SERVERS: Riding On Optimism

India’s server market has been doing the rollercoaster ride for the last
few years. The economic slowdown did affect this segment, but the growth was
inhibited due to other factors as well.

According to IDC India, banks continued to invest in servers undeterred and
investments also came from the telecom sector for infrastructure required in the
expansion of mobile and fixed communication. Today India stands fifth in the
APac server market (excluding Japan) with a total revenue of $ 282 million in
2001.

The server business was at its peak during the last three quarter of 2000-01.
This was fueled mainly by the dot com and software boom. Then came the post-dot
com gloom in the first two quarters of 2001-02. Business started picking up only
in OND of 2001.

Overall growth remained negative by 20 percent unit-wise, according to DQ Top
20 estimates. Value-wise server revenues declined from Rs 1,805 crore in 2000-01
to Rs 1,539 crore in 2001-02.

MNC vs NATIONAL PLAYERS

A large number of local players form the chunk of the entry-level and
mid-range segment. Most of them are Intel’s premium providers with its
standard Intel architecture server (SIAS). This entry-level segment saw a
marginal growth of three percent in 2001-02 compared to the previous year.

Despite the improvement, even if all the local players are put together, they
are still no match for MNC players like HP, IBM and Dell. HCL is one of the few
national players that dare to compete with multinationals in the SIAS space.
According to the company, its consolidated marketshare in the server space stood
at 10 percent in 2001 up from 8.5 percent in 1999.

Meanwhile, local players are faced with the task of competing with national
as well as multinational brands. The only respite for the local player has come
from Intel’s Validated Server Program (IVSP) which has given the much-needed
boost to its premium partners involved in server business. The IVSP is a
comprehensive certification program for authorized resellers who build and sell
assembled Intel architecture-based servers.

GROWING WITH TIME

Neelesh Arora of Total Info who sells a local brand of server called Axiom based
on the standard Intel architecture, has reported a growth rate of nine and 12
percent in the AMJ and JAS 2002 quarters over the corresponding period last
year.

“We offer quality servers with 25 percent price advantage”

Neelesh Arora MD, Total Info

Neelesh says that his company will strive to provide quality products backed
with Intel’s ‘certificate of quality’ and offer at least a 25 percent
price advantage over MNC brands with similar configurations. "On the
marketing front, we will aim at gaining user confidence and awareness through
aggressive ad campaigns," he adds.

Total Info is projecting a growth of 27 percent overall for this financial
year. Says Neelesh, "We will be putting in serious efforts to promote and
build our server business. So though the market may be shrinking. Our product
portfolio has improved, our knowledge and experience of selling has increased
and our customer base has expanded."

Chetan Shah of Xpress Computers, another prominent player in the IVSP, feels
that competition with MNCs is an issue of concern for all local players. But the
market for entry and mid-range printers is very big with lot of potentials from
B and C-class cities. To expand business, Chetan has initiated a forum of Intel’s
premium providers involved in the IVSP.

"Most Intel partners are content with the support and assurance that
comes from Intel under the IVS program," says he.

FORECAST FOR SIAS

In the non-SIAS Unix space, there is barely any Indian company that plays a
significant role. Here, Sun tops the chart. During 2001-02, almost all non-SIAS
Unix players, except SGI, reported a decline in revenue. Overall there was a
negative growth of 14 percent in this segment.

An IDC report stated that only 6,500 servers were sold in AMJ period this
year and the growth rate is a negative 21 percent. And yet, SIs involved in the
manufacture and supply of Intel-based entry-level servers are hopeful that
business will pick up in the second half of 2002-03.

Neelesh says, "The server market is facing a major low at this time and
in order to maintain sales levels during this downward trend, a planned
promotion for the server market is a must."

STRATEGIES FOR SUCCESS

Total Info has considered a few measures for the coming years. "On the
product front, we are looking at increasing the range of servers and offering
three-year warranty on servers, even though major HDD vendors have announced a
reduction in warranty from three years to one year," he adds.

For Xpress Computers, AMJ and JAS were fairly steady. "The effects of
the slowdown is still lingering," Chetan says. "Besides, India is a
legacy market where people like to stick to older equipments and hence no
upgrades are happening," he added. 20 percent of Xpress Computers’
revenue comes from selling Intel-based servers. The company’s business was
down by five percent in 2001-02, but Chetan foresees positive growth in the OND
quarter this year.

“Competition with MNCs is a concern for local players”

Chetan Shah MD, Xpress Computers

Close to 15 percent of OA Compserve’s business comes from servers, the
business of which was more or less steady compared to last year. A partner for
IBM and HP, Gurjeet Singh of OA Compserve hopes to see a jump in volumes in the
current year. "But revenue is likely to stay stagnant because of decreasing
prices," he cautions.

Kamlesh Patil, MD, Ockam Infotech sells Ockam brand of SIAS, which
contributes to 40 percent of his revenue. His business was up by 25 percent in
2001-02, while revenue for AMJ and JAS 2002 has increased by 10 and 15 percent
respectively over the previous year. For OND he is targeting a growth of 20
percent.

Rajiv Sethi of Liberty Automation, makes 15 percent of his revenue from
server business. Liberty maintained its revenue in 2001-02. In the first two
quarter of 2002-03 Liberty has reported slightly better revenue compared to the
same period in previous year. Rajiv is also hoping for good OND quarter.

CONCERN AREAS

A noticeable trend over the past few years is that consumers are opting for
MNC servers as against national or local brands. As far as numbers are
concerned, national/local brands were doing very well until few years ago. Now,
they don’t even list in the top five brands of servers sold in India.

With the visible shift to large brands, smaller players are finding it
difficult to establish their brands, given the cost involved for marketing,
promotions and brand building. Kamlesh muses, "Competing with the MNC
brands is a major concern, especially in the low-end and mid-range server."

On one hand, local players state that competition from national as well as
MNC players slows their business. The latter, on the other hand, feel that local
players are not very forthcoming about upgrading themselves to better levels of
server selling.

“Stagnant revenue is likely due to decreasing prices”

Gurjeet Singh

"A major concern today is to upgrade partners to start selling servers.
We have drilled home the point that server selling will help them move up the
value ladder. For this, we work very closely with partners, make joint calls and
help them understand customer needs," says a source at HCL.

Another concern for smaller players is the lack of bargaining power they have
with HDD vendors. "When HDD vendors decide to reduce warranty period, the
market has to sit back and accept the same! Now we have to offer three-year
warranties for servers, though we get only one-year warranty from vendors,"
says Neelesh.

For partners of MNCs, other issues come to the fore. "Timely service is
a critical issue, because the partner gets sandwiched between the vendor and
customer," says Gurjeet.

"There have been instances when we have replaced the server from our
stock and then later got the same from the vendor. This escalation can sometimes
take even two months," he states.

Rajiv Sethi of Liberty Automation feels the major concern that affect his
server business is convincing vendors to pass on the cleared price to partners.
"With increasing frequency, channel has to compete with vendors involved in
direct billing," he adds.

Rajiv feels getting vendors to commit the desired level of after-sales
support is also an issue of cocern.

SCOPE FOR CHANNELS

"Invest in creating the necessary brand pull and the channel will do
the rest," is what IDC India advises server vendors in its annual study of
the IT industry - Direction 2003. The statement makes sense in light of the fact
that channel business decreased from 80 percent in 2000-01 to 70 percent in
2001-02.

Selling servers is a specialized business. Unlike PCs, server selling
requires the partner to scratch the surface and understand the real needs of the
customer. It involves a great deal of training and support to be successful in
this segment.

INDIAN SERVER MARKET ROLLER-COASTER

"More than promotions, our focus is to empower partners to sell servers.
Server selling requires a certain amount of skill that all partners don’t
have. We are training them to get into the mode of consultative selling, which
has greater impact than just promotions," says an HCL source.

The slowdown had an impact on purchases in the financial sector too, but it
remained by far the hottest sales driver for servers. Vendors will also indulge
in active channel engagements to make inroads into B and C class cities. In
terms of verticals, most vendors will continue to focus on the sweet spots -­
telecom and BFSI. However other verticals like government and education could
provide some saving grace for vendors.

MAIN PLAYERS

With HP-Compaq operating as a single entity, other vendors are trying to
exploit the continued uncertainty amongst CIOs about the company. Sun has
already shifted its focus to HP-Compaq customers. Anil Valluri, Director -
Systems Engineering, Sun Microsystems says, "We hope to take advantage of
uncertainties associated with the HP-Compaq merger in the market and increase
our marketshare."

FORECASTS Core banking and Internet will fuel demand in the finance segment. Mobile telecom services segment will witness explosive growth in server spending. De-regulation of the insurance segment will drive IT investments in 2002 and beyond. Manufacturing segment spending will remain stymied. Server choice will be based on a thorough understanding of business requirements matched with available technology. Linux will make inroads into new areas such as HPC with clusters. RISC-UNIX will maintain its stronghold on the large data-centre and will continue its dominance in the mission critical opportunity Source: IDC India

Anil feels too much focus on products and technology, instead of focusing on
a well designed solution to support business objectives, is a worrying factor.
"Technology shifts which can impact customers in the long run are
trivialized at the time of purchase, purely because of short term price
considerations," he adds.

While the new HP tries to leverage Compaq’s brands in its kitty, Sun is
putting a lot of effort and resources to go to the market and explain to
customers the benefits of focusing on solutions rather than products. However,
Sun needs to keep in mind that the ex-Compaq team, now with HP, are well-versed
with the market scenario, conditions and customer locations. Dislodging the new
HP in the server market could be well nigh impossible.

Meanwhile, while doing reasonably well in the domestic Indian market, IBM
hasn´t been able to achieve the kind of market penetration it hoped for.
Moreover, it is possibly the only company that kept its marketing buzz alive
with new ideas like bringing mainframe capabilities into its Intel servers
(X-series). Another strategy adopted by IBM was to expand its reach, by
including more partners into its fold.

With Wipro accounting for over 45-50 percent of Sun´s revenues in India, any
possible tilt from Wipro towards IBM could spell bad times for Sun.

Meanwhile, HCL tied-up with Sun and HP (for their RISC servers) to sell their
products in India. HCL has its own two lines of servers–Goldline and Net
Manager. It sells the mid-range to high-end Goldline products through its direct
team. The Net Manager servers move through the channel as they are entry-level
to mid-range.

Sun is banking on its extensive national support infrastructure for
enterprise servers to give it an edge. "We have support/spares locations in
all metros and state capitals. The main support hub is based in Bangalore and
also has the remote monitoring facility for taking care of our enterprise
customers remotely by providing proactive support," says Ajay.

THE DIRECT PLAYER

The only player that refuses to go through channels in the server segment in
India is Dell. Over the past six years, Dell’s highly efficient supply chain
and direct selling model has proven to be perhaps the best approach to maturing
customer demand in the SIAS market worldwide.

“Providing proactive support remotely for enterprise customers”

Ajay Valluri

Dell’s commitment to stick to industry’s standards engines has allowed it
to substantially increase its marketshare worldwide in the SIAS market
year-on-year. The company is investing in five key areas to help customers
minimize the total cost of ownership and maximize flexibility–modular
enterprise systems, systems manageability, networked storage, enabling
technologies and enterprise services.

SERVER CONSOLIDATION

Server deployments saw a decline in the growth rate to a certain extent
mainly due to the economic slowdown. According to a Gartner Dataquest survey,
the server market generated is expected to show a CAGR of 3.5 percent from 2001
through 2006.

Within the core hardware infrastructure spaces of servers, a number of trends
are emerging across India, which would help in driving growth in the next one to
three years.

The Indian server market is typically cautious while investing. It appears
that corporates have recognized some of the RoI benefits that consolidation can
bring and have been fairly aggressively on this front. Server consolidation is
becoming one of the major drivers for server deployments today.

Server consolidation is still an early concept for the Indian market though
some businesses have already started giving serious thoughts to the issue. This
is bound to give a fillip to server sales in the near future.

NELSON JOHNY in Mumbai with inputs from MOHIT CHHABRA in New Delhi and SUNILA
PAUL in Bangalore

DESKTOP-SERVER DIFFERENTIATORS

An entry-level or mid-range sever may look like a desktop PC,
but is a lot different in various forms.

A SIAS sever uses processors designed for enhanced reliability
and performance, like the Intel Xeon processors. It also uses motherboards that
contains critical components for a real server. It has in-built networking and
reliability features. Server boards are also designed to support automatic
monitoring features that let technicians quickly diagnose and maintain
equipments.

Most servers are controlled by server control management
software. Behind the scene, they proactively monitor key server operations to
alert of any unforeseen problems. Most SIAS uses Intel’s sever management
software for monitoring and diagnose components on the server board.

On the mid-range and high-end side, IBM has invested a lot in
Tivoli, HP in OpenView and Dell in OpenManage product suite as server management
software. Additionally, vendors have also lunched new initiatives, like IBM’s
eLiza and HP’s eUtilica programs to strengthen its position.

Also different in a entry-level server is the presence of
integrated RAID storage for affordable, reliable and scalable data protection.
The chassis is designed specifically keeping reliability, safety and monitoring
features in mind. There are provisions for additional power-supply and LAN
adapters.

Few other important features of a server are hot-swap
capabilities, SCSI support, ECC memory support, support for high-capacity
storage devices, server OS, redundant components and multi-user applications.