Networking: The Changing Equation

Networking has been one segment which has not seen too many changes over the
last few years. Not only are players the same, even the rules of the game have
not seen too many alterations. Cisco has been the undisputed #1, while a host of
other vendors with individual specializations have fought for the #2 slot. That
was till the last year when a spate of M&A activities threatened to change the
status quo; the effects were not visible in FY10 though. Cisco still enjoyed
near monopoly status in the networking market, but for the first time there are
possibilities that a serious contender could emerge in the Indian networking
space. In addition, increasing trends towards market consolidation meant that
vendor dynamics could undergo serious changes FY11 onwards.

Not that Cisco is in any immediate threat of losing its numero uno status,
but HP Networking (formerly ProCurve) is emerging as a serious challenge. The
acquisition of 3Com would add further momentum, especially as Indias #1
hardware vendor has publicly disclosed its plan to topple Cisco. The bankruptcy
and subsequent demise of Nortel, Aegis acquisition of AGC Networks and the
de-merger of D-Link into twoactive networking (D-Link India) and a passive
networking (Smartlink)entities opened up new opportunities for the Indian
market.

M&A Flavored Market

For ages, Cisco has been enjoying a virtually unchallenged dominance over
the networking market, but the first signs of change were visible in FY10. It
was not just the HP challenge; increasing commoditization of traditional
products like switches and routers and a shrinking market impacted by the
slowdown forced Cisco to increase the focus on non-traditional areas like
unified communications, enterprise telephony and SAN switches. Cisco bolstered
its unified communications portfolio with the acquisition of Tandberg and entry
into segments like enterprise social software and hosted email. Thanks to new
businesses like Ciscos Smart Connected Communities in collaboration with Lavasa,
the unified communications business ended up contributing Rs 147 crore.

In FY10, Ciscos growth in the switches segment was owing to the emphasis on
local innovation and penetration into tier-2 and tier-3 markets, thanks to its
wide channel network. The emphasis on innovation in product lines and new areas
was evident from Cisco adding Comstor and Compuage to its existing roster of
national distributors that included Ingram Micro and Redington. Comstor, a
division of the Westcon group, which distributes Cisco products exclusively in
the global markets focused on three advanced technology offeringscollaboration,
virtualization in the data center space and borderless networks portfolio. The
deal with Compuage was inked to help Cisco improve its penetration in small
cities and boost its SMB businessa 350% growth was an unequivocal endorsement
that the movement succeeded.

There were initial hiccups in uptakes in IT services and telecom for both
switches and routers; and when investments in 3G and IPTV got deferred, things
got worse. There was a sharp decline in revenues from August to October 2009,
but Cisco picked momentum again from November onwards with some major wins in
the Commonwealth Games and APDRP projects. The turnaround of the IT services
sector as well as fresh investments in the mobility space also smoothened up
things. In the WLAN segment, the key verticals that drove Ciscos growth were IT
and telecom. Government SWANs and rural connectivity also led to an increased
adoption of wireless solutions across the country. Cisco targeted all segments
from SMBs to enterprises, including education, IT, ITeS, manufacturing, retail,
BFSI and government for its wireless solutions.

But, the company that finally emerged as a serious threat to Cisco was HP
Networking. While the likes of Juniper and Nortel have earlier challenged Cisco,
but fizzled out; things could be different this time. For one, there is HPs
financial muscle (bigger than Cisco even) that can sustain an aggressive
marketing campaign over a long period; next is its wide network of channels for
its servers, storage and computing products (again more than Cisco) that could
be leveraged for networking too; and most importantly, with the recent
acquisition of 3Com Corporation for $2.7 bn, HP now has the entire portfolio
that Cisco has. Earlier Ciscos challenges were either in routers (Juniper) or
switches (Nortel), now there is a vendor to challenge on all fronts.

The acquisition of 3Com expands HPs Ethernet switching offerings, adds
routing solutions and significantly strengthens the companys position. 3Com
also brings to HP the network security capabilities through its TippingPoint
portfolio. HPs portfolio of offerings was strengthened further with the
addition of 3Coms network switching, routing and security solutions to its
existent HP ProCurve solutions. This integration enabled customers to simplify
their networks, deploy an edge-to-core network fabric for the enterprise and
improve IT service delivery capabilities. With converged infrastructure high on
HPs agenda, the Blade System Matrix was launched in FY10. This is more of a
common go-to-market approach for its servers, storage, computing and networking
products together, and could help HP Networking leverage the parents existing
client base and channel better.

D-Link has been a major player in WLAN, and has been deploying both consumer
wireless solutions and business wireless solutions which have seen good
traction. Its business class access point solutions have been successfully
deployed across industry verticals like government, education and BFSI. In fact,
education institutes have been a significant contributor to its WLAN revenue.
From April 1, 2009, D-Link and Smartlink have started working as two separate
and independent entities. It may be recalled that in October 2008, D-Link
announced the de-merger plan where the companys passive business was spun off
into a separate company called Smartlink Network Systems. This focused on
passive components business, with KR Naik owning a majority stake in it.
However, D-Link India with a majority stake holding of 62% from D-Link
Corporation would continue with the active component business.

Although D-Link continues to be the most widely available networking brand
especially among SMBs, there was some dissatisfaction over the company opting
for the national over a regional distribution model. After the appointment of
Redington and Ingram Micro as national distributors, the role of many long time
regional distributors (RDs) diminished; and this has led to issues with
availability, pre-sales and post-sales support .

The other interesting developments were the ultimate demise of Nortel after
floundering for several years and the acquisition of AGC Networks by Aegis. Till
now, AGC has been Avayas customer facing front in India, though that too is now
changing. Though Nortels enterprise solutions business got acquired by Avaya,
all competitors gained businesses from erstwhile Nortel clients. The mergers and
de-mergers meant not just businesses going to competitors, but also senior
executive movements within the industry. Ravi Chauhanwho was Nortels global
head for communications enabled business solutionsjoined Juniper Networks as
the managing director. Also, Nortels vice president for enterprise networks in
Asia, Dhananjay Ganjoo joined Microsoft India as its head for the telecom
vertical. Former D-Link head, Jangoo Dalal also joined Avaya as its new managing
director for India. Avaya has so far relied upon its majority-owned subsidiary,
Avaya Global Connect as its sole route-to-market in India. In addition to
nourishing and ensuring the successful operations of AGCL, Dalal has been
hartered with forging Avayas entry into the existing and emerging Indian
markets and channels.

Meanwhile, there were other players who were fighting a different battle
altogether like Juniper. Juniper Networks views India as a strategic market with
its focus on BFSI, the government and telecom sector; and hence plans to invest
$400 mn in the total operations, including research and development in the next
five years. Also, Indian Overseas Bank selected Juniper Networks to provide an
all-in-one networking solution to 600 branches nationwide. It also came under
the income tax scanner for reportedly inflating the value of hardware it
imported from its US parent. The alleged over-invoicing is to the tune of Rs 566
crore.

Modems: 3G Boost

The modem industry witnessed a decline in FY10 though the industry leaders
like Atrie Technology, Bharti Teletech and D-Link witnessed a healthy growth.
For the market leaderAtrie, there was a growth in the service provider area
including BSNL and MTNL, and in other service providers areas too for WiMax CPE
and WiMax backhaul. GSM backhaul and 2G continued to do good business. BFSI;
transport including railways, roadways and airline ticketing and freight
management system; e-governance and SWANs were the other major contributors for
Atrie. Atries main orders for FY10 came from BSNLPhase 5 GSM for the southern
and western India for the backhaul of fiber and copper transmission and WiMax
CPE. On the other hand, D-Link in 2009 introduced low cost ADSL modems like
DSL-2640U, Wireless ADSL2+ having four ports Ethernet with routing capabilities.
The product was aimed at SMBs for Internet browsing, P2P applications and online
gaming. D-Link continued doing business with BSNL franchisees. Few other private
service providers have also contributed to the D-Link kitty. The Mumbai based
company witnessed over 30% growth in the overall broadband category, including
ADSL modems and associated network equipments like DLSAMs.

Modem technology was positioned to compete with other broadband technologies.
Modems continue to be in good demand for high speed data connectivity and new
emerging applications. The ADSL2+ technology modem continues to gain popularity
in the SOHO market due to its effectiveness to offer a high speed broadband
connectivity to SMBs and SOHO consumers. The new ADSL models with enhanced
chipset like ADSL2/2+ standards provided Internet transmission of upto 24Mbps
downstream and 1Mbps upstream. In addition to this, the security and quality of
services have been enhanced in the ADSL modems to prevent unauthorized access to
the home and office network from wireless devices or from the Internet. The
built-in firewall security technologies such as Statefull Packet Inspection (SPI)
and hacker logging inspect the contents of the incoming packets before they are
allowed in, while hacker logging also helps to protect the network against
denial of service (DoS) attacks.

Switches: Rebound Effect

Though there has been an increasing commoditization of switches, the market
rebounded after a dismal show in FY09. Though Cisco dominated the show, HP is
gradually emerging as a serious challengerthis got enhanced once 3Com came into
its kitty. Giga switching and 10G were mainly driving the switches market. Metro
Ethernet switches, industrial grade switches, MPLS switch, switches tailor-made
to FTTH with low latencies, 10G, more security related features, IPTV
deployments, IPv6 enabled switches, access control by integrating the switch
with dedicated anti-virus, IDS, IPS devices, bandwidth bundling/load balancing
with multiple Internet links, unified communications, power over Ethernet (PoE)
are some of the latest technology additions.

Cisco announced the release of Cisco Borderless Access. This portion of the
companys borderless networks architecture comprises of products and service
innovations that enable seamless and highly secure wired-wireless
communications, sophisticated business-wide energy management, and optimized
delivery of video applications. As part of this architecture, Cisco is
introducing an entirely new series of fixed-switching product linesCisco
Catalyst 3560/3750-X Series and 2960-S Seriesthat provide a comprehensive suite
of new professional service offerings, flexible entry level pricing, and an
enhanced lifetime warranty. Result was that large deals were won in several
APDRP projects as well as Commonwealth Games. Even smaller vendors like Dax were
active on the switches front. It managed to bag important deals like Maharashtra
LAN, BSNL-STM, Salem Steel Plant, Gujarat Informatics. D-Link DES-8500 also
introduced IPv6 ready switches. It also announced the launch of industrys first
managed green Ethernet switch.

Routers: Multi-functionality is the Key

Like switches, the routers market too witnessed a rebound in FY10, though to
a lesser extent. And despite commoditization, the service provider routing
market in India was expected to grow at a rate of 29% over the last year, thus,
reaching a total size of $205.7 bn in 2010. With the key market segments like
service provider and government expected to increase spends in the coming year,
the router market should see robust growth. Growth drivers for this market are
marked by carrier Ethernet, advent of 3G, growing data services and escalating
bandwidth use, along with upgrades and replacements.

The three key drivers will be carrier Ethernet, 3G and WiMax. The explosion
of consumer voice, video, gaming and data devices has led to an increased demand
for data bandwidth. The top trend for routers is the multi services
functionality being rolled out on these devices. These could be security
features enabling multiple applications, and value added features like delivery
of voice, data, etc. Larger organizations are looking for an innovative approach
for their router to move towards deploying efficient and optimized
hardware/software platforms to guarantee embedded security, VPN and a
significant performance.

Cisco has strengthened its product portfolio in the last one year with the
introduction of many new enhanced products such as ISR G2. The ISR G2 is Ciscos
first major upgrade to its vastly successful branch office router line since its
initial 2004 launch. The new routers have more horsepower, simpler configuration
and maintenance requirements, and video capabilities.

Meanwhile, D-Link helped Himachal Pradesh State Co-operative Bank, one of the
leading banks in North India, to connect all its branch offices to the head
office, which in turn would handle the entire core banking solution applications
requirements. For this, D-Link router & access points were deployed, which are
easily manageable and can also be upgraded to meet all the future requirements.

WLAN: Standardizing Growth

The WLAN marketdriven primarily by Wi-Fi hotspots and enterprise Wi-Fi
solutionswitnessed a thumping growth. The primary growth driver for the
adoption of wireless by any organization was directly proportional to the growth
of laptop penetration, increase in the availability of mobile applications and
the solution led focus which includes third party applications on the wireless
platform. All this ensures more deployment of wireless solutions. This will keep
on growing as due to the adoption of mobility solutions, there will be a growth
in laptops population, and more third party applications and solutions. The
demand for a faster wireless technology is apparently very strong. Further, the
ratification of 802.11n standard has fueled the demand for wireless products. N
standard ratification has been one of the most significant developments in the
WLAN space, thus, improving data rates and range for WLAN to address the
escalating demands placed on enterprises, home and public WLAN networks. 802.11n
offers upto six times increased throughput when compared with the existing
802.11a/g networks.

The market now offers N standard devices like broadband routers for better
coverage and faster throughput for the ever-growing demand for speed. For
enterprises, unified access solutions based on N standard are available which
empower network administrators to have a better control, security, redundancy
and reliability needed to scale and manage their wireless networks easily and
efficiently. The next generation unified access point supporting the IEEE
802.11n standard is a versatile and powerful device that can be flexibly
deployed as a standalone fit wireless access point or as a thin managed
access point manageable from a wireless switch. Cisco introduced 802.11n Draft
2.0 technology in FY10. The company has recently announced its new 802.11n
access point, the Aironet 1140 series, Wi-Fi certified 802.11n Draft 2.0
platform that expand Ciscos portfolio of next generation wireless solutions. It
has also announced about the Cisco M-Drive technology, a new system-wide feature
of the Cisco unified wireless network for building enterprise class networks to
deliver a reliable RF platform to simplify the wireless adoption and enhance the
performance of 802.11n. The collaboration between RFID and wireless with Ciscos
location tracking device and solutions is leading to new mobility applications
and solutions for various industry segments like manufacturing, retail and
healthcare.

Green Agenda

Green initiatives were high on the agenda of all vendors. Cisco is
conducting lots of recycling programs for green switches. As a part of its
commitment towards green computing, D-Link spends a significant amount of
resources and time pursuing green computing initiatives. All D-Link green
devices are designed to help conserve energy, protect the environment from
harmful substances, and reduce waste by using recyclable packaging. Even the
design of Daxs products is such that the technology upgrade can be done through
a software without any change in the physical hardware to support additional
features. This increases the usability of the product. Juniper Networks is also
very active on the recycling front. The company strives to deliver solutions
that have an extended lifecycle.

FY11 will bring answers to some interesting questions. Will HP finally break
Ciscos monopoly? Will Avaya create new dynamics for the Indian networking
market? Will D-Link and Smartlink end up cannibalizing each other? Watch this
space for further developments.

Shilpa Shanbhag

shilpas@cybermedia.co.in