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

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