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Networking is the backbone of any IT infrastructure; any year of healthy growth in IT consumption implies a bumper for the networking vendors. FY 2005-06 was no exception. Though the growth rate came down by a few points as compared to last year, the overall networking adoption pattern showed little signs of slowing down, either for large enterprises or for the SMBs.

In fact, even the drop of these few points (from 34% growth in FY 2004-05 to 26% in FY 2005-06) could be attributed to the significant bases achieved by almost all categories of networking products, especially routers and switches. Both these categories grew by 22%. Though much lower than previous year figures, their overall market sizes have crossed the Rs 1,000 crore threshold. Among the other categories, external modems were on the verge of being phased out, while WLANs had a year of consolidation following a euphoric FY05. Structured cabling, however, showed significantly higher growth than in the last year.

Though, Dataquest in the current analysis would restrict itself to routers and switches, the overall networking segment obviously included other facets like modems, structured cabling and WLANs; these categories are being analyzed separately.

In 2005-06, Cisco continued to be the undisputed champion with over 70% market share in each category, wth at least ten other players fighting for the rest.

Extensive deployments in the government and defense sectors, data centers, BPOs, banks and converged networks of telcos were the main surge areas for the networking industry. The trend has been towards bigger deals, not only increasing the number of locations, but also the average size of the deal. The average deal size witnessed a significant upward swing with many of them going well beyond the million mark.

Cisco Routs Yet Again
BFSI remained the most important segment for the router market, pegged at Rs 1,047 crore. Crossing the Rs 1,000 crore barrier was a big thumbs up for the industry. Government and defense sectors were rolling out greenfield deployments and spending big bucks on replacing or ramping up their old networks. Heavy deployment of MPLS-based networks was also seen. Banks and private organizations, too, have been investing heavily in data centers, DR sites and business continuity. Application vendors in niche areas like BI, data warehousing and security have largely driven the market.

The market witnessed a shift towards unified security and routing gateways. With the onset of next-gen and intelligent networks, the focus shifted to application-performance optimization through the networks. Thus, there were more and more appliances and technology being integrated into the backend routers. Cisco smartly aligned with the shift by introducing the 7200 series to deliver WAN and MAN services with a combination of scalability, value and performance. The ISR (Integrated Services Router) series was added to deliver secured concurrent services for broadband connections.

Other vendors too recognized this potential. WNS Global Services moved to an IP/MPLS based network on Juniper's M-Series while, Allied Telesyn deployed over 800 AT-AR300 series routers for Galileo India.  The trend continued to be towards integrated security in the networks, the UTM model in the SMB segment and switching fabric on the data center side. FY 2005-06 also saw the genesis of deals worth $800 mn, primarily from the government and defense sectors.

Cisco continued to dominate the segment with 80% market share. The key customers for Cisco routers during FY 2005-06 included GAIL, IOC, Le Royal Meridien, Taj Group of Hotels, Reliance, Bharti, VSNL, SBI, PNB, United India Insurance, among others. On the government administrative side, it added the State Government of Gujarat, Supreme Court, NHAI and CDAC to its kitty. Cisco set up its proof-of-concept lab (second in the world after Australia) for its high-end enterprise customers.

Competition to Cisco in routing came from Juniper Networks, especially in Q1, only to fizzle out subsequently. Juniper showed an overall flat growth, but its revenue neared Rs 80 crore in the router space. Telecom was key with accounts like Bharti, Reliance and Hutch. Acquisitions of Peribit Networks and NetScreen allowed Juniper to make its presence felt in the enterprise space with performance and WAN acceleration products.

Huawei  has been ramping up its operations in India,  and finally gained momentum and was a surprise entry in the top five, mainly due to the BSNL order for their NIB 2.2 project. That explains why its market share in routers shot up during the last two quarters of the year. Dax Networks was another surprise entrant into the top league-it introduced the concept of MCRP (mission-critical routing parameters) for its routers. The spurt was driven by sales to telecom service providers like Reliance, HCL Infinet, and even larger SIs like Tulip IT Services.

D-Link's popularity showed no signs of waning in the SMB space. Nortel increased its focus on the SMB segment within the government and defense sectors. BPO continued to be the main growth engine for the company. The acquisition of Tasman Networks was also aimed at strengthening its router product lines.

Cisco Switches off Competition
In the switching space, the growth was largely among the large enterprises and SMBs going in for a networked environment. The market was pegged at Rs 1,587 crore in 2005-06, making it the biggest category in the overall networking spectrum. The IT and BPO sectors along with manufacturing were the leading consumers.

SMBs went in for unmanaged layer 2 and 3 switches, while the large and mid-sized enterprises opted for layer 4-7 managed switches. Ethernet remained driven by its lower cost; whereas, both Metro Ethernet and ADSL drove the business last fiscal. The real push in terms of volumes started coming in with the greater roll out of Metro Ethernet networks. Large enterprises and service providers drove the demand for managed gigabit switches.

Bandwidth-intensive applications, such as data warehousing, with the growing importance of voice and video traffic on the enterprise network, fuelled further rollouts.  Gigabit and fast Ethernet switches showed low volumes but drew high value.

Importance of gigabit Ethernet continued to increase in the backbone networks, and at the server level. It was still early days for gigabit switches at the node level; however, the fast Ethernet switches became well-established with the end users. The 10/100Mbps ports were routinely bundled with the end-nodes. Despite high costs, managed gigabit Ethernet switches became economically compelling for the corporate networks, and managed layer 4-7 switches saw a lot of uptake in the market. Though their volumes were lower than the unmanaged layer 2 and 3 switches, their contribution to the revenue was sizeable. These were adopted by many SMBs who began using LAN switches. The market has been whirring with gigabit for some years now. But, in FY 2005-06, they became more relevant with the rising trend of storing data on networked drivers and SANs, and with the continuous increase of high-bandwidth applications in the organizations. Even the 100 gigabit Ethernet would be economically viable soon, especially for large networks.

Convergence in transport layer has been instrumental in higher consumption of the networking gear. This also enabled the organizations to integrate services and applications. Deployment of converged networks, especially VoIP and related applications are driving the market. Power-over-Ethernet is also on the upswing.

Cisco reigned supreme in switches too. Its market share at 71% was slightly lower than the share in the router space

A big deployment last year was in the education sector through the World Bank assisted Technical Education Quality Improvement Program (TEQUIP). This will lead large deployments worth around Rs 1,350 crore.

Cisco reigned supreme in switches too. Its market share at 71% was slightly lower than the share in the router space. While Juniper and Huawei were number 2 and 3 in routers, 3Com and Nortel took those slots in switches. Strong in the switching space but still lack- lustre in the overall networking market, 3Com recorded 12% growth.

Nortel saw the culmination of a few big deals, especially switching at the data centers. Recovering from its earlier negative growth, Nortel has been making a strong foothold again. It bagged many clients in the BPO space particularly. Apart from the Tasman Networks acquisition, it also entered into a MoU with Huawei Technologies to establish a JV for developing ultra broadband-access solutions. With the defense sector revamping its networks, a huge arena is opening up for the company. With its dedicated SMB portfolio and enterprise switching products, Nortel is geared up to take on the competition.

3Com and Nortel follow Cisco in the switching space, only if the revenues of Foundry and D-Link are considered separately. However, since Foundry functioned in India as a JV with D-Link, the combined revenues of the two would make it Cisco's biggest challenger in switches. Like in routers, the lesser-known Dax Networks also shot to fame in switches with its revenue growing by nearly 35% last year.

Rajneesh De, Minu Sirsalewala
rajneeshd@cybermedia.co.in, minuvs@cybermedia.co.in