Hardware and Software spending

Focus on technologies that optimize IT spend

No new projects and delayed payments have led to lowered IT budgets in the IT/ITES sector which has, in turn, led to lower demand for hardware and software. By Vinita Gupta

The IT/ITES vertical is expected to show its slowest growth rate since 2003 in 2009 as a result of the global financial crisis. While there have been almost no new projects from OND 08 to JFM 09, many contracts that reached the end of a business cycle that began in 2003 were renegotiated in the wake of new market dynamics—leading to a freeze on IT hardware and software expenditure. According to IDC India, the hardware market will remain under pressure through 2009, while the software and IT services markets will also be affected, though to a lesser extent.

IDC’s study pegs the total IT industry revenue to touch Rs 3,09,573 crores in 2009. Of this, while the domestic IT/ITES market accounts for Rs 1,09,406 crores, exports could account for Rs 2,00,168 crores growing a conservative 12-13%.

Although there are certain signs of a revival happening in the domestic market, the spending may not rise just yet. IT spending behaviour would remain conservative throughout 2009 due to uncertainty in the economic environment. The hardware market will remain under pressure through the year, while the software and IT services markets will also be affected, though to a comparatively lesser extent.

“Many IT/ITES firms serve global organizations including large banks and financial institutions and a significant portion of them do new projects engagements, which in turn set the pace for spending on hardware and software. However, new projects have dried up for IT/ITES firms as was evident during Q4 08 and Q1 09,” said Pankaj Agrawal, General Manager-SME Business, Sun Microsystems India.

Dell, that relies on sales of x86 servers to IT/ITES companies, saw many of its customers’ projects being shelved as their revenue streams dried up. Additionally, the outstanding contracts are being renegotiated in the light of changed market dynamics. This lead to complete freeze on IT spending on hardware and software by IT/ITES companies during Q1 2009. That being said, Q2 2009 onwards $200,000-300,000 deals are coming back and the IT/ITES companies that had stopped buying servers in H2 2008 and Q1 2009 were back in business in Q2.

Chiranjeev Singh, Country Head–NGS, NetApp India mentioned that IT/ITES industry has followed the budget closely as the tax holiday was scheduled to end this year. Fortunately, the government has decided to extend the tax holiday for another year thereby providing some breathing space to the industry. The current business outlook has caused these organizations to defer their IT purchases and budgets are being squeezed. Every expansion is being scrutinized closely and increased number/level of approvals needed for procurement have made sales cycles longer.

Storage growth slowed but continued

Despite the sluggish economic conditions, the external storage market showed signs of growth, although at a reduced rate. Users have focused upon paring costs with customers demanding greater value for money and looking for solutions that allow them to manage information better at lower cost. Data de-duplication, virtualisation, tiered storage, green solutions and consolidation have been some of the key technologies sought by IT/ITES customers. Again, despite the slowdown, CIOs have continued to invest in crucial technologies such as backup, recovery and archival.

On the storage hardware side, SAN showed greater traction than NAS as enterprises chose high-end storage systems. The supplementary growth came from system upgrades by enterprises, e-governance projects from the government and SMBs. Ethernet based storage (iSCSI, NAS, FCoE) saw strong demand in the data centre space.

EMC believed in an information-centric approach, given that customers want greater value for money, the company saw some traction in virtualisation, consolidation, data de-duplication and tiered storage said Venkatesh Iyer, Head–Backup, Recovery and Archival Solutions, EMC India and SAARC.

While NetApp is seeing the sales outlook improve in CY Q2 09 in the IT/ITES space over Q1 09 it has always focused on other verticals such as telecom, BFSI and government.

Singh mentioned that NetApp had a unique value proposition for customers through its solutions that offered storage efficiency. By leveraging the company’s inherent product features such as de-duplication, RAID-DP and thin provisioning it enabled its customers to improve their current storage utilization on both NetApp and non-NetApp storage. Singh said, “IT/ITES companies require a unified architecture for file sharing and SAN. In unified storage, the SAN and NAS are in the same box and hence it is cost effective as they do not need to have separate storage solutions.”

Agrawal said, “By looking at non-project based requirements which result in lower TCO for the organization—things like virtualization, cloud, open source software etc. could be relevant. We are focusing on TCO reducing offerings for IT/ITES companies.”

Virtualization invokes fresh IT investments

Virtualization is fast catching up in this vertical. Virtualization using blade servers can bring about substantial cost savings [in software licensing and managing servers] rather than managing it discretely. Customers can add capacities whenever their application demand peaks and allocate computing resources to another application with minimum downtime.

According to Singh, cloud computing helps the IT manager serves its users with an infrastructure that is scalable not just supported by hardware and software but processes.

He mentioned that NetApp worked closely with the industry’s leading IT vendors to provide joint customers with the solutions and infrastructure that they need to enable the cloud. These technology partners included vendors who provide leading management, server, application, software, and networking technologies and solutions that leverage the power of virtualization to help deliver a service-oriented dynamic data centre.

“Given that information growing at a rapid pace, we strongly believe that virtualised data centres will be the answer to tomorrow’s storage requirements [in IT/ITES firms]. Recently, we also launched an entire suite of solutions that help customers smoothly transition to private clouds. Our Ionix IT management software help users accelerate the migration from physical IT to virtual IT to cloud infrastructures,” added Iyer.

Upcoming trends

Going forward, there are several trends that are gaining traction in the IT/ITES vertical such as storage consolidation, improving storage efficiency, server and storage virtualization, Ethernet storage and developing IT as a service (in cloud).

According to Singh the trend is moving towards building service oriented architectures and frameworks to enable IT as a service. The success factors and selling proposition for an organization would be their nimbleness and shorter go-to-market cycles. NetApp has seen a growth of unified storage and virtualization solutions in IT/ITES in the last two quarters.

Iyer asserted that the key opportunity lay in a growing domestic market for both IT services and hardware. Vendors will have to assist CIOs in generating business value from IT investments by offering total solutions and end-to-end services. This actually means the effective management of information from creation to the end of the lifecycle–it has to be not just stored but also protected, made intelligent, virtualised and automated. He added, “As information grows at an unprecedented rate, a key trend will be the shift from physical to virtual information infrastructures. Another key trend is the emergence of virtualised solutions leading to vendors sharpening their domain skills and offerings.”

The IT/ITES vertical is not open to the idea of fresh investments in hardware and software. However, it would be making incremental investments that add value such as optimizing hardware and software spending. To this end we also saw technology vendors bringing new solution that can help CIOs of IT/ITES companies to manage cost and reduce the OPEX of running their data centres.

vinita.gupta@expressindia.com