Printing Slowed
Interestingly, despite an impressive growth in the rest of the IT industry, particularly desktops and servers, the printer market was a bit of a disappointment. Even though inkjet multi-function devices saw impressive growth, the overall printer market grew just 5.9% in FY 07 to reach Rs 1,650 crore.

This is mainly because of a decline in performance of both single-function inkjets as well as dot matrix printers (DMPs). While single function inkjets showed a decline for the second year running, DMPs had a healthy growth last fiscal. The inkjet multi-functional devices (MFD) overtook single-function inkjets, while laser printers managed to sustain double-digit growth.

The SMB segment clearly stole the limelight with all prominent vendors targeted it with considerable focus. The government was a big spender with several e-Governance projects launched during the year. Other factors driving sales included VAT implementations and core banking solutions by leading banks.

The market in FY 07 was characterized by high growth in lasers, hi-speed impact printers, and those pitched at retail. The year also reaffirmed the trend regarding shift in technology from inkjets to lasers across multiple segments.

The increasing affordability of laser printers was one of the important factors behind this phenomenon. FY 07 can be regarded as the watershed year as lasers start to become the largest selling printer segment. There is also a substantial leaning toward MFDs owing to a significant drop in price points.

According to IDC India, scanner shipments stood at 171,973 units, valued at Rs 103 crore, an increase of over 8% in unit terms. Even though scanners grew in terms of unit shipments, thus reversing the declining trend of the previous year, revenues still dropped by 2% because of a drop in the average selling value. And it was MFDs that took the sheen away from scanners. Vendors like HP, however, rolled out new models of scanners even as the market continued to debate on their usability.

Made in India
The story of Indian software products in 07 was that of renewed success. At Rs 3,777 crore, the top 10 Indian software product players grew 62% as compared to 25% the previous fiscal. Banking and finance, followed by telecom software products, dominated the product offerings.

Basically three types of players made a mark here: Large services firms like TCS and Infosys, who see products as a means to satisfy twin objectives of improving margins and getting deeper into a client relationship. The next tier and new players such as 3i Infotech and Ramco see products (or IP-led play, as it is often called) as their differentiation from the labor-intensive services game, which already has established big names. And then there are the vertical-focused players including i-flex, Polaris, and Subex Azure, who see products as a very natural extension of their services, or vice versa.

In 2001-02, when software import was exempted from customs and excise duty, it was said that home-grown software products would be wiped out. Almost thirty companies disappeared between 2002-03. While the policies benefited the software services industry, they appeared to be killing the product story. Years down the line there hasnt been much change in the policies or incentives, but the Made in India story refused to die down.

The Trillion Rupee Mark
The almost three decade-old Indian IT industry crossed the trillion rupees milestone in IT services exports, which grew 37.2% in FY 07 to reach Rs 103,647 crore. No wonder then that the Top 20 exporters grew faster than the overall industry. But the gap between top players and the next tier is widening.

The other good news was that specialized firms got a boost, and also grew much faster than the industry. The over-dependence on applications development and management started to come down. Europe became a major thrust for many because of growth reasons as well as the sliding dollar.

Design Dreams
While still on the subject of services, one cannot but discuss emerging areas. Even though about 200 semiconductor design companies, which include all the global top 10 fabless companies and 19 out of the top 25 semiconductor companies, are doing some design work out of India, FY 07 heralded a new sunrise. Announcement of the Semiconductor Policy by the government in February 2007, even though a bit sketchy, was a big boost. And the action moved out of Bangalore to almost all major cities, including Delhi (NCR), Hyderabad, Chennai, Pune, Ahemedabad and Goa.

As India realizes that costs cant be a major competitive advantage in the long run, both captive and third party companies have started developing competencies in IP development and integration, thereby complete product development.

To deliver end-to-end solutions to customers is proving to be a major challenge facing the Indian design market. The indigenous design industry is scattered at different places catering to different services. Serving as a one-stop solution for global customers as well as fulfilling the demand of our own growing semiconductor consumption market, will not be easy.

Till now India was gaining stardom as the outsourced design hub for the world market. But, during the year, the industry also started looking at India as a major consumer market for semiconductors. The Indian semiconductor industry will continue to shine for a few years to come.

After witnessing remarkable growth in embedded software and semiconductor design, manufacturing is the buzzword now. India is the only country in the world, which has the unique advantage of having two key components of the semiconductor design: ecosystem-design and testing, with manufacturing needed to complete the cycle. The semiconductor policy hopes to close that circuit.

The Power of Pure Play
As companies began to realize and leverage the value of combining IT with BPO, the sector saw growth of 33.5%, contributing Rs 37,800 crore to exports. The sector saw a steady growth across horizontals such as finance and accounting, customer interaction services, and human resource administration. A steady expansion was also witnessed in emerging service lines like legal and risk management along with M&A, complementing the organic growth. Direct employment also grew by 33% to 553,000 in FY 07 from 415,000 the previous fiscal.

Last fiscal three significant trends marked the coming of age of the BPO industry as a whole. First and foremost, this was a year in which as many as three of the top 10 BPO companies in India listed on the bourses. Second, even though the pure play BPOs still rule the chart, offering their own value, IT companies put their effort behind integrating their IT and BPO offerings to provide greater value to customers. The jury is still out on what will work.

The third big trend was the serious focus of international players on the domestic market, especially on the voice side. All the top voice playersTransworks, IBM Daksh, Wipro BPO, Firstsource, Intelenet, Hinduja TMT, Aegis, and MphasiS BPOare checking out the domestic market. Out of these, Aegis and Intelenet have taken the inorganic route to get into the market, and are already counted among the largest domestic players. The other interesting trend was that the captivesboth for reasons of growth as well as unleashing of valuecontinue to look at the third party opportunity.

The year will also be remembered for acquisitions done by Indian BPOs both in India and the offshore markets, especially in the US, as part of their expansion strategy.

Opening Up
Last fiscal was significant in more ways than one for Linuxright from its whole-hearted adoption by governments in southern states to the first-ever partnership between an open source (Novell) and proprietary software company (Microsoft). As a departure from lower cost as well as total cost of ownership, the financial sector in India is also considering Linux for security and from the interoperability standards view point. Linux has also made major inroads into areas like insurance and total branch automation.

Overall, adoption by the government, BFSI, and other enterprises picked up significantly. The year saw the Indian Linux market grow from Rs 144 crore in FY 06 to Rs 205 crore. The giant was undoubtedly Red Hat with a market share of 88%. The remaining was grabbed by Novell (with SuSe Linux), and other small distributors like Ubuntu, Mandriva, Debian, PC LinuxOS, and Knoppix.

Spreading Out
In the domestic market, the role of distributors of IT products continues to become bigger with every passing year, as Indian IT usage moves into the hinterlandBhubaneswar, Cochin, Coimbatore, Goa, Guwahati, Jaipur, Jammu, Ludhiana, and Surat to name a few. Most distributor strategies hinged on spreading out to tier-2 and tier-3 cities, aggressively targeting new sets of buyers in the home and SMB markets.

The PC business ruled and continued to be the highest growth area for most distributors, particularly in the consumer PC category. Acceleration in the sale of notebooks was good news for most distributors. There was a clear shift from assembled to branded PCs in the addressable market, and excellent growth on the Unix hardware and software front.

Large format stores (LFRs) was considered an emerging segment, but there was very little addition to the total number of such stores, which remained confined to the four metros. However, there were some indications of vendors directly tying up with these stores. Canon, for example, has put a team in place to manage these new relationships.

For increased reach and better efficiency, distributors enhanced IT implementations to run their businesses. An area of deep concern for distributors was the non-uniformity of applicable rates for the same products across different states. This resulted in substantial confusion in certain product lines.

The ATM Potential
In an era of convergence and growing IT penetration, a lot of new areas are gaining interestremote banking. The ATM machine is a big component here. According to estimates, the total cash movement through ATMs across India was around Rs 70,000 crore in FY 07.

Industry estimates place India as a high potential growth country in this sector. Currently, compared to China the ATM penetration level in India is pretty low: while India has about 23 ATMs per million people, China has 55, and South Korea leads with 1,600 ATMs per million. But the industry is upbeat, with the total number of ATMs deployed in India having reached close to 25,247 in the year. While an RBI guideline directing offsite ATMs to get a specific license did come as a dampener last year, the industry still managed a 19% growth, with close to 4,100 ATM deployments. Over the next two years, the industry expects to see deployment of 40,000 ATMs.

While ATMs is high on the agenda, banks are looking at outsourcing its management to service providers so they can focus on their core business.

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