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A cursory look at the domestic market is sure to confuse some. Thats because the market conveyed conflicting signalsthere was some news that was good, and some not so great. On the performance parameters, the three key slices of the IT domestic industryhardware, software and domestic serviceswere definitely not at the same level.

While few IT services export companies were happy about their foray into the domestic market and the fact that managed to pull off a very decent growth in an extremely tough year, it was not a great year for most foreign MNCs that operated here. While demand seemed to be strong, the purchase decisions (of services, hardware and so on) by enterprises and consumers took painfully long to make, or were delayed. Because of this, to a great extent, the spirit of IT giants was down, especially in the second half.

Dwindling consumer sentiments and longer decision cycles for most enterprises were more visible in the BFSI, automotive, retail, and manufacturing verticals. Even the government sector, which was one of the biggest in terms of IT spending during the last fiscal, added to the subdued market sentiments in the JFM quarter, after the elections were announced. Though barring that quarter one did see continued investments from the government, PSUs and the education sector, among user segments. In the business segment, unlike in software and services where SMBs continued to make investments, PCs saw subdued investment.

Vendors with a huge consumer focus suffered most including Microsoft, Xerox, Lenovo or Samsung; whereas those with exposure to multiple verticals, particularly software specialists like SAP, Oracle and Symantec, fared much better.

The Services Story
This probably was the most fascinating piece of the entire domestic market pieas undercurrents of a visible change (more in the approach to the domestic IT services market) were being felt during the year like never before. In fact, with almost all of the export driven companies pushing their way more aggressively into the domestic market, it was the single most important development one saw taking place.

CyberMedia Research                                                                                                      DQ Estimates

The smartphones segment raced ahead with a growth of 78%, indicating that India has great hope as far as mobility is concerned. The printers segment on the other hand was the worst hit segment

The fact that the domestic services story had never really come out of the closet was primarily due to its more prominent cousin, IT services exports, eclipsing its presence. The story was different in the last fiscal. In FY 09, Infosys, for instance, revisited its overall strategy. Since the last couple of years the company had been making big announcements of a strong domestic focus but there were no substantial steps taken in that direction. Last fiscal Infosys finally did that, though rather subtly.

The global downturngood or badwas responsible for this realization to a great extent, as Infosys did try and mitigate its over dependence on the US and Europe (the two worst hit geographies, contributing 90% to the revenues); and tried to beef up its almost negligible presence in the domestic market. During FY 09 Infy pushed hard to get some big-ticket domestic projects, with a pretty good success rateBharti Airtel and SBI core banking were some big wins.

Cognizant too made its much-awaited entry into the Indian market. Following much speculation, it signed up for mjunction services with an e-commerce company.

Another player that increased its focus in the domestic market was Mindtree Consulting. The company charted out a three-year expansion roadmap for India, with a thrust on the government and defense sectors. It made a few structural changes within the organization to meet the goal.

Another big shift was more acceptance for newer pricing models and an effort to grow larger transformation infrastructure (most of them BI and business transformation) and consulting deals.

Besides this, despite the gloomy market sentiments, on the domestic services market front there was a bullish demand for need-based solutions. So a lot happened on the services side which is sure to reflect prominently in the next few years.

The Hard Reality
The India hardware story in FY 09 was most disappointing, as it turned out to be the worst hit sector. For the convenience of understanding, we are primarily taking into account the combined PC market (desktops and notebooks), printers, standalone monitors, servers, storage (hardware), storage peripherals, and smartphones (a new category in DQTop 20).

During the year, all segments put up a performance which ranged from being average to insipid. In fact, barring smartphones (a segment that did brilliantly well growing at 78%) the hardware market did not grow at all in absolute or percentage terms.

CyberMedia Research      DQ Estimates

Surprisingly, while the global combined PC market grew by about 6%, in India there was a decline of 8%

Even though there was no dearth of action in terms of players launching new products, and that with a concerted green thrust; an aggressive channel focus; and so on, but nothing could save the segment from going down. Moreover, falling hardware prices and a sharp decline in IT spending by organizations kept drilling a bigger hole into the pockets of hardware vendors, more so in the second half.

Unfortunately, one of the most important segments within the hardware pie (by virtue of being one of the biggest contributors to revenues), the PC market, went down by about 8%. This was a surprise, as for the same period global PC shipment shot up by 6%. Though the penetration of PCs in India is relatively lower as compared to developed countries, the market conditions that one was operating in were more or less the same, if not worse in the current global scenario.

So one is led to believe that CIOs holding back investments in IT capex in the face of the uncertainty brought on by the slowdown had more severe repercussions on the domestic market front. On the user side, it was unfortunately felt most in the IT/BPO industry (which has traditionally been a huge spender), which was disappointing as the industry on a standalone basis did do well.

While the Indian consumer market saw no slowdown when it came to non-discretionary spending, it could also not raise the spirits of hardware vendors (though it is a different story that this segment still is a small fraction of the overall market). For consumers, everything fell in the category of highly discretionary spending. Though notebooks on a standalone basis grew marginally at 4%, the drop of 18% in desktops was a major down.

As a matter of fact there were conflicting views floating in the market, around September, that the downturn had not yet taken such an ugly turn in India and that the festive season (around Diwali, Id, Dussehra when sales in previous years have doubled or even tripled) will turn things around. However, the market belied all hopes.

A direct corollary of a subdued domestic market, particularly on the hardware side, meant dipping fortunes for distributors. From the biggies like Ingram Micro and Redington to even the smaller ones, there was substantial decline in growth of channel players in FY 09.

One has to admit though that Dell (PC market) was the only exception, as it performed extremely well and grew by over 32%. Its share in desktops and notebooks went up pretty significantly as it ate into HPs share, which sharply went down (primarily on account of an inventory correction that it undertook in the OND quarter of the fiscal).

In sync with the low-lying consumer segment, the printer market too went down by over 18%, making it one of the worst hit segments on the hardware side. The reason primarily was the cautious spending outlook that corporates and SMBs adopted to meet the challenges of operating in a tough environment. There was major reshuffling in the market. In the inkjet and lasers especially, HP again lost huge points, this time to Canon and Samsung.

For standalone monitors too, FY 09 proved to be one of the most unfortunate years as business suffered massively because of the declining price margins between CRT and LCD monitors. This was more true for the second half of the year. From the market perspective however it was good news as LCD became mainstream in a big way during the year, as it grew by about 29% (calendar year 2008). And the transition from CRT to TFT monitors was nearly complete.

On the server front, which was a significant chunk of the systems pie, again the sentiment was damp. Both x86 and non-x86 markets faced the heat of recession and saw unit shipments going down. The big deals that used to pump in the volumes did not happen in large scale.

On the enterprise side, there was some relief. For instance, in the storage market, while the overall external networked market grew by 18%, the secondary market too grew by a marginal 7%.

The Soft Power
It is true that India stands out from the crowd when it comes to its software prowess, but back home the software story has never really taken off in a big way. There are two reasons for that: one of course is that the industry is still faced with high piracy levels, and two is the lack of software and applications in local languages.

At 16% growth, though the business applications market did grow a bit, more significant is the realization by enterprises that efficient processes is something they cannot ignore for too long if performance is a top priority. So FY 09, on the business applications side, was a momentous year in many ways. Business intelligence was a bright spark in this story, the only entity that added sheen to the business applications canvas. With a growth of 49%, it compensated for the rather dreary growth rates seen by ERP and RDBMS.

As far as applications like ERP and CRM go there wasnt much scope for growth as the markets are already mature.

In the BI space, it was a year of consolidation and growth as nearly all vendors did well. Oracle and Microsoft grew in this space. Oracle added several clients like Syndicate Bank and Hero Honda, and Microsoft also made some additions to its BI client list with names like Infosys, Department of Posts, Cognizant and TCS getting added. Even smaller local vendors like MAIA Intelligence reported some major wins like Bharat Forge and HDFC Standard life.

Urvashi Kaul
urvashik@cybermedia.co.in

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