Thanks to the slowdown, which resulted in the networking hardware segment seeing bad times, networking vendors are now focusing on services, rather than products. Network system integration also has a rosy future, says Shipra Arora

Networking: Top Trends

• As networking hardware market loses ground, services is the road ahead.
• High-end network system integration space to witness higher CAGR of around 20 percent from this year.
• Network infrastructure management services (NIMS) segment to witness 29 percent CAGR will emerge as key segment in IT service space. Network consulting and integration part of NIMS will witness maximum growth.
• VoIP deregulation will be key demand driver in networking market.
• Increasing commoditisation of networking services to counter competition.

As the Indian enterprise moves up the value chain, it has not only become more aware of how IT can provide a strategic business advantage, but also more demanding readily accepting complex technology and applications. This is certainly rubbing off on the networking and system integration market space in the country, currently undergoing a paradigm shift.

The strategy being coined by players now is a move from products to the services space, positioning themselves as end-to-end integrated solution providers. According to experts, as FY 2002-03 unfolds, this is likely to be the dominant sentiment guiding market dynamics.

As reports indicate, while the networking hardware market is losing ground, it is the services market that is holding on with a steady performance during the downturn. According to a MAIT report, the networking hardware market (comprising of network interface cards, hubs and modems), traditionally one of the fastest growing segments in the industry, has undergone a decline during the first half of 2001-02. During 2000-01, the NIC, hub and modem market registered a growth of 72 percent, 67 percent and 43 percent respectively over 1999-00. As compared to this, the H1 2001-02 witnessed only 12 percent and 6 percent growth for the NIC and hub market respectively, with the modem market seeing negative growth of 21 percent over H1 2000-01. According to IDC, the Indian network management software market is the area that is now being paid special attention, considering the realisations here. IDC says the estimated market for 2001-02 is $7.34 million, with an estimated CAGR of about 15-20 percent over the next few years

Systems integration market of the future

While the prevailing emphasis for today and the next 1 to 2 years is on networking services within the IT services segment, the impetus is likely to shift towards the higher-end systems integration space. This will be led by the user segment further moving up the value chain, which will increase the technology complexities involved. The emerging growth pattern is indicated by IDC figures, whereby the market growing at a CAGR of about 8 to 12 percent in the last few years, is expected to witness 16 percent growth for the next four years. And the market is likely to further gain momentum thereafter, coinciding with the increased IT maturity levels of users. In fact, according to IDC, by then, this will be a key segment in the IT services gamut. This market in India is currently estimated (FY 2001) by IDC at Rs 1,700 crore.

Similar sentiments are shared by industry players. Providing an overview of the situation, Sujit Singh, country manager, DAX, Apcom Computers points out, “While networking hardware will be higher in terms of value, it is the services segment which will emerge in terms of higher growth rates.” According to him, the growth rate this year (2001-02) for the networking hardware space will be flat owing to the economic slowdown. In terms of the system integration market, Karan Puri, managing director, IT&T, estimates a 15-20 percent CAGR. However, there are also players in this space like Accel ICIM, who are optimistic the market will soon enter the region of 25-30 percent growth.

However, the area where the current emphasis for 2001-02 lies is in networking services. This market (in particular reference to only data networks) is showing steady growth, says IDC. According to Shekhar Avasthy, assistant manager, software and services research, IDC India, the estimated size of networking services or the network infrastructure management services (NIMS) space for 2002-03 is Rs 1,150 crore. In terms of estimates for future, the market is expected to grow at a 29 percent CAGR over the next few years

The NIMS promise

While NIMS emerges as the direction the networking market will take in 2001-02, it is also emerging as one of the key segments within the complete IT services space. Says Avasthy, “About 17 to 18 percent of the Rs 6,500-crore IT services market is going into the NIMS segment, which is quite huge.”

The two service areas within the NIMS segment include network consulting and integration, and network and desktop management services. According to experts, it is the former that is emerging as one of the highest growth opportunities within the segment as it comprises of more than 80 percent of the entire cost of NIMS. According to Anil K Jain, head-marketing and business development, Wipro Infotech, the network integration market itself is estimated to be worth Rs 700 crore. According to Manoj Chugh, president, India and SAARC, Cisco Systems India, the network integration market, with a 51 percent share of the networking solutions space, was the biggest revenue generator with Rs 16.75 billion in revenues.

According to IDC, the principal areas under the network consulting segment include consulting, operation assessment, benchmarking, need assessment, network strategy and planning, capacity planning, network design, maintenance planning, security consulting, network analysis and tuning. On the other hand, network integration comprises of site preparation, project management, testing and debugging, system configuration, installation, custom software development and security implementation. The principal areas under the system integration market include planning, designing, implementation and project management of a solution that addresses a specific need like ERP, CRM, SCM, etc.

Market accelerators

Apart from the maturity of the end-user segment, the other accelerators driving both NIMS and the systems integration market in India as identified by IDC are growing opportunities within the financial and banking verticals, India’s emergence as a hub for outsourcing of IT enabled services, and the trend towards e-governance and e-business. The growing financial vertical and call centre opportunities are the growth areas that most players, including Cisco, Wipro, Accel, IT&T and Tulip Software are getting bullish on for driving these markets over 2002-03. This, according to N R Panicker, chairman and MD, Accel ICIM, will lead to increased importance being given to services like data centre management, enterprise application integration, network attached storage, disaster recovery services, etc, within their IT infrastructure plans. Thus, driving the markets.

“While the key driver in the early part of 2000-01 was demand from ISPs, what we are now seeing is burgeoning demand from the IT-enabled services market (call centres),” explains Chugh. According to Jain, apart from telecom deregulation, service provider segment growth and emergence of wide area networks (WAN), the finance and IT enabled markets will be high growth and value segments in the current and next year.

The emergence and adoption of newer technologies is another factor paving way for the growth of the networking market. The driving technologies include wireless networking, security, Net telephony and IP networks. In fact, according to Singh, the opening up of IP telephony will trigger growth to a great extent. Chugh says the opening up of Internet telephony will see the entry of private NLD/ILD players who will invest greatly in building up new IP-based networks, Jain sees growth opportunities in integration of new technologies for VoIP migration. “Voice as VoIP and voice over Internet will drive purchases in the next year or so. The second driver currently is and will continue to be corporate intranets and IP VPNs, enabling broadband infrastructure and broadband aggregation systems like DSL, cable and Ethernet,” believes Shirish Kanetkar, country manager, India, Unisphere Networks. According to Puri, on the systems integration front, from an application viewpoint, the key drivers will be VPNs, Internet security solutions, e-business and e-governance solutions.

According to Avasthy, the future trends in these market segments are directed towards increasing demand pressures and lower margins for service providers as customers are going to increasingly demand anywhere, anytime and any kind of service from one single service provider. This is likely to have repercussions in terms of providing a wide range of services that are integrated, end-to-end, best-of-breed solutions across geographic spread. Also expected is an increasing commoditisation of networking services to counter competition. According to Chugh, companies are looking to partner with a single vendor who could provide best-of-breed products which can weave into end-to-end solutions, ensuring manageability, quality of service, security and availability. It’s no longer about multiple point product vendors, but one strong partner. According to Kanetkar, further in tow will be the emergence of value-added services like unified messaging, and IP call centres to gain a competitive edge.