Waiting For The Reprieve

workstations.jpg (20430 bytes)The workstations and server market perfor-mance in 1997-98 was
influenced by reduced user demand levels and increasing preference for Intel-based systems
over RISC systems. With corporate users finding price-performance benefits from the Intel
platform, RISC vendors found growth levels slipping. Coupled with the fall in the Average
Selling Values (ASVs), influenced by worldwide price cuts in processors, global over
production of components, and reducing tariff structures in the country, both unit and
value growths for these system categories were tested.

Since 1995-96, the share of servers and workstations in the
overall hardware systems has been either static or reducing, while that of PC desktops has
been steadily increasing. For example, the value share of workstations has come down from
6.9 percent in 1995-96 to 5.5 percent in 1997-98, and non-Intel-based servers have grown
moderately from 15.6 percent to 17.5 percent during this period. PC desktops have
exhibited the best growth, with value share increasing from 60.2 percent to 66.4 percent
and unit share from 92.4 percent to 96.5 percent. While PC desktops have grown at healthy
unit and value growth rates, the reasons influencing the weak performance of the
workstation and server system categories are similar.


Systems Market Trends
Value Share95-9696-9797-98
PC Desktops60.2%70.8%66.4%

(Rs Crore)

Units Share95-9696-9797-98
PC Desktops92.4%96.1%96.5%

With workstation and server products targeted at user
segments like manufacturing, banking and finance, government, and research and
development, the overall recession conditions in the economy have also affected the market
performance of these product categories. With industrial growth slipping southward from
late 1996-97, the demand levels for these systems categories have also been sluggish since
then. The improving performance of Intel processors with release of the sixth-generation
Pentium Pro/PII has created the PC-server and PC-workstation segments. These categories
have cannibalized the market segments away from RISC/Unix to Intel/Unix or Intel/NT. The
market performance of the workstations and server systems categories is therefore
described by the combination of these factors and strategies adopted by the vendors.

High-end Servers
The high-end server category, defined as non-Intel-based servers, with ASV above Rs 400
lakh, experienced a negative unit and value growth over the previous year. The segment was
characterized by S/390 and RS/6000 shipments from IBM. Existing S/390 users also upgraded
their equipment during the year. While the ASV rose from Rs 438 lakh in 1996-97 to Rs 449
lakh last year, weak shipments, due to deferred corporate purchases, resulted in
substantial negative growth both in value and units. This segment is currently conspicuous
by the absence of other global majors including Hitachi Data Systems, Silicon Graphics,
NCR, and Fujitsu/ICL. However, similar to the global market, the IBM S/390 platform
dominates this segment in the domestic market.

Medium Range And Low-end Servers
work-1.jpg (28260 bytes)The medium range servers are defined as
non-Intel-based servers with ASV between Rs 40 lakh and Rs 400 lakh, while the low-end
servers are defined as non-Intel-based servers with ASV below Rs 40 lakh. These two
segments account for almost the entire RISC/Unix-based shipments in the domestic market
and between medium and low-end servers, it is the low-end which exhibits relatively better
growth and stability.

However, during 1997-98, both medium-range and low-end
servers segments have shown considerable negative unit growth. The value growth for these
two segments, however, is relatively better than the unit growth. In fact, in the low-end
servers, the value growth has been positive. This indicates that while there was a drop in
the number of orders, the value per order was more than the previous year. The ASV for the
medium and low-end server segments has also increased considerably in 1997-98, in
comparison to the previous year, which also supports this trend.

The negative unit growth rate has been influenced by
demand-recession conditions in most market segments, involving large corporates and the
Government. The overall low growth rates have also been influenced by preferential user
selection of high-end PC servers over RISC servers. Also, adding to the low growth rates
in these segments are falling global ASVs, triggered by reducing processor prices and
global over supply of components with recession conditions also prevailing in the South
Asian market.

work-2.jpg (24627 bytes)With majority of
shipments taking place in the medium and low-end server segments, an overall marketshare
representation primarily reflects vendor dominance in these two segments, rather than the
high-end. The domestic marketshare analyses indicates Sun Microsystems, dominance in the
overall server market in terms of units. Hewlett Packard, IBM, and Digital Equipment are
the other major players. Also present in smaller shares are Silicon Graphics, Siemens
Nixdorf, DDE ORG Systems, and PCS Industries.

The domestic marketshare differs moderately from the
Asia-Pacific share, where IBM, Hewlett Packard, and Digital dominate the market. The
dominance of Sun servers in terms of numbers, including the Ultra Enterprise and Netra
Internet range, is due to strong vertical segment focus of Wipro Infotech and MicroLand.
These two distribution partners have high customer satisfaction levels in terms of
implementation of value-added solutions. Another reason for the dominance of Sun servers
is that majority of orders executed in the last year involved both systems and network
enterprise integration including messaging, ERP, WAN, VSAT, datawarehousing, EDI, and
OLTP; areas where both Wipro and MicroLand are competent.

work-3.jpg (67794 bytes)However, in
terms of value, Hewlett Packard and IBM servers had a larger share than Sun Microsystems
in 1997-98. Relatively higher order values by HCL Infosystems, the sales and
implementation partner for the HP 9000 range of servers, and IBM led to a higher value
share than Sun.

IBM, with its RS/6000 and AS/400 range of servers, appears
to concentrate on a relatively more limited customer base than HCL Infosystems and Wipro
Infotech, which manifests in a reduced unit share. However, it appears to be successful in
implementing higher value-added solutions within this customer base, leading to better
value shares. Also Silicon Graphics appears to be under-leveraging its technologically
superior Origin and Challenge range of servers, due to insufficient channel strategies.

This category of systems includes traditional workstations and personal workstations.
Traditional workstations are defined as RISC-based high-performance computing terminals
with Unix operating systems or Open VMS. Personal workstations are defined as Intel-based
computing systems, with either Unix or Windows NT as operating systems. Personal
workstations also include Digital systems with Alpha processors and Windows NT operating

Workstation Market Performance
(Value in Rs lakhs)NosUnit %ValueValue %ASVNosValueASV
Traditional Workstation2,368NA14,529NA6.1NANA
Personal Workstation2,214NA6001NA2.7NANA
Total Workstations4,58224.6%20,529-14.8%4.53,67624,0846.6
Large Servers6-71.4%2,696-70.7%449.3219210438.6
Medium-Range Servers571-37.3%36,181-0.8%63.491136,46040.0
Low-End Servers2,082-61.6%30,08914.9%14.55,42426,1984.8
Total Servers2,659-58.2%68,966-4.0%25.96,35671,86811.3

This category of systems witnessed an overall positive unit
growth and a negative value growth in 1997-98. The workstations market in previous years
has been synonymous with traditional workstations, with personal workstation mostly
included in the count of PC desktops. However, it is the traditional-workstations, which
appear to have exhibited negative growth levels last year. With users migrating to
Intel/NT or Intel/Unix-based computing platforms, due to better price-performance
benefits, the personal workstations market has exhibited healthy growth levels in 1997-98.
While the total number of workstations shipped during the year are listed as 4,582, with a
24-percent unit growth over the previous year, the actual numbers are probably higher.
This is because personal workstations are also reported by vendors as PC desktops.

Since the actual number of personal workstations and
associated vendor shares are likely to be incorrectly estimated for this reason, the
marketshare for only traditional workstations has been estimated. The unit marketshare for
1997-98 indicates Sun Microsystems as having the largest share, followed by Silicon
Graphics, Hewlett Packard, and Digital Equipment. However, in terms of value, Hewlett
Packard and Silicon Graphics have higher shares than Sun and Digital Equipment. This
indicates at higher order values due to associated accessory purchases. In the workstation
system category, the domestic marketshare trend matches the Asia-Pacific vendor trend.

PC Servers
This category includes Intel-based systems with hardware modifications to support
networking and client/server operations. This category of systems is positioned so that
high-end PC-servers compete in terms of price performance, with low-end RISC/Unix servers
in the domestic market. Till the beginning of 1997, the low-end PC-server was not price
competitive with high end desktops. Therefore in 1995-96 and 1996-97, the numbers listed
as PC-servers also include high-end desktops, shipped as PC-servers. This is one of the
reasons why the share of PC-servers dropped and then rose between 1995-96 and 1997-98. It
is also the reason why the ASV which was Rs 2 lakh in 1996-97 has risen to Rs 2.6 lakh
with the reduction of desktops and increase of PC-servers in 1997-98.

The Indian subcontinent last year exhibited the highest
unit growth rate of 60 percent for PC-servers in the Asia-Pacific region. However, in
1997-98, the growth rate reduced considerably due to cut-backs in corporate spending and
the expected high growth levels have not materializing. However, PC servers have still
exhibited a healthy unit growth rate of 34 percent and a much higher value growth rate.

The domestic PC-server market is dominated by HCL
Infosystems, Compaq Computers, Digital Equipment, Acer and IBM. In comparison to the Asia
Pacific market, Hewlett Packard has a reduced share. However, with HCL Infosystems also
reporting shipments of Hewlett Packard, a better representation would be to combine the
shares of HCL and Hewlett Packard as one player. With that assumption, the share of Acer
is higher in the domestic market in comparison to the Asia Pacific market, due to strong
channel strategies of its distribution partner, Wipro Infotech.

Windows NT, Unix, And Other OSes
work-4.jpg (21790 bytes)Another trend to have influenced the market
dynamics of the server and workstation system categories is the migration from Unix and
adoption of Windows NT OS. In the Asia-Pacific market in 1996, the penetration of Windows
NT was less than 5 percent in medium-range servers, 12 percent in low-end servers, and 5
percent in workstations. In 1997-98, this penetration has increased considerably even
within the domestic market, which lags behind in technology adoption in comparison to the
Asia-Pacific market. A sample survey of 15,000 servers shipped in the domestic market in
1997-98 revealed that Windows NT was the OS for 48.5 percent servers, Novell NetWare for
25.5 percent, and Unix for 25.9 percent servers. In 1997-98, Unix dominated shipments in
the workstations segment. A sample survey of 2,300 workstations shipped in the domestic
market indicates that Unix was the OS for 63.3 percent shipments and Windows NT for 36.6
percent workstations.

With increasing application development on Windows NT,
penetration in the server segment is expected to increase in 1998-99. However, in the
workstation segment, the penetration of Windows NT is limited to the relative ratio of
traditional and personal workstations. With computing power of the RISC/Unix platform
still superior to Intel/NT, the penetration of Windows NT is likely to remain retarded in
comparison to servers.

Future Scenario
The new BJP government has taken the initiative to make quick decisions on many
infrastructural issues involving foreign equity. These include ports, power distribution,
insurance, transportation, and others. While this is a positive step to drive IT
investments, the curtailment of foreign investments at a time when there are credit and
liquidity issues in the economy is likely to prove counter productive. The technology
transfer barriers recently introduced are also likely to make leading-edge IT investments
in the country difficult. It remains to be seen at what stage in the coming months will
the domestic server and workstation vendors get their reprieve.

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