The Hindu Business Line : Connect the telecom dots

Speaking to Srikant Kannankote is a rewarding experience, especially if you are tracking the telecom and software arena. Having moved over from the buyer's side of things to the vendor's, Kannakote was able to provide insight into the workings of both.

He recently completed 100 days as COO of Sasken, where he moved after spending several years at Motorola. eWorld caught up with Kannankote to see what he'd been able to push through at Sasken.

You seem to service the entire gamut, from network equipment vendors to semiconductor manufacturers. How have you thought out in terms of positioning and strategy on the services side in these areas?

What we are trying to do is stick to this competency of the communications business. Across `value chains', whether it's the device guys or the semiconductor guys or even the infrastructure guys, we try to focus first on communications.

Second, we are into mobility. From a strategy prospective, I think for us, we have not taken advantage of connecting the dots! Of connecting the dots of what we do in each of these verticals. And then I think the opportunity exists for us to really become a full-fledged system solutions vendor or a partner to any of these companies because we know each one of the elements of the value chain.

We are now able to write middleware and interfaces because we know exactly how the chip has been designed, and how the software has been written and then you know the architecture associated with it. So we can write the middleware that really optimises the internals with the network. Since we know all of this, we also know how to take it and operate it on the network and so on... ...

Now taking it from the network side to the users' side through the service providers we can begin to stream the entire content in the most efficient way.

We've been looking at each one of these elements in its entirety and each has been separate from the others and we haven't connected the dots in terms of making these four industries. If we do, then our customers have the entire gamut of the solutions.

So I think, from a strategy perspective, we have to really begin to take advantage of this cross-business unit stuff.

From a strategy perspective, I'm going to put in a lot more effort, not only in particular industry verticals, but in also connecting each one of these value chains.

I shall be putting some focus and effort into creating this sort of cross industry and cross business solutions

In fact, I am a little bit more excited than I was before. I see a tremendous opportunity for us to go into the market and differentiate ourselves.

If you first focus on R&D, no matter how hard we try, everybody will try to accommodate the client from a cost perspective. Then it's no longer a cost comparison among an Indian company, a US company or a French company.

We first looked at the R&D of the semiconductor manufacturer and of the terminal and the network equipment manufacturers. We found that, as far as the R&D for the network equipment manufacturers goes, the penetration has been fairly higher, than all, though at $20 billion you still have a billion dollars that have been offshored.

But for semiconductor and handsets it has been considerably lower.

At this point, some are looking at 50:50 in terms of captive versus partnership. That's why I reach more towards partnership than being captive.

A $20-billion market for a network equipment manufacturer translates into a billion dollars, from an offshore perspective. That piece is going to increase. The key there is sustainability.

Sustainability, to me, is working on technology that's going to be around for a long time. Two, we have to work on the company that's to sustain this technology.

I mean, you can't work only with a company ranked number six on some leading technology. That's not sustainable.

It's not that we're not going to be working with others; it's just that you've got to be competent enough to know what's going on in the market.

Who's going to win, when are they going to win, how do you position yourself with them, are the questions to which you need rough answers.

So having a relationship with the equipment manufacturing guys, semiconductor guys and the handset guys gives you a lot of information as to who's going to win and where they would win.

The one that we are going to put some effort on is the service providers. So, if you want to be one representative of all these four elements, you have to play from end users all the way back to each one of these people on the value chain.

Nortel, as one of the inventors, has decided to do away with the UMTS diversity features lately to Alcatel and to focus on 4G and WiMAX. They are positioning themselves completely different from the rest of their network equipment manufacturers. How do you think you are going to play this market, where Nokia and Siemens have got together, Lucent and Alcatel have got together, but each one of them has a difference?

Just as a matter of statement, when you go and talk to Lucent and Alcatel, you see that they are as committed to the WiMAX 4G strategy, as they will be for a 3G, right?

The consolidation that's happening around 3G does not mean that they will not play in the 4G market, and if you take a look at the operators, there are many people who have still not converted to 3G and many of them are looking at skipping 3G and going towards 4G.

If Alcatel and Lucent do not play in 4G, they will be left out. So, there are different things that you can play with, with each of these people.

More technologies are looking for more offshore partners that are more aggressive.

My fancy is some of these, both 3G and 4G, CDMA and GSM, they have to really be looking at how do I take some of these technologies offshore and cut my cost down and put some of these implemented investments into the network.

Whatever new foray someone makes, they still have to maintain their business for today, right?

I think offshoring in general is going to continue, offshoring equipment in the network marketing space is going to continue and maybe increase tremendously.

If you look at these companies as a whole, their R&D budgets are somewhat stable, they are not going to rise. Their R&D budgets will have to come down as a percentage of revenue.

I think R&D spending of $1.5 billion will not go up to $2 billion. It may at best become $1.3 billion; they really want to cut down on R&D as a percentage of revenue.

Companies will look at how to offshore and to take the money saved in offshoring and put it into new technology investments. It can be 70:30 model from global technology and 30:70 model with your technology from an offshore perspective, right?

Are you going to bet on a 4G in a big way? How do you think you can de-risk yourselves, across the four segments that you're playing; equipment vendors, handset manufacturers, semiconductors, service providers? How do you maintain the proportion and what kind of technologies would you play it with?

First, as you are so broadly focused on, you're going to run into the same problem from an investment perspective. Yes, we are facing that... .

I think we have to make some bets right, even so for us within the wireless technology, we are more GSM-centred, right?

Our expertise is really in GSM, so we have the ability to move into the 3G and 4G areas as one of the four accomplishments, right?

To be able to play in the 4G area, you have to have one or two anchor customers, you invest along with your anchor customers.

To me, being in a particular area and not having anchor customers is a bad strategy move. So if I have to go into 4G, I got to have a customer that I'm working hand-in-glove with already.

Otherwise I'm not going to be able to take a lot of money to put away to invest in that, right?

Next, there's this whole concept in India of a bench. Given that you have to maintain certain levels of very many people whether it's new or old technology, embedded in our business model itself, arepeople who are waiting to be deployed to the next project or waiting on the bench for an attrition.

One of the things you have to be really clever is to train the bench. What do you do with the bench? What do you train them on? How do we shuffle people from the bench to the project and bring some of the experienced people and train them.

So there are a whole set of new things we have to do in leveraging the current investments that we make. Having a bench of 20-25 per cent can be considered an investment.

Two things affect us: One, how good are you in terms of churning your organisation without causing customer dissatisfaction; and two, how good are you in keeping your attrition? If you can manage your attrition, you can get (back) your investment money

(What is important to me is) focusing on certain technologies that give you some real growth opportunities in the short run and then putting some investment along with anchored customers. These things guarantee business, so you know in a very short term as to where you would go.

Here's an example: If you had to do testing, it requires capital investment. So how would you go about kick-starting your testing business? You're not going to go and do it by building a big-time lab, and then adding the test tubes.

You start off with really working in a staff-augmenting fashion, using time and material (along the) way and then you build your capabilities, then you begin to plough it, going from a staff augment to time and materials to fixed price to outsource...

You have to really figure out a way to build a value chain growing from a consultant to bringing it on and doing the whole thing yourself. In some ways a minimal way of investment or efficient investment can be managed to do your new business, otherwise it will be very different for you to play across-the-board technologies.

We faced the same problem in a large part of the handset and equipment vendor space.

In the handset arena, the strategy is to tell a vendor that we'd be taking over a complete platform for an operating system. For them, it's absolutely necessary to have products available for each of these markets and then begin to outsource some of those things to credible people who have the knowledge to not only build or understand the protocol stacks along with the multimedia stuff and applications... .

They don't have to worry about running it, they will be willing to work with us and we will have a joint investment, something like that...

You get to work out a business model that will enable you to play in some of these areas. You should be very careful about trying to build a product and wait for the market to come to you.

The acquisition of Botnia gave you a foothold in the hardware and mechanical design. Eighty per cent of its revenues came from a single customer, although you managed to get a lot of other tier-one vendors. How do you think you can broad base your footprints there?

Botnia was acquired for two reasons: competency and (a) big account.

Broad-basing has to be done by taking the competencies that you have in Botnia, and either building it there, or building it in other locations. So, many of the projects that we do in Botnia, even for current customers, we are building the same kind of competencies in Bangalore in India, where Botnia uses some of these resources for their projects.

In the short run, we have the ability to build some people, train some people working on projects and talk to other companies whether it's semiconductor companies or handset companies about our capabilities in Botnia. We are getting some good reactions from our customers both semiconductor and handset companies who visited Botnia.

What I have to do is build very quickly, something that has the full competency for the Indian companies.

I'm finding that my biggest challenge is to bring that kind of competency to other locations and to increase that kind of competency and utilisation.

You talked about China as a possible base in addition to Mexico where you have set up centres, have you given a thought to set up a centre in China?

I've thought about it a lot. We've got offices in Shanghai and Beijing. Small offices, small number of people, not anything big. But my investment in China is going to depend on a couple of anchor customers. So what I'm not going to do is invest in China unless I have one or two very good customers who have some very specific things that you can do things on.

For example, while you may get very good engineers in China, some customers there tell us that you need to have some combination of that system house concept between India and China... Using the resources in China and India in tandem, some sort of a total system solution, rather than give it a software or hardware solutions.

I'm looking at a couple of opportunities. My (investing) in China depends on how well we do against the opportunities. Absolutely critical in terms of the opportunities we have, we are doing a lot of things in China from a 3G perspective.

Once we get a couple of anchor customers (we can hopefully tell you in a very short time we got a couple of anchor customers), then we are going to go there in a big way.

Do you think their homegrown 3G, the TDSCDMA, will be a thrust area that you think you can build on anchor customers for?

" ... . who's going to be buying in that market and who's going to be investing in that market? The focus for us in the short run has been on the multinationals that established centres in China. Not Chinese vendors.

The Chinese version of 3G has been contemplated and talked upon by multiple people and the opportunities in the traditional areas will be a lot more

There will be a lot more opportunities in the handset area, software developers for handsets. There are opportunities working with the OEMs, there's a lot of opportunities working with 2.5 and 3G stuff, from a network perspective, the kind of 3G stuff that you're talking of something that I'm not, at least in the current pipeline, I'm not discussing it with anybody!

Are you looking at China as a centre? Now you have Mexico, Finland, India, Could China be some kind of de-risking opportunity? What was the thought process behind China?

I think if you talk to many people they will say that a company that can operate in both the countries and then take advantage of each's skills will be the company that is a differentiator. For us it's not just the opportunity, although initially we went into China in the network infrastructure side, looking at following our customers.

I think the opportunities in the south of the Chinese market is huge.

When you talk about handsets, the number of OEMs that are there, the number of multimedia opportunities that you have, about certification and application and content opportunities that you have, it's a big market.

Are there any guidelines for the China plan that you have in your mind?

It all really depends on the anchor customers. Conservatively I would give you six months in terms of really reinforcing (our) significance.

On the products side, Motorola recently acquired a products company. What is the implication of that to companies like you?

We find that even companies who have their own internal efforts are always looking externally to see what is out there and then what is going to help them bring some of their devices to the market.

The key is: how competitive a product we have in this market and how you can take it to companies who have their internal efforts and then see how it can be replaced by us. I am not too worried about these things (acquisition, et al).

If you have a good product and if it is competitive in the market and we have the right kind of relationship, then we can show them. Customers these days take the best even if they have something else running too.

You have had two wins on the F series. Any updates on the M and the E series for which you have a whole set of relationships going.

It's going to be a somewhat differentiated model, a new way of doing things.

We are looking at the overall market. It's estimated at about $200 million plus in these series put together: M series at 75, F series at 60, E series at about 150.

I was first wondering, is that a very conservative estimate after you have evaluated the product portfolio to see the market that you can target for a royalty based kind of a model? I would not call it conservative. It all depends on a mix of smart moves and the features of the offering.

One of the things that you try to do is capitalise on all the features.

So I think the ability to take your software and to be able to pack it and optimise it, a performance at the same speed of low cost phone is going to be a driver at the core market.

Just a reference to the bench: Is that such a big challenge for a company that is into IP-related revenues rather than pure services, there is easier managing attrition?

We get 95 per cent of our revenues from services. As to attrition and bench management, we have to be clever, how we do things, as lots of these projects are very sustainable and long-term customers expect the same people to be on the project, especially when somebody has worked on that for two to three years.

So, how do you build your bench and how do you give people an opportunity to move from one project to another? It's simple things that we need to do and focus on. If you take a look at other players in the communications industry, the attrition rate is greater that 20 per cent for all of us.

Equipment manufacturers are giving away new complex projects and want people to take full responsibility and these are the people who are very valuable.

Attrition will be high at the high end and at the low end, the middle order is going to be okay. What we need to do is give people more opportunities in the high end and get people in the low end to customer projects as quickly as possible. And we can bring attrition to where the market is.

What is the nature of your relationships? Earlier, you talked about the value chain... , how do you think you can build an association with Texas Instruments, given the fact that there are two other players who would be playing with you...

I would always say somebody coming from the other side would be loyal to a particular vendor or a partner; I would say the minimum they have to do is to deliver. The second thing I want them to do is to do as good as we are, in terms of knowledge of the particular domain. Third would be willingness and the capability to follow us to where I lead my resources.

And sitting on this side I always look at, are we doing all of these three things and how well are we doing it. In some cases you begin to see the kind of work down there, like we do for TI. We have a fairly decent track record of delivering against the projects that we have.

We are working with them on what their global needs are, make sure we follow them and give them the kind of support that they need in different places. If we keep doing this, we will get our share of business.

maverick@thehindu.co.in

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