Networking

It was an excellent year for the enterprise

networking industry. Fuelled by a rapid spread of activities among the carriers, the

networking industry grew 92 percent in fiscal 1998-99. The total market for enterprise

hubs, NICs, switches (both enterprise and carrier), routers, and Remote Access Servers

(RAS) was Rs 537 crore.

The main propellers of this growth were the

government’s attention on IT and telecom infrastructure, the introduction of private

ISPs, and a realization of the cruciality of a network. All these combined together to

make 1998-99 a good year for sales of networking products, despite the hype about economic

recession and the consumer’s cash crunch.

Cisco emerged as the number one networking

company with revenues of Rs 148 crore. An incredible performance by the market leader. Its

networking revenue was more than the combined revenues of the following two ranks on the

basis of sales revenue. Cisco grabbed the top spot in all three product segments in which

it completes—routers, switches, and RAS. 3Com’s momentum was back as a new team

was successfully regrouped. It retained the number two position. Bay Networks emerged

stronger after being renamed Nortel Networks. It did real good work in the last quarter

and almost caught up with 3Com. Nortel was placed third. Cabletron Systems as usual

managed to endear itself to its loyal customers and won praises for its robust and fast

switches. Cabletron was able to pick up the number four spot. D-Link was fifth in

position.

Business trends



• Networking has become a mainstream industry. It is the fastest growing
among communication equipment businesses today. And it clearly outpaced the overall

domestic IT industry during last fiscal.



• An improved telco network contributed much to the success of the
networking industry. And the coming of private ISPs brought in the much-awaited cash from

carrier equipment like routers and RAS.



• The final quarter brought in a huge amount of business to the
networking vendors last year. JFM was the star quarter that brought the cheers. 40 percent

of the total business during last fiscal was done during this quarter. Router and RAS

sales peaked like never before during this time frame when ISPs laid their networks across

the country.



• Networking products came better and also cheaper. Prices of
products dropped by about 15 percent across the board, while the low-end products were

hard pressed to include features that were in higher-end products. This phenomenon was

seen in the Taiwanese NIC and hub categories.



• During OND quarter Customs notification came shifting various
products into the Special Import Licence (SIL) category, thus, increasing the Counter

Vailing Duty (CVD) on these items. However, this did not deter networking products to be

shipped into the country in large volumes. The customs duty applicable to networking

products during fiscal 1998-99 varied from 40 percent to about 60 percent of CIF. This is

excluding the SIL charges. The average customs duty on networking products works out to 55

percent of CIF. Which meant that after adding the margins to distributors, every dollar

shipment of products was equivalent to approximately Rs 70 of shipments.



• Region-wise, West was the most productive with a markeshare of 38
percent. South and North followed with 35 percent and 21 percent respectively. East is

still slow in terms of deployment.



• The buying decisions and contracts of the year reveal that
manufacturing and telecom were the two most lucrative customer segments. Together they

accounted for 50 percent of the total number of orders placed.

Product trends



• Networking products base has grown rapidly during last fiscal. Hubs and
NICs have been commoditized. The number of players dealing in these two products has

become very large.



• Networking products are today much more compact, versatile, and
capable of handling speeds. They are comfortable with transporting of video, voice, and

data.



• Speed and bandwidth are the most important factors in the choosing
networking products. This is the reason why switches have become so popular. Price was not

always the deciding factor.



• Switches grew fast. However, contrary to industry beliefs, hub
also had a good year. It registered a 21 percent growth. A large number of workgroups

throughout the country invested on hubs. The hub moved away from the server. However, it

is increasingly being bought for desktop level communication.



• NICs were the ones, which were hit hardest by the price drops. NIC
price tumbled to just a couple of hundred rupees and as a result the NIC market saw a

negative growth in terms of value. The NIC on the motherboard concept has not yet taken

off.



• The replacing of hubs with switches continued. As switches also
got cheaper, the higher-end hubs were the ones that felt the pressure from the price

aggression of switches. Rapid deployment of time-sensitive applications like

ERP,

intranet, and video-conferencing fuelled purchase of switches.



• Routers benefited from both sides—entreprise and carrier. A
large number of corporates built or expanded their private WANs while several ISPs

established their point of presence. For both purposes, routers were in big demand. Router

also was in the advantage from the fact that it was the most stable in terms of prices.



• RAS was the product, which showed the biggest growth during last
fiscal. As the Internet service providers increase in number, this product is going to be

incresingly growing in demand. The other product that needs to be watched out is

high-speed modems. Leased line prices have been severely decreased. Hence, it is expected

that large number of corporates will deploy private WANs during this year. It is a good

year ahead for both RAS and leased line modems.

Voice&Data