It was time for the networking industry to return to reality. Last fiscal, the equipment industry grew 53.7 percent to touch a total turnover of Rs 2,751 crore as compared to Rs 1,790 crore. The product categories that contributed to this figure were NICs, hubs, LAN switches, structured cabling, router, RAS, dial-up modems, leased line modems, WAN switches, Access multiplexers, VSAT equipment and Wireless LAN equipment.

Adding a new category of fiber-optic SDH equipment, which we started analyzing this year, the total networking equipment market during fiscal 2000-01 stood at a total figure of Rs 3,217 crore.

Studying the networking equipment industry performance from a pure LAN perspective, the LAN equipment supply industry last year, which included only NICs, hubs, LAN switches and structured cabling, registered a total sales revenue of Rs 931 crore. Thus showing a growth of 28 percent over Rs 729 crore, during the previous fiscal.

This market is a fairly matured one, with a CAGR of over 32 percent over the last five years, in which VOICE&DATA conducted the survey. While price drops have meant that lakhs of units and ports of equipment have to be sold to sustain the growth in value terms, also there is a lot of development in the LAN switch and structured cabling categories. Layer 3 switching is already the in-thing among large enterprises, while Layer 4-7 switches are beginning to get accepted by the data centers. Fast Ethernet cabling is getting popular among the structured cabling families, but Gigabit Ethernet is likely to be accepted, once the final standards are ratified.

The Network Integration (NI) market, finally came into its own from being a product margin earning industry to one which is now concentrating on value-adds, in terms of consultancy and integration services. In fact, the top NIs did many projects, which involved just consultancy and integration services, while a totally different company supplied products. Already, companies are exploring for overseas NI projects where they can do value additions by providing consultancy, design and network planning. The flowering of the integration and services in the whole spectrum of NI roles meant that the projects fetched more money for the product implemented and commissioned in the past years. The NI industry grew a good 64 percent during the last fiscal, registering a total sales revenue of Rs 1,675 crore.

This year’s NI survey also included telecom turnkey implementers as well. We were forced to do this, as the core of the communications network was getting converged. Also many of the telecom turnkey service providers were looking at undertaking packet-based networking deployments as well. Both Global Telesystems and HFCL tied up with Cisco, last year. ITI was already into various managed data network implementations and ATM/VoIP network deployment, in addition to setting up SDH backbones and access networks for the telecom service providers. These companies had already added competencies in providing CTI and IP-based services solutions. VOICE&DATA Networking Masters 2001, estimates that the telecom turnkey services market including established SDH fiber-optic equipment in the transmission layer and multi-services WAN switch in the access layer of telecom networks, was worth approximately Rs 857 crore.

Networking Products Distribution

The distribution market last year was worth Rs 687 crore. Routers, switches, modems, structured cabling, NICs and hubs formed a bulk of the products that were sold by the product distributors. It was observed that the networking market is more profitable for channels that are in the first layer of distribution, whereas the channel partner in the last layer gets meager margins against extensive activities.

As the margins were better in networking products, one saw many computer systems and peripheral distributors moving towards networking products. Also, the networking products distribution industry saw the emergence of many new players. As a result of which there was the need for value addition to have an advantage over the competition. Some did this value addition, in terms of developing better logistics and better channel management, there were the ones who clearly stood out by adding value to the products, by locally manufacturing them to suit the Indian environment.

The Outlook

If networking products, solutions and services is your business, banking and finance sector is by far the surest shot. It easily contributed about one-third of the entire networking revenue during last fiscal. The projects that started off during last year continues on, while many more second tier banks are expected to join in the activity this year. Projects are expected to come from these financial organizations in the form of LAN for several branches as well as VSAT/leased line-based routed networks to connect the branches. Setting up of ATMs is likely to be another activity that will require WAN connectivity. Banks like ICICI and HDFC are expanding their ATM networks all over the place. Others will follow suit to compete in the market.

Though the shadow of a gloomy US economy over the Indian IT industry has not cleared, there are signs that India will not be as affected as one would have feared. One, there is already a move by the US multinationals to stretch their dollars by employing the best technical brains at a much more affordable rate than they would have spent in the US for development of products. Also, the IT outsourcing trend is rather to pick up in the mid-term than face the initial snags that is being felt now. Though, competition may be coming from China and Russia to grab these opportunities, still India is in a far better position due to the advantage of familiarity to English as well as the reputation of Indian engineers. The IT industry could be a major contributor to networking this year.

The big telecom network deployments that did not come last year, might be finally there this time. If one is going by the recent $1 billion investments that Bharti has managed from SingTel, Warburg Pincus, IFC and AIF, the big guys at least will manage to roll out the initial phases of their optical networking projects. And with that happening, the bandwidth dependent ISP industry would be boosted to invest on their end as well for the next stage of growth into value-added services, apart from operating dial-up access.

Clearly, the networking industry is looking at a growth of anywhere around 60 percent.