The Hindu Business Line : Sasken sees challenges in network gear vertical

Sasken Communication Technologies Ltd has said it sees challenges in the network equipment business vertical that could dampen the growth rate for the company in the current fiscal.

The Bangalore-based communications solutions provider said it expects growth of about 20 per cent in 2009, compared with its previous estimate of 20-25 per cent.

In 2008, Sasken had reported revenue of Rs 570.21 crore, an increase of 20 per cent over the previous year.

There are challenges in the networking vertical as networking equipment manufacturers such as Ericsson, Nokia Siemens Networks, Alcatel Lucent and others are losing money because the western market is not buying capex, said Dr G. Venkatesh, Executive Director and Chief Technology Officer, Sasken.

Flat growth

Subscriber growth has flattened for the customers of these companies.

Capex refresh cycles happen for telecom service providers when there is new technology or when the subscriber base grows, he said. For these companies, the market in countries such as China and India is growing. But since the price points in these countries are low, the companies are losing money in these markets as well.

A few network equipment makers have withdrawn from India, he added.

He said Chinese equipment makers are now selling in the Indian as well as the western markets.

He said Sasken can provide technical support, installation services for these companies. “We cannot do any R&D for them because they are already doing it at a low cost,” he added.

Not exiting

But there would be a revival in this industry, and Sasken sees spend on R&D for the networking equipment makers increasing, Dr Venkatesh said.

About 15 per cent of their total revenue is spent on R&D, he said. “We are not looking to exit the business,” he added.

The networking vertical comprises about 30-35 per cent of total revenue, while about 40 per cent comes from the handset vertical. About 25 per cent is from the semiconductor vertical, he said. The networking vertical was about 40 per cent of total revenue before, he added.

Dr Venkatesh said the semiconductor vertical is growing at about 20 per cent. In this industry, the rate is a bit sluggish.

Handsets doing well

The handset vertical is growing at about 35-40 per cent. This vertical will drive growth for the company, he said.

Sasken sees good business in developing new applications, testing and certification services, he added.

He said the company sees a few clear trends emerging. One of them is that the handset makers are saying they would focus on providing services.

They want to deliver content to their customers from servers they manage. They want revenue from content, like Apple Inc gets revenue from iTunes, he added.

Emerging trends

Dr Venkatesh said another focus area for the handset makers is developing the platform.

And since, they would not want to do it in-house, it is pushing the R&D to the semiconductor companies. They want the chips with the software, he said. The semiconductor companies are giving the work to companies like Sasken.

He said another trend is that customers of network equipment manufacturers want to have maintenance for the devices from the equipment manufacturers as a managed service.

The manufacturers are pushing out the maintenance contracts to the third party service providers. Hence, the technical support business is growing strongly, he added.

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