"In 2003, the market was just out of a slowdown and it was a phase when strategic choices were made and trends were at the tipping point. 2004 and beyond was predicted to be a period of operationalising these strategic decisions and trends were predicted to enter the mainstream. Year 2006 will see some of these key trends witnessing further traction and will be governed by the underlying theses of mobility, convergence and infrastructure management", commented Mr. Kapil Dev Singh, Country Manager, IDC (India) Limited.

"As per IDC's 2004 and 2005 predictions, the industry convergence, consolidation and realignment was around two themes - dynamic IT in the enterprise space and the advent and increasing proliferation of digital devices in the consumer space. These themes will further get defined and enhanced with increasing penetration of IT in households and growing depth in the enterprise segment", Mr. Singh added.

He further stated, "The ecosystem in terms of PC adoption, broadband usage and increasing relevance of IT to small enterprises will fuel growth and increasing integration of IT with business in enterprises will drive depth."

The Top 10 Predictions for the Indian IT Market Year 2006 are:

1. India to continue to be the fastest growing domestic IT market in the AP region, to continue to grow at 19% in 2006 with the other Asian giant China growing at 12%
2. Servers, the fundamental building-block of IT infrastructure to cross 100,000 shipments in 2006: Need to deliver higher performance across Business Functions and Consolidation to pave the road to Dynamic IT
3. Outsourcing Services to outgrow Technology Product Services (standalone) in 2006: To contribute largest chunk of 24% of Indian IT Services market
4. Anytime, Anywhere Information Availability to drive Shift towards Policy-based Security Management and Administration in 2006, lay roadmap for Federated Security environments
5. 2006 - The Year of the Digital Home Revolution: 100% growth expected in Digital Camera shipments, Home Internet connections to grow more than 100%
6. Unrestricted IP Telephony will boost IP-PBX shipments to over 25% of PBX line shipments by end-2006, but low PSTN tariffs will constrain VoIP usage
7. Verticals Orientation to Speed up Internal Organisational Restructuring and Change Go-To-Market Strategies of IT Vendors: Industry-specific Solutions to be major driver of corporate IT Spending in 2006 and beyond
8. Application Integration, Consolidation with Business Analytics will gain momentum in 2006
9. Cost no more the key factor in Colour Adoption: Quality, Availability and Competitive Need to witness Colour Laser shipments growing by 50% in 2006 over 2005
10. Worldwide IT and Business Services: Focus on SMEs, global assets, global sourcing for innovation, and industry focused BPO

1. India to continue to be the fastest growing domestic IT market in the A/P region, to continue to grow at 19% in 2006 with the other Asian giant China growing at 12%

Domestic IT market in India is predicted to grow* by 19% in 2006 over 2005. The major growth will come in the following areas:

Hardware
WLAN Equipment (94%), Digicams (70%), IP Phones (50%), IP-PBX Systems (43%), Smart Handheld Devices or SHDs (30%), Inkjet MFDs (21%), and Notebook PCs (20%)

Software
Application Life Cycle Management Software (32%), Security Software (29%), Content Applications (24%), BI Software (24%), System Management Software (20%), Network Management Software (20%), Information and Data Management Software (20%)

IT Services
Application Management (32%), Software Deployment and Support Services (29%), Network Consulting and Integration Services (24%), IS Outsourcing (23%)

*in revenue terms

2. Servers, the fundamental building block of IT Infrastructure to cross 100,000 shipments in 2006: Need to Deliver Higher Performance across Business Functions and Consolidation to pave the road to Dynamic IT

The challenge facing CIOs in 2006 would be to deliver higher IT service-level performance to meet diverse business needs while lowering the costs of infrastructure - a tough balance to strike. Users have realized their IT infrastructure has become quite complex over a period of time as they continued to add different types of servers, storage, and software. Furthermore, the computing capacity offered by individual servers is frequently under-utilized by the applications that they host. Meanwhile, the organization is expected to dynamically allocate resources to meet unpredictable demands.
The rise in commoditization has led to a proliferation of devices that will amount to increasing managerial costs and growing sluggishness. IT consolidation is the discipline that will help organizations meet the business goals of flexibility, speed, and cost saving. It will help simplify the existing complexity, leading to greater efficiencies within the organization.

Servers are among the fundamental building blocks of a solid infrastructure in the making. The trend towards Dynamic IT will necessitate an increasing need for server consolidation in 2006. After struggling for years to register consistent growth, the server market in India is now poised for strong gains over the next five years. For the past 10 consecutive quarters, server shipments in India increased year-on-year in excess of 20% until 3Q05, while growth in spending was equally impressive.

Virtual hosted clients - in which client/PC workloads migrate to a server which hosts multiple clients - will drive additional growth in the server market in 2006. In environments, where compliance and ease of management are key drivers, virtual hosted clients will gain traction. Apart from financial services as well as IT software and services segments that have been the perennial growth engines of server demand in India for the past several years, IDC research shows that server demand is becoming increasingly broad-based with a healthy uptake across telecommunications and media, manufacturing, government, and education segments. The server market in India is expected to cross the 100,000-unit shipments mark in 2006 for the first time ever. The milestone will enable India to supersede Australia as the second largest server market in the APEJ region in terms of unit shipments. Against this backdrop, server consolidation would be an integral part of the process of IT consolidation, in turn, paving the way for Dynamic IT.

3. Outsourcing Services to outgrow Technology Product Services (standalone) in 2006: To contribute Largest Chunk of 24% of Indian IT Services Market

IDC believes that the Indian market is moving towards an era of Outsourcing Services in the domestic space. So far, the domestic market has been dominated by plain vanilla support services like software and hardware deployment and support, which includes revenue streams like AMC (Annual Maintenance Service Contract) revenues.
With the emergence of end-to-end operators in the services space and with more confidence on outsourcing service providers, end-users are awarding more contracts with long-term perspectives in mind. Deals like IBM - Bharti, HP - Bank of India, Wipro - Sanmar group, TCS - Department of Company Affairs etc. show a definite change in the mindset of even the PSU/Government vertical to go for similar deals, where the complete headache of IT Infrastructure can be taken up by the specialist providers.

Discrete activities like Network & Desktop management, Applications management, ASP services etc. are also hugely popular and clients availing these managed services could go in for comprehensive outsourcing depending on the relationship and satisfaction they have from the discrete managed services operators in existing deals. Thus, service providers would be able to provide more value in the contracts.

So far traction in the managed services space has been mainly from the BFSI and Telecom sectors, but in the coming times IDC expects more traction from untapped sectors like Manufacturing, Government and niche verticals like Retail, Utilities etc.
IDC estimates that Managed Services (Outsourcing Services) would be 24% of the total domestic IT Services market vis-à-vis 22% for Technology Product Services (TPS) in CY 2006.

4. Anytime, Anywhere Information Availability to Drive Shift towards Policy-based Security Administration and Management in 2006, lay roadmap for Federated Security environments

Businesses are rapidly changing with growth and competition, pushing enterprises for high availability of information to enable better and faster decision-making. Enterprises are networking with both their downstream and upstream partners in the ecosystem so as to streamline and optimise their value chain. The need for higher availability coupled with compliance to regulations will put Identity & Access Management (IAM) solutions in the mainstream in 2006.

Higher mobility and faster decision-making require information to be made available anywhere, anytime. This, in turn would enable enterprises to respond to changing market needs in a shorter time-span.

Therefore, enterprises will need to design a centralized security policy, which takes into consideration the needs of employees and partners alike. This trend will increasingly set the boundaries that govern security management and administration policies in enterprises.

IAM solutions will also help enterprises realise the dual benefits of simplified compliance management and centralized security management for a diverse set of applications.

5. 2006 - The Year of the Digital Home Revolution: 100% growth expected in digital camera shipments, Home Internet Connections to grow more than 100%

Finally the Indian consumer segment is coming into its own. IDC has observed phenomenal growth in the adoption of digital devices and technologies that clearly signals the trend towards fructification of the concept of a Digital Home. All major indicators, i.e. Home PC, Broadband, Digital Camera, High-end Television, Satellite Radios, MP3 Players etc., have shown very healthy growth in the year 2005. IDC predicts that the next year is going to be even rosier for a host of digital products aimed for this mass market. India will see a few products enjoying more than 100% growth with Digital Cameras and Consumer Broadband connections becoming the flag bearers of this triumphant march.

The Digital Camera market is undergoing a sea change in the country. Indian consumers are maturing from 'casual clickers' to 'serious buyers', with increased attention towards higher pixels, zoom and other high-end features. The utilitarian features of a Digital Camera, coupled with the ease-of-use and low cost of experimentation (vis-à-vis an analog camera, where one is forced to take prints of each shot) justify the higher initial investment for the product. IDC predicts that the unit sales of Digital Cameras in 2006 are going to more than double in 2006 from what was observed in 2005.

Low cost Broadband is another market where India is going to see unprecedented growth. The cost of owing a Broadband Internet connection (primarily ADSL) has come down drastically, thanks to the bundling and offerings available from service providers. It makes perfect sense for Home PC users and Small Offices to opt for a Broadband connection today and stop using PSTN dial-up. While the overall Broadband subscriber base is expected to go up by 64% in 2006 over 2005, the consumer segment is expected to literally grow through the roof and clock a year-on-year growth of more than 100% in 2006.

6. Unrestricted IP Telephony will boost IP-PBX shipments to 25% of total PBX line shipments by end-2006, but low PSTN Tariffs will constrain VoIP usage

The Indian IP Telephony Enterprise Equipment Market is finally emerging out of the shackles of government-enforced restrictions. The recent announcement further opening up IP telephony means that IP telephones and equipment will be able to freely interconnect with normal TDM lines, be it for calling within the user's closed group or outside, irrespective of whether the called party is outside India or inside India. And it does not matter whether the receiver is on an IP phone or a normal PSTN phone or even the now more common mobile phone. IP telephony, unbridled and with full features, is what 2006 will see becoming a reality.

Given the fast dropping costs of IP phones and IP-PBX equipment, IP telephony will stop being a tool used for niche applications by early adopters to become a multipurpose communication medium used by a diverse set of enterprises. In 2006, it will not only be the call centres and software houses who will adopt IP telephony - many other organisations such as Banks, Manufacturers, Educational institutions and Government departments would begin adding IP telephones and IP-PBXs to their networks.

IDC expects that by the end of 2006, a quarter of PBX lines shipped will be IP lines compared to the 15 percent today. The biggest drivers for IP telephony among enterprises would be investment protection and convergence - businesses would look at investing on the latest technology that will give them the best return in the long run.
Though there will also be a lot of interest generated by unrestricted IP telephony services, the actual usage will be restricted to niche segments like hosted IP-PBX services targeted towards the early adopters amongst SMB organisations. Issues such as numbering scheme for public IP lines, bandwidth prioritisation for VoIP, and the need of uninterrupted power supply for VoIP will have to be ironed out before VoIP services can become a real alternative to PSTN voice services. These would be the issues that the VoIP service providers will tackle in 2006.

7. Verticals Orientation to Speed up Internal Organisation Restructuring and Change Go-To-Market Strategies of IT Vendors: Industry-specific Solutions to be Major Driver of Corporate IT Spending in 2006 and Beyond

As the Indian economy integrates and aligns more and more with the global economy, industry segments facing the heat of competition are gearing up to compete internationally. This is visible across segments as diverse as Automotive, Banking & Insurance, Consumer Durables, Textiles & Garments, Oil & Gas, Pharmaceuticals & Biotechnology, Retailing, Telecom et al.

This unprecedented scenario has made Indian companies scout for world-class enterprise applications/solutions from IT vendors to help them upgrade their legacy systems/applications in order to meet their goals as well as the expectations of their customers, business partners and shareholders.

IDC believes that this trend is going to gain traction in 2006. This in turn is forcing IT vendors/solution providers in India to realign their internal organisation structures as well as their go-to-market strategies in order to be able to adequately address these new market realities.

According to IDC IT vendors/solution providers will be:

1. Re-orienting their internal organisation structures to cater to the specific and emerging needs of their industry vertical focused customers, as against the traditional horizontal, product category-oriented structures
2. Developing and providing specific, easily customizable and cost-effective (high RoI/low TCO) solutions to their customers
3. Tying up with industry-specific solution partners who possess deep domain expertise and have access/proximity to local geographical industry clusters
   

Some of the local partners/solution providers who are engaged with global IT vendors/ISVs include Bristlecone (specalising in Automotive industry solutions), Tata Infotech (specialising in Automotive industry solutions), Ontrack (specialising in solutions for the Pharmaceuticals industry), Textrade (specialising in solutions for the Textiles industry) and so on.

High revenue growth would be witnessed in vertical-specific applications across-the-board, which is expected to provide a positive boost to revenues (2006 over 2005) in such major product segments as Servers (9%), PCs (21%), Enterprise Storage Solutions (13%), Packaged Software (20%) and key IT Services like Application Management (32%), ASP (20%), IT Consulting (20%), Network Consulting & Integration (24%), Network Management (26%), Software Deployment & Support (29%) as well as Enterprise-wide IS Outsourcing services (23%).

Increasingly, IT vendors and ISVs would bring to market products/solutions that have 'in-built' industry-specific customisation capabilities or templates. This trend is expected to come into its own in 2006 and hold sway for the foreseeable future.

8. Application Integration, Consolidation with Business Analytics will Gain momentum in 2006

Enterprises in India are growing rapidly and the need has arisen to have better control on growth and decision-making based on real time enterprise wide data. The business drivers across industries are different and range from compliance, better service to cost control.

Enterprises have deployed multiple applications with a mix of standardized packaged and custom-developed legacy applications. These disparate applications pose challenges like:

• Difficult to manage, hosted on multiple servers, higher cost of maintenance etc.
• Data interface and exchanges between applications is difficult
• Difficulty in getting a single-point view of enterprise wide critical business data

2006 will witness enterprises integrating multiple applications running within the organisation. They will also reduce the number of applications wherever possible and rollout applications from a single location, thus reducing the number of servers deployed. The different critical application databases will be integrated, so that the organisation can have a real-time view of business critical data. Closer integration between data warehousing, reporting and analytics will also happen to speed up faster decision making.

Vendors in the BI (Business Intelligence) value chain will work closely to provide end-to-end solutions. Although incremental and departmental implementation of BI software will continue to be the norm in the short run, by the end of 2006 organisations will start deploying cross-functional BI applications for tracking all critical enterprise parameters.

9. Cost No More the Key Factor in Colour Adoption: Quality, Availability and Competitive Need to witness Colour Laser Shipments growing by 50% in 2006 over 2005

IDC believes that adoption of colour printing in the laser space will take off from 2006. While 2006 will witness an increased adoption of colour lasers in offices; the installed base will keep on increasing thereafter. Over the past two years there has been a concerted drive by the industry to develop and enhance the range of colour laser devices that they offer. This drive will begin to see results from 2006 onwards. The CAGR for the next five years is predicted to be about 40%, while 2006 is likely to witness an increase of about 50% over 2005 shipments.

There are an increasing number of devices that employ technologies that deliver colour output to businesses, and there is an increasing awareness amongst organizations that colour can bring great benefits to their businesses. But the question of cost usually arises when colour is mentioned, and is often a deterring factor when an organisation contemplates widespread deployment of colour devices. Colour has traditionally been limited only to inkjet devices. However that results in poor print quality coupled with high costs of maintenance/consumables. As a result organizations are looking towards laser technology for meeting their colour printing needs.

The factors that will drive the adoption of colour printing are:

• Prices to drop considerably across all products
• Businesses have a latent need for colour printing and would really begin to look strategically at what benefits colour could provide
• Vendors would continue to introduce products that will offer better print speeds, quality and consistency of print, which would enable a number of businesses to print many of their colour documents in-house

To begin with, Marketing and Sales would drive the use of colour in offices. The phenomenon is likely to spread to other groups gradually. However there are a few challenges that both the printer vendors and offices (end-user organisations) themselves have to overcome. These are:

• Increased costs - one time cost as well as recurring costs
• Cost allocation between various departments
• Colour printing through networked devices

IDC expects a few organisations to act as innovators towards adopting colour printing cost effectively, thereby overcoming the above hurdles successfully. These organisations will gain an early advantage over their competitors and this would then lead to widespread adoption of colour in Indian offices.

10. Worldwide IT and Business Services: Focus on SMEs, Global Assets, Global Sourcing for innovation, and industry focused BPO

In 2006, IT and business services vendors will continue to see major market changes, including a dramatic shift to more business process outsourcing, an increase in the number of players, and a reduction in total deal value. These developments reflect increased competition and expansion in the marketplace and are continuing to put pressure on traditional outsourcers to alter their business models in order to successfully compete in the coming years - to include newer service capabilities, involve different ecosystems of partnerships, target "non-IT" opportunities, and seek new customers in the SME and consumer spaces as well as emerging markets.