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

A clean sweep by Sun in the Unix server market space, where it cornered 37% of the marketshare. Apart from the aggressive ‘dot in the dot-com’ strategy, which saw Sun reign among dot-coms and ISPs, it also scored high in the brick-and-mortar segmentIt 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.

With the AP series, Compaq grabbed top honors in the personal workstation market, a position it held last year as well. It increased its lead over rival HP–from the previous year’s Rs 1 crore to Rs 8.5 crore-plus and from 150 units to over 1,000 unitsCore 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

Sun was the clear winner. With a 49% share, Sun led nearest rival SGI’s 27% by a huge margin. Sun’s workstations were gobbled 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

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