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Post-merger HP was #1 in overall sales, including PC servers—the company registered over 11% growth to notch up Rs 748-cr revenues in this space
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HP led in both the Intel (PC) server space, with revenues of Rs 235 cr, and in the non-Intel server space, overtaking Sun Microsystems
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Core banking apps and branch automation by PSU banks drove growth
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Fiscal 2002-03 began on a bad note and the industry had a lot to crib about—a
stagnant economy, squeezed IT budgets, CIO expectations of huge discounts and
one of the worst performance years, as a legacy. Despite all these, 2002-03 was
good for server vendors. Also, it was heartening to note that the Indian market
emerged bang on top amongst all others in the Asean (Association of South-East
Asian Nations) region. According to IDC estimates, India superseded Singapore as
the largest server market in the second half of fiscal 2002-03, compared to the
first half of the same year. And India achieved this position by cornering 26.2%
of the total spending. However, it was Singapore which held on to its number one
position in the non-SIAS server segment in the Asean region—though its lead
was slender—with a little less than $300,000 of spending difference separating
it and India.
Banking on IT
So what went right? IT spend was back in flavor, led by the banking,
financial services and insurance segment. And PSU banks were key in bringing
about early gains for vendors. Public sector banks setting up centralized core
banking infrastructure in order to maintain their competitive positioning,
vis-à-vis newer private sector banks helped expand the server market. Projects
by State Bank of India, Punjab National Bank and Canara Bank helped the segment
regain the ground lost in fiscal 2001-02.
Finance and insurance spending remained buoyant in 2002. While there was
reasonable growth in the RISC Unix space, the SIAS market was the focus of much
attention and helped generate a fair amount of growth for this vertical.
In total, the finance and insurance segments accounted for nearly 23% of the
overall units sold in fiscal 2002-03, while value figures present a better
picture with 24% of overall server revenues in the same period. Another key
trend that fuelled server demand was server consolidation. Again, the banking
segment showed the way and a majority of the demand for high-end servers came in
due to this trend. The growing demand for value-added applications such as
credit card authorization, cash and wealth management, ATM (automated teller
machine) switching and online banking also helped sales.
And this trend is continuing in the current fiscal, with PSU banks remaining
focussed on building backend infrastructure to support centralized core banking
(both retail and wholesale), apart from serving customers through alternative
channels such as ATMs and Internet banking.
According to a Dataquest-IDC Megaspenders Survey on enterprise spending in
2002-03, Punjab National Bank—with an overall IT spend of Rs 180 crore—was
the number one IT spender, while Canara Bank—with an outlay of over Rs 135
crore—was pegged at number two. Last year’s leader Life Insurance
Corporation was still strong and came in at #3 this time around—against last
year’s Rs 140-crore IT spend on its ‘Anytime, Anywhere’ program, LIC spent
another Rs 105 crore on IT in 2002-03.
Ringing in change
Other than banking and finance companies, the other segment that doled out
the largest orders to the server segment in 2002-03 was the telecom space. The
biggest name, of course, was Reliance Infocomm. Sun Microsystems saw much of its
growth on account of bagging the Reliance account. Other players like Tata
Teleservices and Bharti Cellular too made large investments to beef up their
infrastructure. Mobile telecom service providers purchased RISC/Unix servers for
deploying BSS (business support systems) applications—such as billing,
mediation and fraud management—and OSS (operation support systems)
applications—such as network management and control, and call switching. It
was orders on this front that underpinned the astounding uptake of servers in
this segment in 2002-03.
Besides banking and telecom, the distribution and manufacturing segments
contributed toward reviving the server segment in India, with buying patterns
largely increased. In fact, manufacturing as a segment emerged third in terms of
the overall value of servers purchased in financial 2002-03. Within these
numbers, entry-level machines generated nearly 82% of total activity.
Competitive analysis
In value terms, Hewlett-Packard, IBM and Sun Microsystems occupied the top
three positions in the overall server space in 2002-03. Robust sales to
financial and insurance companies, coupled with a wide presence in the telecom
and media sectors, helped Hewlett-Packard occupy the top slot in 2002-03.
With total server revenues of Rs 748 crore, the company zoomed ahead of its
nearest competitor, Sun Microsystems. While in fiscal 2001-02, Compaq was the
unchallenged leader in the PC server business, in 2002-03, the new HP not only
retained the numero uno position but also consolidated its stranglehold in the
non-Intel space to emerge as the undisputed leader. With revenues of Rs 512
crore in the non-Intel space, Hewlett-Packard showed a value growth of over 38%,
against the numbers achieved in financial year 2001-02.
Sun Micro’s presence in the telecom and media space remained its key
strength, propelling it to slot number two with revenues of Rs 388 crore. Both
telecom and media continue to offer a wide scope for the vendor. From Reliance
to Bharti to Videsh Sanchar Nigam Ltd, everybody went on to Sun servers.
Overall, one major deal alone—with an IT spend of over Rs 150 crore—boosted
Sun Micro’s fortunes, so much so that the company reported positive growth of
36% after the previous year’s dismal performance of -24%.
The dominance in the telecom space was helped by joining hands with Lucent
and Motorola, which saw lot of Netras being sold with the switches. As with all
other vendors, the banking and financial services segment pitched in to help Sun
Micro attain its growth numbers. For instance, HDFC Bank, ICICI Bank and
Oriental Bank of Commerce went live on Sun servers. Wipro continued to be the
top channel partner for Sun Microsystems and the much-hyped partnership with HCL
also started showing favorable signs.
The other much-hyped partnership between Wipro and IBM brought in the latter
about Rs 42 crore, but it still has a long way to go before it can make a
significant dent on Sun Microsystems’ business from Wipro.
Coming in third with server revenues of Rs 267 crore was IBM, which was in an
aggressive mode for much of 2002-03, and for which the manufacturing and
financial sectors continued to be areas of growth. In fact, of the company’s
total revenues, 38-40% can be attributed to orders from the manufacturing
segment. Largescale installations in the education space also helped increase
sales toward the end of 2002-03.
In the entry-level SIAS space, Hewlett-Packard continued to lead the market
with strong shipments to the banking and financial sector, which remained its
strongest growth area in financial 2002-03. The vendor’s strong position in
the telecom and media segments also contributed to its success. IBM’s fresh
initiatives toward building its channels seemed to be paying rich dividends in
the entry-level server space. Known as VFB—or the very focussed business—the
program did well to increase the company’s presence in smaller towns. In the
RISC Unix space in particular, the vendor’s strong hold in the financial and
education segments continued to pull in values. This should hold good for the
company in the ongoing year as well, given its performance in the first quarter
of financial 2003-04.
HCL Infosystems occupied the number three position in the PC server market in
2002-03 with 11% unit shipment share. In the Indian market, Acer sold almost a
third of its servers to financial services companies. India is among the few
markets in the region in which Acer continues to maintain a healthy market
presence. IDC feels that Acer’s continued success in India is primarily driven
by its aggressive pricing strategy that positions it favorably in more
price-sensitive segments like banking and finance, government and education.
Outlook
The server market in the country continues to offer high potential,
according to trends. The banking, financial services, insurance and
telecommunications segments will remain the keystones for mid-range server
demand in India through the forecast period (2003-04). Deregulation,
consolidation among service providers and infrastructure expansion in the mobile
telecom services segment will spur demand for servers.
Also, servers will increasingly be deployed for BSS and OSS applications.
Banks purchasing entry-level SIAS servers for branch-level automation will
continue to be catalysts for demand, though there could be some sort of a
slowdown in the near term because major PSU banks might divert some of their
planned spending toward centralized core banking infrastructure. Furthermore,
the deregulation of the insurance segment will spur demand for entry-level
servers through the forecast period. Indian banks will continue to show a strong
preference for Unix for running centralized core banking infrastructure.
Linux’s growth in India will be strongly tied to Internet infrastructure
expansion and replacement of Unix server installations for lightweight
high-performance computing applications—mainly in the education and research
segments.
The easing of the US government’s restrictions on the export of
high-technology products to India will help spur spending by education and
research organizations on servers that were in the embargo list post the nuclear
tests in 1998. Education segment-led spending will have a minimal impact on the
mid-range server market in India in the short term. However, opportunities
offered by the life sciences sector are unlikely to make a significant impact on
the overall demand until the latter part of the forecast period.
Aman Muglani
The author is assistant manager (computing products) at IDC India.
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