Cheers, said vendors, as they participated in one of the biggest parties of the decade. "Simply fantastic" was their comment on the year gone by. And the taste is bound to linger in their memories, especially with a slowdown-like year that ensues. Business could not have been better. Unprecedented server sales catapulted the erstwhile low-lying segment to a star-performer status. And what a performance—a growth of 76% in value terms, compared to a mere 7% in the previous fiscal. In terms of units too, it was a heady elixir—46%, compared to 31% in 1999-00.

In the first half of the year, ISPs and dot-coms generated most of the server demand. Nearly 400 ISPs wanted to quickly install them lest they lost the eyeball game. And the ‘brave new world’ of dot-coms, flush with VC funding, was certainly in a great hurry, as it outlined various Internet business models to potential Indian customers… the dream run flourished. To add to the vendors’ delight was the consolidation and automation spree by the banking and finance industry. The industry saw heavy server sales to financial institutions, insurance industry and the government sector. This was also reflected in IT spending by the public sector and government, which saw an increase from last year’s 30.7% to 34% in 2000-01.

Goodies all around

It was a double whammy for the vendors—for both RISC and Intel-based in the banking and insurance sector. On the one side was the consolidation spree by the segment—in the rush for automation, public-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’. The banks, of all hue and shapes, 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.

On the other hand was the specter of increased competitive threat and growing customer expectations that was forcing government-owned institutions to go on an increased automation binge. For instance, insurance major New India Assurance 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.

Core banking remained the top application where the servers were implemented with some of the names on the core banking binge including Hongkong and Shanghai Banking Corporation, ICICI Bank, HDFC Bank, Bank of Rajasthan and UTI Bank. Increasingly, financial services companies are finding it imperative to implement core banking applications in their operational set-up for consolidation of data at a centralized location. It's a no-brainer that for any complementary service, like Internet banking, telebanking and automated teller machines, it is not possible to roll out these services without having data in a central location, where it can be accessed by the various channels. Already, banks like ICICI Bank and HDFC Bank have shown that following this operational procedure can generate great results and above all, higher customer satisfaction.

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, companies in India seemed to have realized the importance of ERP and SCM implementations and went ahead with their plans. Manufacturing accounted for over 9.5% of the total IT spend and much of this went into ERP/e-commerce implementation.

Other key drivers in the first half were ISPs and dot-coms. Over 400 ISP licensees vying for the eyeballs translated into a brilliant icing on the vendor cake. Big players were on an expansion spree to spread their Net across the semi-urban area, while smaller ones were busy investing in infrastructure. Post-half year and still clueless about a viable business model, the demand for Internet infrastructure sank. As things stand now, demand is not expected to rise in the coming months as most existing players have already built up capacity substantially.

The same was the case with dot-coms. Entrepreneurs of all shapes and dreams rushed in to build their sandcastles with help from ever-willing venture capitalists. The slowdown had kicked in sometime in the beginning of the year, but it took some time before the dot-com balloon got unstrung. As the air hissed out, so did the demand from this segment. However, a few of the falling orders were compensated for with the emergence of Internet data centers. With about eight to ten players like Reliance, Enron and Cyquator setting up IDCs, demand continued to be strong… but the major beneficiary in this space was Sun, which notched up seven of the ten-odd deals.

Even the software sector, which appeared to have been caught unawares by the slowdown which reared its head by the end of the third quarter, did their share of heavy buying till then, shoring up the server segment’s fortunes. In the traditional (Unix) workstation market, it was Sun again that led the pack, with heavy demand from the animation, graphics and the CAD/CAM market space, whereas the number two player, SGI, saw demand coming the education, research and entertainment sectors.