Steadfast Growth

The growth story of the Indian structured cabling industry continued during
the last fiscal. The growth in bandwidth requirement and need to run multiple
applications are fueling the growth of the cabling industry in India. The
overall market grew from Rs 827 crore in FY 07 to Rs 1,172 crore in FY 08,
registering a 41.8% growth.

Market Trends

There was an increased acceptance and deployment of 10 Gb over UTP following
its ratification by the IEEE and also due to bandwidth requirements. Cat 6
continued to be the dominant cabling solution across all industry verticals
enjoying a market share close to 70%. Following its ratification by the ISO and
the EIA, Cat 6a is also expected to gain momentum. It saw good acceptance by
data centers, as cabling solution of choice apart from backbone cabling.

What also gained momentum during the last financial year was the increase in
awareness of creating a quality IT infrastructure within the enterprise. This
has come a long way since the time structured cabling was treated as
unstructured cabling with little attention being paid to this important aspect
of networking. Cabling as the foundation of the IT infrastructure got increased
recognition from the enterprises. The deployment of the latest technologies like
Cat 6a, Cat 7, and fiber along with intelligent infrastructure also saw
increased adoption. Cat 5e continued its journey in the very small/SOHO segment.
In fact, there are reports of Cat 5e cabling entering the home segment, and
being preferred over the traditional telephone two-pair cable. Some leading real
estate companies started looking at building network automation. A trend toward
shielded technologies on cabling due to parameters like Alien Cross Talk was
also witnessed. The market also saw acceptance of transmission of higher data
rate through copper infrastructure apart from fiber, even on single mode, to
reach to newer customer base of FTTH application.

Increasingly, vendors are gearing up to move from providing vanilla cabling
to software driven real-time management of the physical layer, which enables
immediate troubleshooting of problems, if any, besides optimum utilization and
efficiency. This new intelligent structured cabling is capable of tracking
IP-based devices in such a way that it enables the network manager to access,
control, and manage them from one central location. The distributed nature of
computing apart from shortage of professional cabling professionals has made
this an important issue.

Progress Report

Tyco Electronics AMP NetConnect topped the slot by achieving an estimated
growth of Rs 299.5 crore in FY 08, which is a 28% growth from Rs 234 crore in
FY 07. Though this growth is less than last fiscal, the companys contribution
is the single largest to the Rs 1,172.7 crore mark.

Much in sync with the overall market growth, which has witnessed a decline
this year, Tyco also saw a decline in its growth rate this year. It registered a
28% growth in FY 08 compared to a 42.7% growth in FY 07. Systimax CommScope
clocked revenues of Rs 221 crore in FY 08, registering an 18.2% growth rate.

D-Link, on the other hand, has clocked Rs 180 crore revenue in FY 08 from Rs
146 crore in FY 07, a 23.3% growth. Molex made Rs 98 crore in FY 08,
registering a 40% growth. ADC Krone has clocked Rs 52.4 crore in FY 08, as
compared to Rs 36 crore in FY 07, a 45.6% growth.

The volatility of global copper pricing and duplicates from unscrupulous local manufacturers were major concerns. Nevertheless, the structured cabling market witnessed an impressive 42% growth

A noticeable trend is companies in the middle order continued to register
higher growth rates than that of the top order ones. R&M (Reichle & De-Massari)
India has registered an impressive growth of 120% in FY 08 over the previous
fiscal. It clocked revenue of Rs 55 crore in FY 08 as compared to Rs 25 crore
in FY 07.

Nexans Cabling was not more than a single-digit company in terms of revenue
in crore. On similar lines, CDT Belden has grown tremendously, from revenue of
Rs 15 crore in FY 07 to Rs 41 crore in FY 08.

To continue its growth in the coming years, and retain the leadership
position, Tyco intends to have more focus on its partner programs, and is
working toward enhancing the current ones. An important part of its strategy was
to increase its reach in smaller cities through new alliances with system
integrators, resellers, etc. In a bid to aggressively market itself in smaller
cities, the company enhanced its geographical reach by adding offices in
Ahmedabad and Pune, and has forged newer alliances with system integrators in
other B & C class cities.

Systimax retained its position in the top order this year as well, clocking
revenue of Rs 221 crore in FY 08, an 18% increase over the last fiscal that
stood at Rs 187 crore, a 19.9% y-o-y growth.

The company launched new solutions in 2008 including CommScope Enterprise
Solutions with 6A and Class EA standards. Early this year, CommScope completed
the acquisition of Andrew, which, it claims, further enhances its last mile
offering with its end-to-end wireless solutions.

D-Link scaled up its operations with an impressive growth of 23.3% and
revenue for FY 08 at Rs 180 crore. In the last fiscal, the growth rate was
32.7% at Rs 146 crore.

D-Link has been able to maintain its leadership position, thanks to its
strengthlocal manufacturing coupled with other networking product portfolio
apart from traditionally being a price warrior.

Molex has clocked revenues of Rs 98 in FY 08, registering a growth of 40%
over the last fiscal. In 2007, it clocked revenue of Rs 70 crore, which was up
84.2% from the previous year. The first key order it bagged was from Tata
Motors, Uttarakhand for which a 1,200 outlet Cat 6 with over 40 km of fiber was
installed. A 20,000 outlet Cat 6 was deployed for HCL.

Another key order involving intelligent infrastructure management (IIM)
solution incorporating Cat 6 over 70 km of fiber and over 40,000 software ports
was bagged from Bhilai Steel Plant. It aspires to improve its market share in
India by securing and retaining its major clients in key vertical markets.

The not so big players and relatively new entrants also registered impressive
growth thanks to their low existing installed base. Reichle and De-Massari (R&M)
opened an Indian liaison office in Bangalore. It also opened a training center
for partners and end-users. Panduit registered revenues of Rs 46 crore in FY
08. Panduit has grown 100% from the last fiscal by closely working with its
customers and partners to manage price corrections.

Among the new entrants, a company that registered a stupendous growth rate is
Nexans Cabling. Within a short span of time, Nexans has been able to add many
reputed clients to its kitty in India.

ADC Krone registered revenues of Rs 52.4 crore in FY 08, a 45.6% increase
from its revenues in the last fiscal. In FY 07, it clocked revenues of Rs 36
crore from Rs 26 crore in FY 06, registering a 38.5% y-o-y growth rate. Due to
rising copper prices, especially when UTP solutions require a lot of copper, it
has been a challenge for the company to maintain prices in long-running
projects.

Sterlite India registered a growth of about 45.2% in FY 08 over the previous
fiscal. It clocked revenues of Rs 45 crore in FY 08 as against Rs 31 crore in
FY 07.

In 2008, Sterlite India expanded its capacity from approximately 160,000
boxes (of Cat 5e and Cat 6 cables) pa to about 300,000 boxes pa in
manufacturing. The 45% growth was achieved by its strategic focus last year on
increasing OEM sales and leveraging on the strong presence in the telecom
segment.

Dax Networks clocked revenues of Rs 11 crore in FY 08 from Rs 10 crore in
the last fiscal, registering a 10% growth rate, a notch lower than the 11%
growth rate achieved in FY 07.

Another company that made an impressive growth is CDT Belden, which has
registered a 173.3% growth over the last fiscal. It clocked revenue of Rs 41
crore in FY 08 from Rs 15 crore last fiscal

Challenges

The increasing price of copper has been a major cause of concern. It forced
players to adjust their pricing. It was a tough task to keep up with the
volatile state of the copper market. To beat pricing pressure and secure
profits, innovative manufacturing processes and investments in R&D were the need
of the hour. Customers as well as partners understood the issues pertaining to
this. Planned forecasting and close working with partners helped manage price
corrections. The paucity of well-trained and qualified engineers was another
major concern the industry had to undergo.

Another challenge faced by the industry was that unscrupulous local
manufacturers are manufacturing low quality duplicates, which cause losses for
end-users in terms of safety of equipment and personnel.

High attrition rate, high labor costs, and gray markets are also plaguing the
industry. Profitability has indeed taken a beating due to the pricing pressure,
which worsened with the upward revision of copper pricing several times during
the year.

Yet another challenge was short delivery times expected by most customers.
Customers are looking at Cat 6a for data centers, Cat 6 in horizontal cabling
and optical fiber backbones. While the Indian market is quite price conscious,
new protocols require stringent BER (bit error ratio) and the market is looking
at good quality products and value-added services, as people are looking for
quality. This adds to the pressure on the players to deliver in the given
environment. The industry also was impacted by the presence of large unorganized
sector that exists in this market, it is essential to deliver consistently with
performance and provide the end-user with technological advancement inputs.

Standard Products becoming Commodity Products was another challenge. The
standardizing of products is good for the customer, as he is able to look at
certain norms and then buy the product of his choice. But with standard
becoming a commodity, the issue relates to quality and performancea standard
might require ten norms to be met but a commodity might meet only seven, and
since its a standard product this small difference makes a big difference.

Rising prices of copper was a big impact considering that India is being
largely a market for UTP. These fluctuating copper prices presented a challenge
with regard to managing prices, especially in case of long running projects.
From the customer side, the challenge was the short delivery lead times from
most customers. Moreover, there is a greater product mix these days which itself
is another challenge. Customers are looking at Cat 6a for data centers, Cat 6 in
horizontal cabling and optical fiber backbones. Plastic prices also went up due
to global increase in oil prices.

Price fluctuation in the structured cabling market was also a challenge in
cabling business, but thanks to the vendors capability to efficiently manage
this situation, the impact was not felt much on the market. The vendors kept a
constant watch on the market and efficiently managed this by forward booking
orders when LME rates were lower.

UTP vs STP

Undoubtedly, UTP is more in demand and will remain the preferred choice in
India. But, with new technologies like industrial ethernet making way into the
Indian market, the shielded share is bound to increase. STP solutions are used
in ship-building, airports, railways, defense establishments, etc. With the
advent of 10 Gb, clients are considering shielded solutions much more seriously
as they offer a number of advantages over UTP. The market share of UTP solutions
is about 80% of the total copper needs. Thankfully, India is not facing as much
interference as few European countries are due to availability of spacious
commercial spaces.

Vertical Growth

As the Indian structured cabling market continues to grow, SOHO, B and C
class cities, Internet-ready housing complexes, and residential cabling are few
new growth points of the market. There has been the implementation of video
walls with music integrated with security systems. The connectivity for this
could run on a four-pair cable. The cabling market in data centers is already
seeing a rapid growth, which is currently 40% annually.

One of the key areas of business will be in data centers, as the number of
data centers used by enterprises is on a rise. The other area is intelligent
cabling. With the number of large networks increasing, there is a need for
intelligent cabling for the proper management of networks. While the IT industry
is experiencing a steady growth, business verticals such as retail, education,
government, and public sector undertakings are the new areas where structured
cabling will see new opportunities. There are scores of new multinational
entrants in retail that hold huge potential for the structured cabling business.
All these new opportunities will mean an increased growth rate as compared to
last year.

What Lies Ahead

It is expected that India and China will be the two markets in the world to
experience exponential growth in the global structured cabling market. With
increased investment in infrastructure, and being a leader in software
development, India would be a stronger growth market.

IT/BPO and BFSI continue to be the biggest drivers of the cabling market in
India. Real estate companies through their smart building concept are also
complimenting the growth of structured cabling market with the concept of plug
and play coming to fore. Some encouraging signs are also emerging from the SME
as they are also on an expansion mode. The growth in the coming year is expected
to be on similar lines.

As far as technology is concerned, all standards have their benefits if
utilized in suited environments. However, Cat 5e usage is declining and Cat 6
replaces it as the minimum requirement for most projects. Fiber continued to be
the most common choice for high-performance backbone applications, but despite
all the talk, it has not gained traction as a horizontal or work-area option due
to the high price of fiber electronics. Today the structured cabling market is
matured. Surely, its a price conscious market, but as new protocols require
stringent BER, the market is looking at good quality products and value added
services as well. People are shifting the focus to quality from price.

Kannan K

maildqindia@cybermedia.co.in