SERVERS AND WORKSTATIONS: Sweet Fruit, Lovely Weather

Cheers, said vendors, as they participated in one of the

biggest parties of the decade. "Simply fantastic" was their comment on

the year gone by. And the taste is bound to linger in their memories, especially

with a slowdown-like year that ensues. Business could not have been better.

Unprecedented server sales catapulted the erstwhile low-lying segment to a

star-performer status. And what a performance–a growth of 76% in value terms,

compared to a mere 7% in the previous fiscal. In terms of units too, it was a

heady elixir–46%, compared to 31% in 1999-00.

In the first half of the year, ISPs and dot-coms generated

most of the server demand. Nearly 400 ISPs wanted to quickly install them lest

they lost the eyeball game. And the ‘brave new world’ of dot-coms, flush

with VC funding, was certainly in a great hurry, as it outlined various Internet

business models to potential Indian customers… the dream run flourished. To

add to the vendors’ delight was the consolidation and automation spree by the

banking and finance industry. The industry saw heavy server sales to financial

institutions, insurance industry and the government sector. This was also

reflected in IT spending by the public sector and government, which saw an

increase from last year’s 30.7% to 34% in 2000-01.

Goodies all around

It was a double whammy for the vendors–for both RISC and

Intel-based in the banking and insurance sector. On the one side was the

consolidation spree by the segment–in the rush for automation, public-sector

banks invested heavily in branch link-ups and computerization, with processing

being done at the branch level. With heavy competition from the new-breed

private banks, PSU counterparts realized the need to move fast into ‘core

banking’. The banks, of all hue and shapes, realized the importance of

consolidating their back-end operations at a centralized level to meet the

challenges of the new world, the increased customer expectations.

On the other hand was the specter of increased competitive

threat and growing customer expectations that was forcing government-owned

institutions to go on an increased automation binge. For instance, insurance

major New India Assurance automated over 600 branches–a straight demand for

over 600 Intel servers–in the last nine months. To connect them at the

back-end, add a few Unix servers. Include the RBI directive of quick

computerization by Indian banks and the increasing readiness of banks to oblige,

and the demand for servers swelled up.

Core banking remained the top application where the servers

were implemented with some of the names on the core banking binge including

Hongkong and Shanghai Banking Corporation, ICICI Bank, HDFC Bank, Bank of

Rajasthan and UTI Bank. Increasingly, financial services companies are finding

it imperative to implement core banking applications in their operational set-up

for consolidation of data at a centralized location. It's a no-brainer that for

any complementary service, like Internet banking, telebanking and automated

teller machines, it is not possible to roll out these services without having

data in a central location, where it can be accessed by the various channels.

Already, banks like ICICI Bank and HDFC Bank have shown that following this

operational procedure can generate great results and above all, higher customer

satisfaction.

Next on the list of demand drivers were the ERP/SCM

implementations and e-commerce initiatives in the manufacturing space, apart

from media and telecom companies. Slowdown or no slowdown, companies in India

seemed to have realized the importance of ERP and SCM implementations and went

ahead with their plans. Manufacturing accounted for over 9.5% of the total IT

spend and much of this went into ERP/e-commerce implementation.

Other key drivers in the first half were ISPs and dot-coms.

Over 400 ISP licensees vying for the eyeballs translated into a brilliant icing

on the vendor cake. Big players were on an expansion spree to spread their Net

across the semi-urban area, while smaller ones were busy investing in

infrastructure. Post-half year and still clueless about a viable business model,

the demand for Internet infrastructure sank. As things stand now, demand is not

expected to rise in the coming months as most existing players have already

built up capacity substantially.

The same was the case with dot-coms. Entrepreneurs of all

shapes and dreams rushed in to build their sandcastles with help from

ever-willing venture capitalists. The slowdown had kicked in sometime in the

beginning of the year, but it took some time before the dot-com balloon got

unstrung. As the air hissed out, so did the demand from this segment. However, a

few of the falling orders were compensated for with the emergence of Internet

data centers. With about eight to ten players like Reliance, Enron and Cyquator

setting up IDCs, demand continued to be strong… but the major beneficiary in

this space was Sun, which notched up seven of the ten-odd deals.

Even the software sector, which appeared to have been caught

unawares by the slowdown which reared its head by the end of the third quarter,

did their share of heavy buying till then, shoring up the server segment’s

fortunes. In the traditional (Unix) workstation market, it was Sun again that

led the pack, with heavy demand from the animation, graphics and the CAD/CAM

market space, whereas the number two player, SGI, saw demand coming the

education, research and entertainment sectors.

The market makers

Top

PC Server Vendors   Units Value (Rs lakh) Compaq 9,702 25,247 HCL 4,729 19,900 IBM 6,612 12,700 HP 5,500 10,000 Wipro 2,199 3,200 CMS 4,500 3,000 Zenith 3,015 2,800 Acer 1,000 1,350 PCS 850 515 others 1,400 1,425 Total 39,507 80,137 The honors

went to Compaq, the clear leader with its ProLiant series.



An over 30% marketshare in value terms and 25% in unit terms,


coupled with a strong partner network and powerful brand, ensured


that Compaq will continue to lead in the current year as well

‘The dot in the dot-com’ strategy paid off handsomely for

Sun, with super-growth leading to it being the number one server company in the

RISC space, boasting a turnover of over Rs 373 crore. Among the top orders

bagged by Sun included financial institutions like HDFC Bank, ABN Amro and

Citibank, apart from some others like ITC and Reliance Industries. HP was at No

2, and the key value proposition came from its mid-range server. HP managed huge

growth in the ERP segment–primarily SAP as the top application, followed by

Oracle. While Sun is the clear leader, HP will have to work hard to cover the

over Rs 130-crore difference.

In third slot was Compaq, but thanks to the booming PC server

business, it led the overall server segment revenues of Rs 476 crore. The

numbers did all the talking here, as Compaq cruised home with over Rs 250 crore

of orders in this segment alone. IBM, which had held fort in second spot in last

year's rankings, was upstaged by Sun Microsystems, which grabbed the No 2 slot

in overall server rankings.

This is on the lines of the US server market, where IBM lost

pole position in 2000, according to Gartner Group estimates. Part of the problem

for IBM was its re-branding exercise, with the mother brand ‘eServer’ being

pitched against earlier brands like S/390, AS/400 and Netfinity.

Sun Microsystems won major accounts not only in the Internet

space but also in the traditional brick-and-mortar segment. Globally, though IBM

retained the numero uno position in the server space, it had a flat growth rate

of less than 1% compared to a super-charged 43% growth rate shown by Sun

Microsystems. The same pattern has been repeated in the country. With a growth

rate of just 23%, IBM is way behind Compaq and Sun’s triple-digit growth of

117% and 108%, respectively.

Today’s picture

So much for fiscal 2000-01… zooming in on the current

fiscal, the dream run seems to be over, and the slowdown is taking over. The

market is unlikely to witness growth rates like last year but it is still

brimming with opportunity. The big bet is again on the banking, finance and

insurance segments.

Vendors are banking on the ‘ripple’ effect with the

rationale that if a few players have made heavy investments, other would have to

follow suit. Also, with the opening of the insurance segment and MNCs stepping

in, they would be investing heavily to catch up on their IT needs. Again, the

‘ripple’ effect, with Indian players not having much choice but to follow

suit.

The same is expected in the telecom industry… last year,

there were some investments but it is this year that will have vendors witness

the cumulative effect of telecom liberalization. With many basic and cellular

operators bidding for licenses, it could be a way out of the slowdown for

vendors.

Also, the manufacturing sector will see investments in

integration of various applications into a common Web-based hub. Like it or not,

companies have realized that the Internet is a reality and if they are not in

tune with this development, they might well see themselves being left far behind

over the next few years. Admittedly, the investments entailed in such

integration might not rival that in the last fiscal, but a strong following is

likely in the CRM, SCM and ERP segment, which, naturally, will cascade into

orders for the server segment.

The Demand Drivers

Banking and finance The sweet spot for all vendors. With private sector and MNC banks opting for high IT deployment, public sector rivals followed suit Manufacturing Implementation of ERP packages saw continued growth in the manufacturing segment ISPs & dot-coms The party started with aggressive buying from this segment, but wore off by late in second quarter Software companies Before the specter of the slowdown emerged, software units were among the lead buyers. The slowdown had an impact only in the last quarter, but demand from other sectors made up that loss Data centers The dot-com crash saw demand fall, but the emergence of IDCs saved the day. Others like Cyquator, Reliance and Enron also boosted sales

According to Calendar Q1 server reported by Gartner,

"India has emerged as one of the more stable markets in the region–the

only country to register growth on a quarterly and yearly basis." Even

China, which has a marketshare of over 39%, has shown a quarter-on-quarter

decline in server growth rate. The only sweet spot available–India.

The optimism is still there, a feeling that India will

continue to buck the slowdown trend and continue to grow from quarter to

quarter, even as other countries in the region continue on their negative growth

path. Perhaps, then, while might not be looking at a picnic this time around,

but the show will go on.

APAC Server Shipments: Still a Long Way to Go

APAC Server Shipments: Still a

Long Way to Go

  Shipments 



Q1 ’00 Shipments 



Q4 ’00 Shipments 



Q1 ’01 Growth 



Q4 ’00 to Q1 ’01 Growth 



Q1 ’00 to Q1 ’01 Total

AP market 111,164 155,334 136,104 -12% 22% Singapore 4,354 5,466 5,527 1% 27% China 34,964 64,170 53,052 -17% 52% Korea 15,090 15,602 15,507 -1% 3% Australia 13,907 16,734 14,323 -14% 3% India 10,898 11,076 11,728 6% 8% Taiwan 9,848 12,132 11,609 -4% 18% Hong

Kong 4,530 8,638 7,618 -12% 68% Source:

Gartner Dataquest (May 2001)

Servers and Workstations: Market Segmentation

Servers and

Workstations: Market Segmentation

  1999-00 2000-01 Units 



Growth % Value



Growth % Units



 (Nos) Value 



(Rs lakh) ASV 



(Rs lakh) Units 



(Nos) Value



(Rs lakh) ASV 



(Rs lakh) Unix Servers High-end 4 3,001 750 14 8,100 580 250 171 Medium-end 635 28,370 45 691 48,210 70 9 70 Low-end 2,618 30,810 12 3,265 43,984 13 25 43 Total 3,257 62,181 19 3,970 100,316 25 22 61 Intel Servers PC servers 26,623 40,101 2 39,507 80,137 2 48 100 Workstations Personal 3,500 5,836 2 7,073 9,172 1.3 102 57 Traditional 2,029 13,603 7 4,784 19,500 4.1 136 43 Total 5,529 19,439 3.5 11,857 28,672 2.4 114 47 Powerhouse

performance: While the overall server market grew by a whopping 76% in

value terms and 46% in unit terms, workstations grew at 114% and 44%,

respectively. The major gainer–Sun Microsystems. In terms of prices, the

average selling price shows a higher realization compared to the previous

year, indicating that customers were opting for high-end products and

building capacity for the future. While Compaq was the No. 1 player in the

high-end market with Rs 28 crore, Sun led the two segments in the RISC

space