VERTICAL: The Savior

E-Castles in the air may be grander, but brick and mortar certainly survives
the hurricane better. The success of e-business, banking software, finance
applications and e-assisted business, despite the slowdown, proved that the ‘e’
is strongest where it leans against a vertical. Banking and finance, ISPs,
telecom, enterprise automation, government, logistics and transportation... the
IT industry’s dependence on the certain verticals has never been so evident
before.

According to Nasscom, the IT-enabled services sector in India has grown by
over 70%, from Rs 2,400 crore to Rs 4,100 crore in 2000-2001. The number of
people employed in this sector has also touched almost 70,000. The industry saw
heavy server sales to banks and financial institutions, insurance players and
the government and PSU segments. The banking sector came to rescue as ISP
activity slowed. B2B scored over B2C. Even in the latter, credit card numbers
may not have flashed across as thick and fast as the industry may have hoped
for, but e-assisted business is surely here to stay.

Banks were keener to automate their billing processes and e-enable other
services; stock exchanges and financial corporations found it imperative to
cater to the on-line trading needs of investors, and corporates inferred that
customer-oriented services such as CRM and call centers had increased in
importance. Many projects were scale-ups on previous years’ implementations,
or aimed at leveraging applications and services on previously-built WANs. The
network integration space alone grew at an impressive 64% to notch up total
revenues of Rs 1,675 crore.

The Big B: Banking and finance

Having remained virtually unaffected by the slowdown, banking and finance
emerged as the fastest drivers for the IT juggernaut. IT spend in this sector
increased from 8.8% in 99-2000 to 14%, while the contribution of the
manufacturing sector slipped by nearly 2% this year. Between 11,000 and 12,000
bank branches were computerized in fiscal 2000-01. This was primarily because
banks began viewing IT-enabled operations as a significant differentiator and
thus accorded this segment top priority. Besides, it was not possible for banks
to cut down on the services they had began offering two years ago.

Nearly 66 % of the business for Chennai-based Polaris Software, and 33% for
Pentasoft Technologies, came from the banking, finance and insurance segment.
HCL Infosystems clinched deals with Bank of Rajasthan, apart from countrywide
networking for Indian Overseas Bank. PCS Industries, a Mumbai-based manufacturer
and seller of desktops, servers and networking products, received a Rs 15-crore
order from Central Bank of India to automate its 163 branches all over India.

Even smaller companies like Mumbai-based e-commerce solutions provider
Melstar Information Technology geared up to tap the banking, financial,
insurance and technology segments in Australia, Japan and West Asia. Currently,
over 90% of Melstar’s revenue comes from the US and Europe. This sector
emerged as big buyer of RISC servers and government banks followed suit. Among
the top orders bagged by Sun, which emerged as the number one company in the
RISC space, were those from financial institutions like HDFC Bank, ABN Amro and
Citibank, and Old Economy companies like ITC and Reliance Industries. Servers
were implemented at Hongkong & Shanghai Banking Corporation, ICICI Bank,
HDFC Bank, Bank of Rajasthan and UTI Bank also.

Private 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’. Banks of all colours and creed 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.

Government and PSUs

• ISPs like BSNL, VSNL and Satyam ramped up their
  infrastructure. New players like Tata ISP, HCL Infinet and Hughes
  Tele.com were also doing the same

• Call centers and IP contact centers contributed to a sudden
  spurt in the demand for networking products

• The traditional enterprise sector was active setting up wide
  area networks. Manufacturing, transport, utility, government and
  insurance led the spending chart

• New technologies such as SAN and NAS were adopted on a large
  scale. Large integrators also deployed wireless LANs at corporate
  sites

• The banking and finance sector spent crores on largescale
  networking projects across the country. Dena Bank, RBI, AmEx, Global
  Trust Bank, and financial institutions like BSE, LIC and UTI were the
  top spenders

• SW development centers also contributed to the runaway
  growth, especially with large software houses setting up new
  development centers.R&D activities also fuelled networking growth

• SMEs displayed great interest in networking their setups.
  About 15-20% Cisco’s revenues came from this segment

Government-owned institutions were top growth drivers as well as PSUs, and
they embarked on an automation binge that saw IT spend increase from 30.7% in
fiscal 1999-00 to 34% in the year under review. Among them was insurance major
New India Assurance, which 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. Government department and PSUs were major
takers of impact printers as well.

Wipro Infotech received a Rs 13.5-crore order from Central Board of Excise
and Customs to supply, install and commission an e-commerce gateway on a turnkey
basis. CBEC is planning to bring together the fragmented market of service
providers across the country on a common platform. Then again, out of total
domestic revenues of over Rs 1.4 crore, Cognizant Technologies saw over Rs 65
lakh coming from banking and finance.

HCL Comnet bagged projects from SBI, Bank of Madurai, Indian Bank and the
National Stock Exchange. Among other large orders, HCL Infosystems won a deal
from Indian Overseas Bank to implement a WAN connecting 200 branches across 11
cities. The company’s revenue from services alone in H1 of 2000-01 grew by
50%, weighed against H1 of 1999-00. It also secured an order to develop a WAN
for the Bank of Rajasthan, involving networking, security, facilities
management, and integration services. Tata Infotech, bagged major orders
including those from the Ministry of Defense and the Central Ground Water Board.
It also completed a number of Baan implementations.

ISPs

Key drivers in Q1 and 2 were ISPs and dot-coms. In the first half of the
year, ISPs and dot-coms generated most of the server demand pushing a growth of
76% in value terms, compared to a mere 7% in the previous fiscal.With over 400
ISP licensees in the fray, there were big plans of investment in infrastructure
and expansion plans until the demand for Internet infrastructure sank. More
seasoned and mature players reacted by reworking their targets–this helped
them tackle the situation, with the top five growing at an impressive 89%.
Today, what remains of them are 150 players. And the marketshare of the 150
operational ISPs is pyramidal, with the seven top players controlling 75% of the
market. As things stand now, demand is not expected to rise in the coming months
as most existing players have already built up capacity substantially.

India remained a thrust and growth area for most of the larger players, with
Cisco, Lucent and Nortel setting up huge development centers for outsourcing
activities. An IDC India report shows that Internet access rates came down by
about 70% in leased line and 60% in dial-up connections. In this backdrop was
born the concept of free ISPs, with Caltiger emerging as the largest in three of
the four top markets. Meanwhile, VSNL continued to lead the ISP pack by far,
while Caltiger was the pick of the lot when it came to free services.

Enterprise automation and e-business

As ISP activity slowed down, banks, financial institutions and insurance
companies got into the act in fast mode. As increased automation and networking
saw the demand for LAN switches shoot up by a massive 57%, hubs were hit hard,
crashing by 35%. Wireless LANs were deployed by large integrators like IBM
Global Services, CMC, HCL Comnet, Supreme and HCL Infosystems.

As with the banking sector, automation is seen as a significant
differentiator across industry verticals resulting in significant growth
especially in the SME segment. 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, Indian enterprises
seemed to have realized the importance of ERP and SCM implementations and went
ahead with their IT automation plans, regardless of the slowdown. Manufacturing
accounted for over 9.5% of the total IT spend and much of this went into ERP/e-commerce
implementation.

Network integration evolved from being a product-margins earning industry to
one concentrating on value-adds in terms of network design, planning,
consultancy and other related services. Having implemented enterprise-wide
solutions such as ERP and automation of workflow and systems management,
integrators were busy implementing Web-enablement and supply chain management
projects. Another leading network integrator, Datacraft India, completed the
integration of an Internet telephony network for Xerox India and an IP contact
center for Spectramind.

Oracle’s 11i, mySAP, iBaanERP, QAD’s eQ–all launched this year–are
collaborative e-business solutions addressing the issue of complexity with
varying degrees of success. Other than showcasing the growing import of
automation in Indian enterprises, these also indicated a clear move away from
‘point solutions’ that tackle just one aspect of e-business. The onus is on
comprehensive and integrated solutions that are Web-enabled and support hardware
from almost every major vendor.