Vendor Equations
Cisco remained the undisputed leader of the Indian enterprise networking equipment industry, with a market share of 85% and 60% in routers and switches respectively. The only challenge to its supremacy was in the highly contested low-end router market, but it still managed to command a hefty premium over competitors' products, thanks, in large parts, to its brand equity. Nowhere was it more visible than from RFPs from PSUs and governments to network integrators-the documents explicitly asked for Cisco routers. They ended up paying a hefty premium for Cisco's brand equity.

In some product categories, Cisco boxes cost as much as five times more than boxes from competing vendors. Cisco was also the undisputed king in the WLAN and network security markets.

Dax Networks found the going really good last year following its JV with a Chinese company, Maipu Communications, to sell routers co-branded as Dax–Maipu in India. Primarily targeted at service providers as edge and access routers, Dax–Maipu helped the company earn a 160% growth rate in the router business, and make it emerge as the third-largest router company after Cisco and Juniper.

D-Link's JV with Foundry Networks helped it break new ground, and storm into the high-end enterprise switch-space, competing head-on with Cisco. The switches had a good reception in the market, with major deals with IIT Kharagpur, SBI, and Tecumseh. The company was a major force in the WLAN market as well, where it was second only to Cisco, and way ahead of others. A similar story was repeated in the modems segment (leased-line and dial-up), where D-Link finished third after Mro-Tek and Atrie.

Enterasys was a smaller contender for the high-end router and switches market, with 3Com and Nortel following it. 3Com came back with a bang and saw a great demand for its Gigabit LAN core switches and the newly introduced routers. Nortel too made efforts to strengthen its presence in SMEs and went on to strengthen its reseller and partner base.

Piece by Piece
Continuing the trend of the last few years, Cisco dominated the enterprise routers market yet again, growing 35%, and capturing 85% market. Juniper played big in the MPLS (multiple protocol label switching) technology space and made Rs 60 crore from the service providers' category alone, capturing a 9% share of the total router market. The remaining 15% belonged to contenders like Dax and D-Link.

The market saw more technological upgrades and enhancements over the years, even as features like QoS, security, and voice and video capabilities found acceptance as standard features, especially among mid-sized to large enterprises. These features added their bit to the overall 37% growth for the total router market in enterprise space.

3Com introduced its first router in the Indian market in August 2003, and went on to add seven more models. Its routers found favor with service providers and enterprises in banking and finance, helping it regain lost ground.

Hubs stayed on their path to extinction with lower-end switches replacing them. Unlike last year's Layer 2 switches that stole the show, this year saw Layer 3 and Layer 4 switches earning their place in the sun. The buzzword was Managed switches and this class of switches gained popularity riding on the wave of convergence of voice, video and data apps.

At the lowest end of scale, D-Link earned good revenues from selling fixed-configuration Layer 2 switches. Cisco led the market and 3Com completed this triad of market leaders. Almost all managed switches were stackable and supported bigger chassis, which in turn could take a greater number of ports. The move to gigabit was particularly visible in the banking industry, though desktops still steered clear of supporting gigabit connectivity. As enterprises found their networks expanding like never before, the demand for gigabit switches rose for uplink and inter-switch connections. There were a few deployments of 10-gigabit switches for core network connections, particularly in new installations. The educational institute BITS Pilani was one such instance.

D-Link made its entry into the high-end segment with its association with Foundry Networks, the latter being a well-known name in edge switches. As more and more private telecom providers betted big on Ethernet-to-home, the demand for these high-performance switches rose sharply, to contibute 45% of the total switches market. The other motors of demand were the setting up of NOCs and hubs by service providers, apart from a high demand for deployments at DSL networks.

With a subscriber number that stands at a minuscule 2,00,000 the market for broadband equipment was really small. However, the action is just heating up in the market place with players like Reliance, BSNL and Tata already working feverishly on their broadband rollout strategies. BSNL has major contracts with UT Starcom and Korean Telecom, and has already floated tenders for 500,000 of its DSL lines. The broadband market is expected to take off in the next 12 months, with an estimated net addition of 750,000 subscribers.

A hefty drop in wireless LAN (WLAN) equipment prices coupled with increased awareness and acceptance saw the market zoom up with a 329% growth compared to the previous fiscal. The takeoff of Wi-Fi-ready laptops also contributed its bit to the sharp jump in demand. Cisco was a clear leader, and was chased by D-Link and Dax in a market that totaled Rs 52 crore in revenues last year.

Adoption was particularly strong in IT MNCs, educational institutions and transport and hospitality segments. The much talked about public hotspots market failed to take off, with only isolated instances of deployments. The demand will get off the ground in this market only in the next two to three years, when Wi-Fi-ready laptop proliferation will make WLAN deployments truly ubiquitous.

On the VSAT front, cheaper and better leased lines and wireless links failed to choke the market, even as VSAT vendors found good growth both in units and revenues. The industry was aided by a reduction in equipment costs as also custom duties, and a fall in revenue sharing enabled the vendors to end the year on a good note. With a sale of 19,983 units, the market stood at Rs 263 crore, a growth of 12% over the previous year. Hughes Network Systems maintained a heady lead, with Gilat and Viasat coming second and third. Growth came primarily from the lottery industry, with huge orders from customers like Best & Co, Martin and Inlott.

The big story in structured cabling was the change of hands of Avaya's cabling business to CommScope, which also acquired Systimax to become the largest cabling company in the world. In India too, even after a 2.9% loss in market share, Systimax emerged as the largest vendor with revenues of Rs 100 crore, followed by Tyco with Rs 79 crore and D-Link at Rs 45 crore, from a market of Rs 325.5 crore.

On the Demand Side
BFSI emerged as the biggest buyer of networking equipment last year, but it was matched by the ever-booming BPO vertical-together the two consumed 50% of the total demand. For banking customers, competitive pressures meant a lot of investments to be made in the expansion of their communication infrastructure. Punjab National Bank alone had orders for wiring up 500 of its branches across the country. Another key investment area for banks was the creation of disaster-recovery sites, in accordance with RBI's directives. The BPO industry too ran heavy orders whenever a big contract or a large customer came on board.

Government and defense also contributed their bit to the total networking pie, as did manufacturing. But the big surprise packet was the growth of the SME market for switches, which jumped a comfortable 40% over last year.

BPO companies like Wipro Spectramind, vCustomer and Transworks, among others, made heavy deployments of mid-range modular switches. Other major projects of the year were IIT Kharagpur (complete LAN/WAN cabling), State Bank of India (networking of 4,500 branches and 3,500 ATMs), BSNL's DotSoft and NIB projects. 3Com sold to BSNL, MTNL, and Parliament House in New Delhi, and ONGC and Shoppers' Stop in Mumbai for their pan-India rollout.

The Business of Management
The expansion and subsequent growth in complexity of networks forced many large enterprises to outsource the management of their networks. An obvious cost benefit was getting another driving agent for the network management services markets' newfound exuberance. The market began to mature-service providers added services like disaster management, bandwidth and asset management to their portfolio. The overall NMS market registered a 36% growth to reach Rs 234 crore in the last fiscal.

HCL Comnet raced ahead of the market leaders to end the year with a Rs 80 crore revenue from NMS. Its major customer wins last year included AMD, HDFC and eight Fortune 500 companies (names not disclosed due to NDAs). Datacraft earned huge revenues from managing SBI and its associates, with 4,500 branches and 3,500 ATMs making up the network. While Sify struck handsome deals with Chennai-based Sutherland Technologies and Federal Bank of India, GTL had Delhi-based Agilent Technologies, SCOPE (BPO for StanChart Grindlayz bank).

Apart from banks, telecom and BPO companies were the other major drivers of demand for NMS, both pushed by competitive pressures to deliver a minimum standard of service to their customers. Increasing networking of branches in tier 3 and 4 towns by banks and telecom companies also forced NMS service providers to deploy technical support staff in those towns- Datacraft now has technical staff in tier 3 and 4 towns to assist its telecom customers at a local level. Faced with a buoyant market, NMS providers like HCL Comnet and Datacraft also began investing heavily in new technologies and products for their infrastructure.

NIs March On
Despite a market that got increasingly commoditized with margins on products running abysmally low, network integrators continued their good march with a decent growth. As a result of the changing paradigms, the NIs had to shift their focus away from mere product sales and implementations to move to offering professional and managed services for their customers. A part of this was also attributed to the emerging competitive necessities, particularly in the case of large networking orders-clients demanded a partner who could offer services end-to-end (from consulting to project management and integration to network management).

This led to almost all the top integrators beginning to offer managed network services through their NOCs. Players like HCL Comnet and Datacraft had the advantage over the likes of Tulip and GTL with their abundant experience in managing networks. In fact, HCL Comnet had services revenues contributing 48% of its overall revenues.

The total size for the network integration business was estimated to be Rs 3,372 crore in 2003-04, registering a 17% growth. The top ten integrators took away 70% of the total market, led by Datacraft, Wipro and Tulip with 10%, 9.5% and 8% of the market share respectively. 3D Networks grew fastest among the top 10; in fact it stormed into the top 10 with a 120% growth and revenues of Rs 145 crore.

In terms of major wins, Datacraft took the cake, bagging a $29 million phase-two contract to implement the nation-wide corporate network for SBI and its seven associate banks. As per the contract, Datacraft is to do a turnkey implementation of SBI's corporate backbone (SBI Connect) from design and provision to supply and management. Tulip IT Services too earned a Rs 36 crore contract from Punjab National Bank to wire up its 500 branches. The company retained its unaltered focus on wireless WAN deployments and assured itself a market share of 70%. During the year, Tulip also launched its own RF equipment.

Going Forward
Better times could be just around the corner for the networking majors, as a big bang expansion in broadband by telecom companies is expected to take demand for equipment to levels never seen before. The continuing growth in BPO will also keep the inventories turning at the vendors' warehouses, while the immense potential of wiring so many of the remaining branches of nationalized banks, coupled with rapid expansions by private and foreign banks is expected to have the networking industry laughing all the way to the bank at the end of the next financial year.

Rishi Seth in New Delhi