SERVERS RESURGING!

After a low-growth year in 2002-03, the server business bounced back last
fiscal to post a healthy 21% growth. While Sun continues to dominate the Unix
server space, IBM did some impressive catching up here and also emerged #1 in
the x86 segment. Partners too report growths ranging between 20% and 60%. They
are moving up the value chain by offering complementary products, selling
high-end solutions and addressing a wide variety of service opportunities. And
buoyed by strong Q1'04 sales, the outlook for the current fiscal looks even
brighter.

Having faced two not-so encouraging fiscals in past, the Indian server market
received the much-needed elixir of growth last year. By recording a robust 21%
growth in fiscal 03-04, the bad memories of a negative growth (in FY 01-02) and
a mere 10% increase (in FY 02-03) were wiped out.

Propelled by increased IT investments in sectors like BFSI, telcos and
manufacturing, the overall Indian server market crossed the Rs 2,000 crore mark
and if AMJ '04 sales reports are any indication, FY 04-05 too offers a very
promising outlook for the same.

Vendors, as usual, were found raving about the q-on-q growths, with everyone
trying to project themselves as a market leader. Partners on the other hand,
while enjoying the opportunity to sell more, were facing the challenge of
offering value-adds around every server sold.

This was largely because of the fact that at the entry-level, server business
was seen getting more and more commoditized. Also for PC servers (x86), the
technology differentiators too weren't that pronounced to give one solution
provider an edge over the other. It essentially boiled down to price,
after-sales support and customer relationship. Hence, if opportunities opened
up, competition only got further intensified.

NUMBER GAME CONTINUES

Server market has just a handful of players, with the top three-HP, IBM
and Sun-commanding nearly 83% marketshare. And hence, instead of rankings, it
is the individual growths of these companies that should really matter.

And talking of company growths, it was really IBM that performed at rates far
better than those of the market. According to IDC, IBM recorded nearly 55%
revenue growth in servers, with HP posting a modest 18%. While Sun continued to
command a leadership position in the Unix space, it witnessed a near-flat sales
curve last fiscal.

Smaller-but-significant players like HCL, Acer and Dell too posted a strong
growth over their smaller revenue/unit base. HCL, in fact, today has acquired a
strong position behind HP and IBM in the PC server space by recording 50% growth
last fiscal and commanding nearly 10% marketshare in this segment.

Zenith, Wipro and PCS are still struggling with their focus and most of their
revenue accrue from case-based wins. Others like SGI continue to confine
themselves in niche customer segments and application-driven businesses.

Last year was really a sunshine year for IBM all the way. The company not
only emerged strongly in the non-x86 Unix server segment by grabbing large
chunks of Sun's share, it also inched closer to the numero uno position held
by HP in the x86 space. The pSeries range of servers contributed heavily to IBM's
leap in the Unix market. Sun, on the other hand, continued with its conventional
stronghold among telco clients while HP put up a consistent performance with
good deals coming from BFSI and manufacturing.

PLEASANT TIMES FOR PARTNERS

With overall market sentiments positive on server business, it essentially
were partners who had best reasons to smile. Channels India spoke to a wide
cross-section of partners across the country and most of them reported a growth
upwards of 20%.

In fact, integrators like Team Computers of Delhi inform of as high an
increase as 80% in their server sales. Even in cities like Kolkata, which is
traditionally not so strong in server deployments, SIs speak of growths around
20%.

 

"The ratio of server sales to overall revenues has been 20% and should
continue to be the same this year too," says Ajay Jalan of Trade
Technology, a Kolkata-based SI. In Bangalore, key HP partner Future Businesstech
reports of nearly 60% growth in its server business in last fiscal compared to
the one before. "Of our Rs 23 crore revenues, nearly Rs 3.2 crore came from
pure server sales," informs Jayessh Mehta, MD.

In Mumbai too, solution providers exude joy on the way their server business
shaped last year. "We witnessed an 25% Y-on-Y growth last year. And in the
last two quarters of this calendar year, the growth has been around 30%. So this
year, we expect our server business to grow by 28% over last fiscal,"
states Atul Hemani, Director, Omnitech Infosolutions. For Omnitech server sales
share to the overall revenue was at 16%.

The AMJ 04 quarter also continues to bring in good news for integrators.
Future Businesstech for instance, has already achieved a 100% growth as compared
to similar period last year. Wipro Infotech talks of about 45% growth in its
server business (self-branded).

BIG-TICKET CONTRIBUTORS

BFSI, telcos and IT companies continued to be the largest spenders on servers.
However, a strong buying from the manufacturing segment because of increased ERP
implementations saw things becoming rosier for the server vendors as well as
solution providers.

In the banking segment, RBI's directive on Real-Time Gross Settlement (RTGS)
acted as a significant catalyst in driving the purchase of servers across most
of the nationalized banks. "Banking and financial institutions were one of
the largest growth drivers of our business," informs Sam Oommen Thomas,
Asst GM-Marketing, Enterprise Product Group, Acer India.

Looking ahead, it is expected that this segment will continue to invest more
heavily in servers with a range of banking applications receiving widespread
adoption. "BFSI will remain a key buyer for servers, especially the Unix
ones with most of the banks looking at putting core banking systems in
place," opines, Pallab Talukdar, Director - Enterprise Marketing and
Alliance- CSG, HP India. (Refer table: Look who's buying?)

However, vendors also assert that its not just the conventional top four or
five verticals which will drive the business and many new promising segments too
are emerging. "Apart from the growth trends in the financial services and
telecom segments, there are a new crop of industries, especially in auto
ancillaries, pharmaceuticals, and textiles who are part of the supply chain of a
large enterprise and want to use technology to increase their profits and
bottomlines. These companies want to get into the big league and will be
investing in servers and networking," says KP Unnikrishnan, Marketing
Director, Sun Microsystems India.

Partners too are closely watching these high-growth segments to further
improve their business prospects. "This year, we expect the growth in
server business to be 30% as we find a lot more customers going for ERP
installations, which will require a robust server backbone," indicates Atul
Khatri, Director, Kaytek Computer Services.

Some are even readying their technical skill-sets to harness the potential as
and when it comes. "Expecting a momentum on server consolidation happening
across enterprises in the near future, we have started to build internal
expertise on blade servers," remarks Jayessh of Future.

SMBs BECKONING

Given the fact, that in server space, still leading vendors continue to do
nearly 30% to 35% business directly, to engage with so called 'top accounts',
partners can really look at exploiting the SMB segment, where vendors engage
completely with channels. Further given the growth promises these SMB customers
hold and also the sheer base they have across the country, vendors too are
coaxing their partners to get more focused on this segment. Also, its typically
seen that majority of large enterprise-wide server deployments are either done
by vendors directly or one of tier-1 SIs like Wipro Infotech or HCL Infosystems.

"Mid or small-sized solution providers should aggressively target the
SMB customers as they have all that it takes to address this segment in most
effective manner. Be it their reach, relationship or need understanding,"
justifiably remarks Mukul Mathur, Country Manager, Channels and CSI, IBM India.
So it doesn't come as a surprise finding both HP and IBM offering a range of
SMB-specific programs for the channel partners.

Even niche players like SGI have realized this need to expand their customer
base beyond the traditional and are getting more channel-oriented. "The
introduction of SGI Altix servers running on Linux OS created excitement in the
channel field force. And we are in the process of enhancing our channel
infrastructure to ensure wider geographic reach and deeper market penetration to
further grow this business," says Avinash Fotedar, Marketing Director, SGI
India.

Also, the fact that even SMBs today are slowly adopting ERP applications,
gives more reasons for partners to focus on this space. Linux adoption too is
expected to be prominent in this space hence adding fuel to Linux-based servers,
which so far has small base yet posting impressive y-on-y growths.
"Linux-based servers have shown a major growth in the last fiscal and we
expect good opportunities this year for Linux applications, especially for the
SMB segment," reaffirms Amod Phadke, Product Manager-Enterprise, PCS
Technology.

VALUE-ADDS, TECHNOLOGIES

Like any other product in IT business, the big question of what value-adds
can a partner add, remains with servers as well. Services do sound like a good
idea but with vendors typically retaining this opportunity in most high-end
solutions, partners are left at looking at many alternatives as well. In fact,
leading vendors now even ask partners to sell their service packs, which again
is nothing but a product after all.

"In this business one can go for services in the Linux-based servers and
that is what we have been doing but there is not much scope of after-sales
services in x86 servers as it is mostly the vendors who provide the
support," says Ranjan Chopra, Director, Team Computers.

Of course there are services like server sizing, data migration, server
consolidation, among others, that solution providers can actively look at
addressing. Also, what is crucial is that while making a sales pitch for
servers, there are a host of other opportunities a partner can explore. This
include selling the right storage solution to go with the server to pitching for
management software.

According to IBM's Mukul, servers still are not as commoditized as its made
out to be. "There are still are strong technology differentiators and
compelling reasons why a customer should be wisely taking decisions on which
servers to buy. An email server could be the most basic and widely used server
nevertheless continues to be a very critical component of any enterprise's
day-to-day running of business," illustrates he.

Likewise, vendors also have a piece of advice for solution providers in terms
of realizing the way technology is evolving. "Server business until
recently was made over-simplified. However, the fact is that there are a wide
range of technologies to talk about, which still makes it a complex business to
follow and address customer's need rightly," remarks Rajesh Dhar, Country
Manager-ISS, Technology Solutions Group, HP India.

There is a gradual momentum building around blade servers and so are Itaniums
going to get more popular in high-end deployments. At the same time, though a
niche, high-performance technical computing is gradually picking up its share
across R&D, academic and biotech organizations.

While the outlook for current fiscal looks brighter than last year, partners
will need to understand that unlike PC sales, servers will not sell on its own.
There's a lot that is needed to be put in for demand generation, right
understanding of client's business (and not just IT) needs and a precise
servicing of these needs.

GOLDIE with inputs from
VINITA BHATIA and ATANU KUMAR DAS

Look Who's Buying?

BANKING: With RBI's guidelines on RTGS (real time gross settlement) being
strictly adhered by most of the nationalized banks, a huge amount of basic
(entry and mid-range) deployment has already happened. The next wave (consisting
of setting up of ATMs, tele-banking, internet-banking, kiosk banking) will see
them putting core banking systems in place, thus imparting significant momentum
to the high-end mission-critical server business.>

CIOs in this segment indicate 29% of their IT budget for FY 04-05 being
earmarked for servers, while another 48% for PCs and PC servers*

MANUFACTURING: It's revival time for this segment after years of lying
low. Traditional manufacturing companies like BEL, BPCL, GAIL could also be seen
becoming aggressive in making IT purchases and servers are no exception.
Automobile industry is also performing with all guns blazing. ERPs are getting
deployed in mid-sized outfits as well and they need reliable server solutions to
work the way the should.

13% of IT budget for 04-05 will be spent on servers and 25% on PCs and PC
servers, according to a comprehensive sample set of CIOs in this vertical*

TELECOM: Consolidation among market players and a continuing increase in
user base will drive the adoption of really high-performing servers here.
Various kind of voice and data services will also fuel the demand for the same.

25% budget will get allocated for servers in 04-05 with another 25% on PC
and PC servers*

IT/ITES: Just take a look at new IT companies that have set its presence in
last couple of years or are doing it this year, and you have a ready demand
guide for this segment. BPO boom adds to the excitement and data centers will
become a major driver for the server and allied business.

22% of IT budget to go behind investment on servers with 44% on PC and PC
servers, according to CIOs*

BIOTECH AND PHARMA: The new blue-eyed baby of India Inc, biotech industry is
growing at tremendous pace. Ditto with pharma. And in order to make themselves
globally competitive, IT investments too are expected to happen at par with
other global players.

CIOs reserve 33% of IT budget for PCs and PC servers*

EDUCATION, R&D: Linux-based servers and high-performance technical
computing (HPTC) servers will find favors in this vertical. Already institutes
like TIFR, IISc, IIMs are in the process of sizeable server deployment but in a
very application-centric manner.

Servers Powering Some Unlikely Business

Speak to most technology integrators on opportunities for server business,
and nine out of 10 will list customer segments like BFSI, IT/ITES,
manufacturing, telcos and government as the HOT verticals to tap. Interestingly
enough, with IT dependence of any business rapidly increasing, servers today
find themselves in demand in many 'non-glamorous' segments. Restaurants and
grocery stores for instance!

As a leading brand in vegetarian ready-to-eat, instant food and restaurant
business, Bangalore-based MTR Foods' physical value chain was performing
satisfactorily in the areas of R&D, production, quality assurance and
packaging. However, there were concerns in the areas of procurement, marketing,
sales, distribution and finance. The information value chain was very much
lagging behind, and was soon going to be a handicap. It was imperative that MTR's
information systems moved to the fore and be a strategic tool, rather than
merely be a support tool.

MTR's MD P Sadananda Maiya realized the need to address his problem areas.
The company decided to implement an ERP solution from SAP and for this needed to
have a comprehensive hardware infrastructure in place. The project, which ensued
because of this decision to set information systems in place, resulted in an
integration deal of nearly Rs 2.5 crore. Of this nearly 40% share was taken by
the servers supplied by Sun Microsystems. The implementation was carried out by
L&T Infotech, while HCL taking care of networking and FMS.

The servers included one for application, one for database and one for test
and development of ERP. And the IT consultant (Southstar Data Consultant) and
integrator for MTR did well to convince the client that they require a
high-performance OS and a reliable and scalable hardware platform to run the ERP.
The bigger point here however, is not about the technology vendor or integrator
or also the kind of server, but its about unseen, unexplored opportunities. In
this case for instance, apart from server sale, storage and management softwares
too got sold along with.

Food World is another unique example of a retail grocery store adopting
technology to improve its business efficiency. "They needed to track
inventory, constantly have an update of their central warehousing facility to
the extent of profiling customer buying patterns across stores. They couldn't
have done it without IT and servers again played a major component of their
technology deployment," informs Krithiwas Neelakantan, National Business
Development Manager, Sun Microsystems.

According to him, while away from publicity, a huge business prospect lies in
areas like these, retail, healthcare and so on. Time for partners to sit up and
listen?