At the end of yet another year of seething pressures and tough decisions, the Indian IT industry showed a sluggish overall growth rate of 14 percent to Rs 74,787 crore (Rs 62,584 crore last year) in fiscal 2002-03. And while it remained the services space--software and BPO--which kept growth rates up thanks to their sheer size, it was the domestic market that was the real turnaround story, showing nine percent growth for the year under review, against negative growth in fiscal 2001-02, according to the annual Dataquest Top 20 survey of the Indian IT industry.
Said Prasanto K Roy, Chief Editor, Dataquest, "If ever there's been a year that's kept everyone in Indian IT guessing, it was fiscal 2002-03. The year began with signs of a recovery, but most of calendar 2002 saw wild swings, gravitating around vicious pull factors--the US-led coalition war in Iraq, sluggish economic conditions in the US and most of the West, the outbreak of SARS, rising visa and immigration issues, price manipulation by buyer enterprises, seething undercutting of rates by IT and BPO vendors."
The final tally--overall growth of 19 percent (14 percent last year); software exports growth of 17 percent (26 percent if BPO numbers were added), compared to last year's 20 percent (27 percent with BPO); growth of five percent in domestic hardware (negative three percent last year); and a steep 14 percent fall in hardware exports, compared to 45 percent growth.
The total services space showed marginal recovery with 16 percent growth, against two percent last year, and IT training looked healthier despite its 23 percent negative growth, only because it had shown negative 37 percent last year.
SW exports & BPO: Champs again
Let's begin with BPO, which stood out bright and zippy (and nearly alone). Larger BPO players continued to increase numbers at a steady clip--some even more-than-trebling their headcount. But this was also the beginning of a phase of consolidation, and this was evident in the crashing billing rates as competition grew fierce. Smaller companies--those that can find suitors--will get bought out sooner rather than later, while countless others will die a sudden death... quite similar to the beginnings of the IT services industry in the country. One clear trend in BPO was that this was a space where mere specialization and success in the IT space would not guarantee success, for the rules and economics of business were very different. Thus it was that other than Wipro (with Spectramind), none of the Top 20 companies made any news in this space, though nearly all had kicked off their operations.
For software exports, year 2002-03 was a mixed bag. At Rs 35,181 crore, the software services export sector accounted for 47 percent of the total industry size. But it wasn't size that was cause for worry--it was the crashing growth rates, this time well into the sub-20s. And clearly, there's no respite in sight--"We are entering an era of the teens," Nasscom President Kiran Karnik said, commenting on growth rate for the next year. As many as eight of the Top 20 software exporters saw growth shrink into the teens or below. Four of these showed single-digit growth... one showed negative growth.
PSUs to the rescue
The DQ-IDC India Megaspenders Survey for fiscal 2002-03 rattled out odes to the BFSI sector... but even as BFSI saved the day, its score was far lower than projections. Across all verticals, against forecasts of 56 percent growth in enterprise IT spend in 2002-03, there was a decline of 17 percent--and the slide would've been worse if not for heavy spending by the IT industry itself. Last year's survey had reflected an upbeat CIO mood, as they predicted 56 percent growth in spend on infotech products and solutions--signifying an end to the slowdown. Grim end-of-the-day numbers, however, pooh-pooed that forecast.
It was public sector banks and insurance companies that placed the biggest orders in fiscal 2002-03, with four of the top five spenders coming from this space. The top corporate IT spender in 2002-03 was Punjab National Bank, with IT investments of Rs 180 crore. Last year's leader LIC (Rs 140 crore IT spend in 2001-02) was still strong at #3 this year, with Rs 105 crore of spend this time around. Canara Bank, Bharti Cellular and Central Bank of India made up the Top Five Club.
Of strategy & storage
Whether it was storage or peripherals, networking or systems, vendors went in for brand positioning and took a segmented approach, with SMB topping the agenda. With urban markets reaching a point of saturation, vendors went deep into the upcountry markets and organized roadshows and custom campaigns to tap the market potential. It was a year to realign strategies and reach out to the customer.
In the SMB and SOHO space, the top three--Tech Pacific, Redington and Ingram Micro--drove the industry at large. For second-tier distributors and resellers, the going was tough because of a lack of best practices. They struggled to manage multi-vendor product and credit lines, resulting in unethical practices abounding and some resellers closing shop, leaving distributors in a fix. New products, technologies, aesthetics and styling were in. In the case of peripherals, for instance, devices like printers, scanners and monitors became sleek and thin. Above all, the year gone by also drove home what convergence is all about--multi-function devices became a reality, with vendors offering integrated all-in-one devices that could print, scan, copy and fax.
Despite being 18 months in the past, 9/11 and its fallout continued to cast its spell on the storage market, with an increasing number of enterprises implementing disaster recovery and data replication solutions, driving demand for hardware, software and networking. The year saw a proliferation in business spend--sophisticated storage infrastructure was in. Network storage options found greater favor, at the cost of some percentage points for DAS. While the trend of lower storage hardware prices continued, vendors weren't mauled as much as last year. The year ended with a growth of six percent in value terms, compared to a fall of five percent last year, even as growth in volume terms matched last year's level of 70 percent.
Buyouts & acquisitions
In India, there are few big M&As, especially in the tech business. Most have been quick and matter-of-fact, such as Airtel's acquisitions in Bangalore, Chennai, Kolkata, et al. But the slowdown has triggered some brisk merger action. Aptech's fairly quick sale to SSI was one. For the merged entity, it makes sense to move to an operation with the scale necessary to compete with NIIT. It was just very unexpected--SSI, struggling with dropping margins, suddenly buying out the much larger Aptech for a mere $ 5 million. Then GTL buying out Singapore-based Redington Group, including Redington India. While everyone twiddled their thumbs to figure out what a telecom equipment and services company would do with a thoroughbred IT distributor, the proposed merger went into a tailspin.
Siemens Information Systems, traditionally a strong player in telecom, firmed up plans to acquire a financial software company. The ostensible reason being to ramp up its product line and acquire its customer base. Mentor Graphics acquired three companies and is said to be looking for more.
EDA bigwig Cadence acquired system-on-a-chip verification tools vendor Simplex Systems for $ 300 million. The same day, Cadence announced the acquisition of privately-held Plato Design Systems, a place-and-route tools company. These deals looked like a response to the decision by Synopsys to acquire troubled Avanti for about $ 737 million, which is one of the larger deals witnessed in EDA history.
Then we had restructuring at this year's Giant #4--announcement that the software export business of HCLI would be hived off to HCLT. HCLI would hive off its 128-seat facility for the technical help desk business, under HCL Infinet. Former group company NIIT continued its acquisition drive--it bought out eGurucool to strengthen its focus in the IT-assisted education space, and tied up with leading Japanese systems integrator CAC Corp to tap into the system re-engineering space in the Japanese market.
And finally, the mother of all mergers--HP and Compaq, which has been coming along just fine. As 1+1 added up to even more than 2, detractors were sent scurrying away. Another move within the company is that of Digital absorbing over half of HP India Software Operations--that should pan out through the year.
Cyber News Service