift by introducing the 7200 series to deliver
WAN and MAN services with a combination of scalability, value and performance.
The ISR (Integrated Services Router) series was added to deliver secured
concurrent services for broadband connections.

Other vendors too recognized this potential. WNS Global Services moved to an
IP/MPLS based network on Juniper's M-Series while, Allied Telesyn deployed
over 800 AT-AR300 series routers for Galileo India.Â
The trend continued to be towards integrated security in the networks,
the UTM model in the SMB segment and switching fabric on the data center side.
FY 2005-06 also saw the genesis of deals worth $800 mn, primarily from the
government and defense sectors.

Cisco continued to dominate the segment with 80% market share. The key
customers for Cisco routers during FY 2005-06 included GAIL, IOC, Le Royal
Meridien, Taj Group of Hotels, Reliance, Bharti, VSNL, SBI, PNB, United India
Insurance, among others. On the government administrative side, it added the
State Government of Gujarat, Supreme Court, NHAI and CDAC to its kitty. Cisco
set up its proof-of-concept lab (second in the world after Australia) for its
high-end enterprise customers.

Competition to Cisco in routing came from Juniper Networks, especially in Q1,
only to fizzle out subsequently. Juniper showed an overall flat growth, but its
revenue neared Rs 80 crore in the router space. Telecom was key with accounts
like Bharti, Reliance and Hutch. Acquisitions of Peribit Networks and NetScreen
allowed Juniper to make its presence felt in the enterprise space with
performance and WAN acceleration products.

Huawei  has been ramping up its
operations in India,  and finally
gained momentum and was a surprise entry in the top five, mainly due to the BSNL
order for their NIB 2.2 project. That explains why its market share in routers
shot up during the last two quarters of the year. Dax Networks was another
surprise entrant into the top league-it introduced the concept of MCRP
(mission-critical routing parameters) for its routers. The spurt was driven by
sales to telecom service providers like Reliance, HCL Infinet, and even larger
SIs like Tulip IT Services.

D-Link's popularity showed no signs of waning in the SMB space. Nortel
increased its focus on the SMB segment within the government and defense
sectors. BPO continued to be the main growth engine for the company. The
acquisition of Tasman Networks was also aimed at strengthening its router
product lines.

Cisco Switches off Competition

In the switching space, the growth was largely among the large enterprises
and SMBs going in for a networked environment. The market was pegged at Rs 1,587
crore in 2005-06, making it the biggest category in the overall networking
spectrum. The IT and BPO sectors along with manufacturing were the leading
consumers.

SMBs went in for unmanaged layer 2 and 3 switches, while the large and
mid-sized enterprises opted for layer 4-7 managed switches. Ethernet remained
driven by its lower cost; whereas, both Metro Ethernet and ADSL drove the
business last fiscal. The real push in terms of volumes started coming in with
the greater roll out of Metro Ethernet networks. Large enterprises and service
providers drove the demand for managed gigabit switches.