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Networking Market: Stunted Growth

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DQC News Bureau
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Though the first two quarters have met the expectations, with enterprises and SMEs deferring their networking plans, sales in the next six months would definitely take a hit. DQCI examines the market conditions and strategies adopted by market players to beat the downturn.

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According to an IDC report the size of the networking market in 2000-2001 was

Rs 1,686 crore. Partners say that the overall market grew by 40 percent last

year because of the opportunity in the service provider segment. However this

disappeared in 2001-02 and the market is likely to slow down by atleast 10

percent.

Despite this, Entrasys Networks grew by 40 to 50 percent, with quarter over

quarter growth of 20 percent.

Even Convergent Communications managed to grow by 75 percent over the

previous fiscal. Says Anil Gupta, Director, Business Development and Service

Marketing, "Our turnover was Rs 9 crore during the first six months of this

fiscal."

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Jangoo

Dalal says Cisco has been seeing positive growth, albeit at a slower

pace.

Cisco may have been making headlines for laying people off in a bid to tackle

the recession. But Jangoo Dalal says, "We expect the overall industry to

grow from 15 to 25 percent."

D-Link is yet another company that was unaffected by the slowdown. And

Prabodh Vyas, Director-Sales, feels this was because the company had anticipated

the recession and got into newer products lines, expanding its manufacturing

facilities.

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Singapore-based Compex Systems Pte Ltd has been actively investing in the

Indian market, expecting good scope for growth. Says Katherine Fung,

VP-Worldwide Sales and Marketing, "For the fiscal 2001-2002, we are on

track in our turnover despite the slowing down of some market segments in

India."

The nay sayers

There are companies which have seen a slump in their business, one of them

being Accton India.

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Milind Kamat, Country Manager says, "Overall volume business has seen an

increase. This means that we have been reaching targets in terms of the number

of products sold. But at the same time, the value business has been

declining."

Juniper Networks' turnover, too, has not been as per expectations. Says

Karthik Natarajan, Sales Manager-India, "Though the demand exists, buying

decisions have been postponed. Coupled with this a lot of consolidation is

happening in the service space." Luckily for Juniper, it bagged a big order

from BSES for implementing an Ethernet-to-Home solution, which helped in

rallying revenues.

However Milind Kamath does point out that the market has eased out in October

and expects business to pick up by the start of the year 2002. The fall in

revenues notwithstanding, Karthik Natarajan too is optimistic about the

potential India holds. "With the likes of Bharti and Reliance laying a huge

amount of cable, it is an indication of the opportunity that exists in the

market here,"he muses.

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Rajiv U, Head-Marketing, Select Technologies too has great hopes for this

fiscal, hoping to record Rs 24 crore, which will be a growth of 165 percent over

last year's performance. But others are not that convinced. In fact all are

keeping their fingers crossed hoping that things start looking up with the dawn

of the new year.

Donning the thinking hat

The economy has made all vendors come up with ways to safeguard and increase

their revenues.

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Convergent Communicatins, for instance, expanded into different areas like

wireless LAN and MAN (metropolitan area network), foreseeing more business from

government, ISP and corporate sectors. It also started offering end-to-end

solutions for call centers, corporate data and voice networks and other

value-added networks.

Uday Birje of Enterasys feels the downturn has been severe in the last two quarters. 

Cisco launched a plethora of new products and solutions, in areas like

converged voice, video and data, CDN, security and wireless high-end routing. It

is also investing substantially, in areas like country-specific spares'

warehouses and has increased its focus on B-class cities.

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Compex started actively building effective partnerships with its distributors

and channel members to ensure a win-win situation for all parties.

D-Link worked towards getting its products empanelled by large organizations,

a move which now has several government and other institutions specifying its

products in their tenders.

Select Technologies too shifted into niche areas, including the network

security market. "We have tied up with Check-Point, Nokia, Digisafe,

Rainfinity for distributing their product range in the Indian market. We are

also planning to sign up with other vendors in this space in phased manor,"

says Rajiv.

Recognizing that banking and finance sectors were by far the surest shot in

getting good business, contributing about one-third of the entire networking

revenue during last fiscal, Accton decided to concentrate on these areas.

Channel strategies that worked

The distribution market last year was worth Rs 687 crore according to Voice

and Data. With such a significant portion of its business coming through the

channel networks, vendors held no bars in pushing sales through this conduit.

Convergent Communications introduced six new product lines, including low-end

modems, business card readers, low-end ADSL products, 2MB modem, converters and

RAS. These products were aggressively priced for channels to help them record

better margins. "We also came up with special back-end incentives like

special offers and freebies," says Anil Gupta.

Cisco on the other hand, waved the channel certification wand. Says Jangoo

Dalal, "We are investing heavily in both time and money to train our

partners, with the goal of having our key partners certified and skilled in

specialized areas of networking, like IP-telephony and security."

D-Link decided that a successful channel is an informed channel. And to this

end, it came up several free channel training programs. Prabodh says, "We

also launched points-based loyalty programs, which ended in September."

Enterasys decided to give its channel more impetus by getting them to focus

on specific vertical market focus like finance. Besides signing up Ramco Systems

as its distributor, it launched channel-related development and lead generation

programs. "We are also in the process of appointing channels focused on

specific solutions like security and switching," says Uday Birje, Country

Manager, Enterasys Networks.

Channel walks the talk

The channel too has been kept on its toes by the slowdown, integrating and

disintegrating continuously as it tried to adapt to the dynamic market

conditions. Raji Varghese, Manager (Marketing), Ratika Computronix feels that

compared to last year, profitability this year has reduced to half.

One

reason for the falling profits is the increased competition between equal level

partners. This situation is further compounded by panic selling to reach

targeted numbers or to qualify for schemes. At the end of the day, not many

partners are bothered what they will carry home as long as their backend margins

fall in place.

Ratika Computronix has shifted its entire focus from the reseller channel to

selling to systems integrators who undertake structured cabling. Also companies

providing Internet over cable service is another target segment.

Says Manish Garg, Manager (Networking Division), Advantage Computers "We

have strengthened our distribution channel with a focus on services. We are also

into the business of setting up and maintaining Internet over cable network and

are currently operating this in eight cities."

Pankaj Sureka, Datacom Consultant, Sureka Compu-Net has started focusing on

end-users who are quality and service conscious, rather than concerned with just

the price tag.

Products that sell

Manish Garg of Advantage Computers finds profits are still better than PC and peripheral business.

Voice and Data says that last fiscal the networking equipment industry grew

by 53.7 percent to touch a total turnover of Rs 2,751 crore as compared to Rs

1,790 crore in the fiscal before. 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.

Partners say that 8 port hubs, LAN cards were some of the fastest moving

products. Structured cabling products too were another hot favorite in the

channel space.

In fact more and more partners are banking on Net over cable to dominate the

market in the next couple of years. Ratika Computronix which recorded a business

growth of 50 percent in AMJ 2001 as compared to AMJ 2000, predicts that the

post-2005 years will be the era of optic fiber.

Says Raji Varghese, "Overall we expect the growth to be over 50-60

percent. Manish too pegs the figure at 60 percent explaining, "Decisions to

make purchases or deploy networks have been deferred. But I think by February,

the slowdown should be over."

Pankaj Sureka states that the market witnessed too many lows and highs in

terms of sales volumes last year. "The growth will be close to that of last

year–53 percent."

So there it is. While hopes are buoyant for a better market scenario, no one

is sure just how good the going will be. But like one partner said, "What

matters is growth, so what if it be just one percent!"

VINITA SUVARNA-BHATIA in Mumbai, with inputs from Mohit Chabbra in New Delhi

and Sunila Paul in Bangalore.

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