THE GIANTS: Survival of the Fittest

"In order for a species to cope with the ever-changing environment and
circumstances it is subjected to, it needs to not only adapt, but also have the
capability to pass on these adapted characteristics to future generations"

Charles Darwin, in Survival of the Fittest

Year 2001-02 may well go down in IT history as the period when sharks ate
sharks in a bid to consolidate and grow–for tough market conditions offered
little opportunity for organic growth. It was a year when extraordinary external
forces overpowered business and sent corporate planners scurrying around on
damage control missions. While the ostriches buried their heads in the sand and
perished, the tigers roared and created new divisions, some others even
bifurcated operations. As for the cash-rich, they simply picked up their cheque
books and went shopping. For those that died, for those that roared, for those
that bought, and for those that got bought out, one thing was clear –Year
2000-01 was the ‘Year of Survival’.

And since the survivor has to survive attacks from someone, it was also the
‘Year of the Shark’. Nine of the DQ Top 20 players of fiscal 2000-01 were
involved in buyouts (even buying out each other)–the year was marked by of
mergers, acquisitions and joint ventures. Last year’s #2 Tatas not only bought
51% stake in the government-run #20 CMC for Rs 1.52 billion, it also acquired
25% stake in the telecom behemoth Videsh Sanchar Nigam Ltd to take control of
its management.

HCL group company HCL Technologies (HCLT), on the other hand, picked up 51%
in Deutsche Software in a Rs 1,200-crore deal that stipulates that at the end of
three years (in October 2004), HCLT will also swap shares with Deutsche Bank to
buy the remaining 49% stake. Meanwhile, NIIT, which had been planning
acquisition for quite sometime now but had decided to lay low as valuations were
high, struck a $3-million deal to buy US-based full lifecycle SAP solution
provider Osprey Systems. The company also acquired the custom development
business of Click2learn, a US-based company providing enterprise learning
platform. In another all-cash deal worth $3.9 million, Infosys Technologies
bought over the treasury software unit of US-based IQ Financial Systems in a bid
to expand its banking product portfolio and reach new markets.

As if the mergers and acquisitions were not enough, biggies like Wipro
Infotech decided to go for some mega-corporate get-togethers. It joined hands
with IBM through a strategic tieup and tried managing its sagging fortunes in
the systems business. Some others decided to restructure their operations. While
Wipro Technologies spun off its healthcare practice to create a separate
division called Wipro Healthcare, Aptech decided to bifurcate its operations to
create Aptech Training for its education and training business and Hexaware
Technologies for its software operations. The list seemed endless, but the event
of the year that made the entire world sit up was HP Inc’s September, 2001
announcement that it was acquiring Compaq Inc’s in an all-stock deal worth $25
billion and creating an IT mammoth second only to IBM.

CHAIN REACTION: The Giants slowed down for the first time in five years–after last year’s 57% growth, the Top 20 could manage only 9% in 2001-02. Even here, it was the software players that pushed the growth into positive territory–HW players had a tough time

On the overall revenue front, the Indian IT industry closed books with
figures of Rs 62,134 crore in fiscal 2001-02. However, the revenues would have
been much less–at Rs 54,984 crore–but for the fact that DQ decided to move
with the times and include the fast-growing IT-enabled services (ITeS) in the IT
sector, as part of software exports. While the pure IT companies managed to grow
by 9%, the ITeS segment grew at a gallop, 73%–from Rs 4,100 crore to Rs 7,100
crore. What this means is that last year’s revenue numbers also had to be
reworked, to factor in ITeS in that year– from Rs 49,677 crore to Rs 54,566.
This move dramatically changed the complexion of the industry. At final count,
the Indian IT industry, including ITeS, segment posted a growth rate of 14%,
compared to 52% growth last fiscal. Of this, the Top 20 players grew by 9% to
bring in Rs 34,114 crore–55% of total industry revenues. This was also 63% of
the total industry revenues for last year.

The Giants

The Giants

While there was no change in the names of Top 5 companies in the Indian IT
industry in the DQ Top 20 list, there was a reshuffle in the pecking order. Two
years after losing the #1 slot to HCL, the Tatas bounced back to regain the top
seat, followed by Wipro at #2 and HCL at #3. Among the others, Infosys moved
ahead a notch to grab the #4 slot while push Compaq moved into #5 position.

The Top 20 Groups THE BIG GUNS: The Top 5 were unchanged, with the Tatas regaining the top slot and the others trading places. Next year’s list will be interesting–the new HP will complete its first year of operations, and the Tatas will blaze through the Rs 5,000-crore mark to become the first Indian IT group with revenues of over $1 billion

Overall, the Top 5 Giants cornered 26% of overall industry revenues, while
contributing 47% to the Top 20 kitty. Interestingly, the Tatas closed their IT
entity books with Rs 4,803 crore, or 14% of the Top 20 revenue and a whopping 8%
of the total industry figure! Wipro, meanwhile, registered group revenues of Rs
3,250 crore (10% of Top 20 revenues and and 5% of overall industry), HCL showed
revenes of Rs 3,222 crore (9% and 5%, respectively). Infosys Technologies showed
final revenues of Rs 2,604 crore, (contributing 8% and 4%), while Compaq had
final numbers of Rs 2,122 crore, making up 6% and 3%, respectively, of the Top
20 and overall industry revenues.

More pain, less gain

Some serious number crunching throws up other interesting facts permutations–while
only two Top 20 players last year had growth of less than 40%, only one, Moser
Baer, scored more than 40% on the growht front this year. And Moser Baer went
the whole hog, clocking in 102% growth to register total revenues of Rs 679
crore. The feat saw it jump 15 ranks, from last year’s 35th position to this
year’s new #20 player.

Others in the Top 20 list who managed to clock a more-than-industry growth
rate were Infosys with 37%, Satyam with 36% and Ingram Micro with 31% (see box,
above). Top 20 players with growth rates lower than the industry average were
Wipro (8%), IBM (7%) and HCL (4%). Thanks to their software focus, the three
managed to show positive growth. It was the hardware vendors who were hit, and
hit hard–Compaq could show only 9% growth, while HP India could manage only
negative growth of 8%. Fiscal 2001-02 belonged to ITeS and software.

However, there were a few exceptions to this trend of software still being
hot, ITeS being a great new find, and hardware being everyone’s new bad dream–Pentafour,
for one, despite being a well-known software player, showed a 12% negative
growth. NIIT, meanwhile, slipped by 34% to return home with figures of Rs 907
crore, compared to Rs 1,375 crore in fiscal 2000-01. Among those who bowed out
of Top 20 list this year were Cognizant Technology Solution (see note at end of
the story), CMC and Aptech. Aptech managed only Rs 301 crore this year, against
Rs 766 crore last year (primarily due to demerger, with other "slice"
Hexaware showing annual revenues of Rs 244 crore in fiscal 2001-02). Even
combined, the revenues of Aptech and Hexaware were 29% under those shown last
year by the joint entity.

Cognizant Technology Solutions, despite registering a growth rate of 23% and
revenues of Rs 864 crore (DQ estimates for 2001-02), had to be dropped from the
list because of another correction in the format of DQ Top 20 exercise. The
company submits full global revenues of CTS Inc, on the grounds that most of the
development happens in India, and Dataquest has been using the same, both for
industry totals as well as ranking purposes. This year, however, both Dataquest
and Nasscom decided to modify this process to present a more realistic picture
of the ‘Indian’ software industry. The most compelling argument against this
is that such global revenues do not actually come into India and, hence, only
revenues from CTS’ India operation–Rs 388 crore–were taken into account
for the DQ Top 20 purpose.

In the domestic hardware market (including services), Compaq Computers took
the cake with total revenues of Rs 1,790 crore. HP India was a distant #2, with
figures of Rs 1,334 crore. The duo was followed by Intel Asia (Rs 1,220 crore),
Samsung Electronics India (Rs 1,106 crore) and HCL Infosystems (Rs 1,079 crore),
making up the Top 5. Among the distributors, Tech Pacific India scored the
highest, with revenues of Rs 1,676 crore, followed by Redington (Rs 1,350 crore)
and Ingram Micro (Rs 1,220 crore). Wipro and HCL Infosystems were the other big
distributors, though not a pure-play distributors, with revenues of Rs 440 crore
and Rs 352 crore from their respective channel businesses.

On the whole, fiscal 2001-02 was a year when the Giants came up against a new
and tough opponent, against whom they found themselves powerless, to begin with–but
at the end of the day, this same reversal had seen them evolve, and reorient
their business and thought processes. For this year’s Top 20 Giants, as for
the rest of the Indian IT industry, this has been a battle that will be
remembered best for the lessons that it taught them–with time, the wounds will
heal, but the learnings are here to stay.

What Makes Up the Top 20 Giants

Team DQ

*Note I: HCL would have been in second place in the Giants rankings, and much
ahead of Wipro, if NIIT’s numbers were added to its group revenues. However,
starting this year, and after consultations and deliberations with the HCL Group
and NIIT, Dataquest decided to exclude NIIT revenues from HCL’s total tally.
The reason for this was that the only common thread running across the various
HCL companies and NIIT was HCL Technologies’ chairman and CEO Shiv Nadar’s
holdings in a personal capacity–as a corporate entity, the HCL Group had no
stake in NIIT.

*Note II: Dataquest’s estimates for the revenues of CTS, India. In previous
years, we have listed the full global

revenues of parent CTS Inc, USA (about Rs 864 crore for 2001-02) in the ranked
lists, as well as India's software exports revenues. This is a correction by
both Nasscom and Dataquest. See full notes below table in Software Exports
segment analysis, Page 112.