If there is anything that the great Indian success in information technology has lacked, then it is the ability to innovate and develop new technology and products.
Consequently, Indian prowess has been confined to services and product development has taken a clear back seat. Even when high technology has been at play, it has been in the form of offering technology services for the development of products owned by others.
In 2004, several Indian product companies took key successful steps forward which signalled that India was acquiring a nascent capability in products.
Tejas Networks and Ittiam Systems joined the global technology products big league by finding takers for their offerings.
Subex Systems moved alongside the Indian product lone ranger i-flex in the financial space to leveraging its global acquisitions and arrive in the mature markets.
Tejas Networks, the startup which manufactures products (proprietary boxes) for optical telecom networks, made a major breakthrough by signing a deal to become an OEM supplier for one of the five leading global telecom equipment majors.
This has opened up enormous opportunities for Tejas and made a major statement about Indian technology startups' ability to develop cutting edge equipment.
The big five (Nortel, Lucent, Alcatel, Siemens and Cisco) between themselves account for 90 per cent of the global telecom equipment market.
Telecom network equipment and systems have become standardised and they are the major end to end equipment manufacturers in the world, with the withering away of many a national player.
By signing the deal, says Sanjay Nayak, CEO and managing director of Tejas, "We have made it to one-fifth and feel in time we can become a world leader in our area."
With standardisation has come the age of OEM suppliers who develop and supply entire products (there are 30 to 40 such elements in a network) to the big five. For an emerging company in this field, to strike one OEM deal is to be able to clearly signal it is arriving.
Today all telecom equipment majors are looking at long term OEM relationships, particularly for point products. These are technologically significant as what was core yesterday has moved to the periphery today as a point product, with all the sophistication intact. (The biggies are concentrating on the platform part of the technology.)
Hence has arisen the great opportunity for Tejas with its next generation intelligent optical access products using ethernet over SDH (synchronous digital hierarchy) technology.
"India can become the point product country of the world and we have demonstrated how to build a great product out of India," says Nayak with great confidence.
Ittiam Systems, the product company in the digital signal processing space devoted to producing its own IP (intellectual property), is also emerging as a standard bearer of Indian product development.
In the last three to five months it has passed product milestones that indicates it is arriving.
One is the IP video phone with which it is targeting individual users likes homes, apartments, small offices and even desktop users who would like to have high quality video interaction with the other person at the end of an internet connection anywhere in the world.
"We have now got one design win for this in Korea and that customer (which will make the end product) is going to launch it in the first quarter of 2005," says Srini Rajam, chairman and CEO of Ittiam. Another key development has been the technology for a portable multimedia player and recorder -- a digital video camera.
Thus, an India company, manned by Indian engineers, is providing the core technology for a gizmo that is right at the forefront of consumer electronics, the space dominated by the likes of Sony.
Though Ittiam is still in the early stages, "you can say that we are seeing the fruits now in the full sense in terms of customers, revenues, royalties for the key R&D investments made in 2001 and 2002. The full technology, the entire reference design and software, as we call it, are ours," adds Rajam.
Subex Systems, the only listed company among the trio, is set to see a jump in turnover, profitability and the product component in its turnover in the next three to four years.
By then Subex will become "one of the largest players in the global revenue maximisation field," says Subash Menon, president and CEO. Subex operates in the telecom space and within it the revenue maximisation niche with successful solutions in fraud management and revenue assurance.
One of the two leading (along with i-flex solutions) software product players in the country, Subex now has around 10 per cent share of the $200 million global market for revenue maximisation.
It sees itself as primarily a product company and its product revenue (licensing fee and product-related professional services) has grow from $4 million two years ago to $9 million in 2003-04. It is slated to reach $12 million in the current year and $18 million in 2005-06.
The other leg is inorganic growth. Subex has recently made two acquisitions -- the fraud management group of Alcatel and the 'Fraud Centurion' product of US-based Lightbridge. "If we can make the two acquisitions work, then we can attract funds for further acquisitions," predicts Menon.
Inorganic growth will enable Subex to step up its customer profile, credibility and enable it to attract the right kind of talent. "Customers can be used as references to grow," says Menon.
The recent acquisitions will enable Subex to address the Europe and North American markets, where its presence is currently negligible, via the traction created by the customer acquisitions.
All the three companies are financial successes. This financial year (2004-05) Tejas is likely to almost treble its turnover to Rs 90 crore and turn cash positive.
In 2003-04, its third year of existence, Ittiam earned revenues of $ 4.78 million and a net profit $1.04 million. Subex, the only listed company in our list, clocked a turnover of Rs 88 crore in 2003-04, with product related business accounting for 44 per cent of revenue.
What is more, they are all looking forward to a bright future. Rajam is encouraged by the fact that royalty income has the potential to grow from about 3 per cent of revenue in 2003-04 to 30 per cent in 2006-07. By 2007-08, it is targeting a revenue of $ 25 million.
Subex's product business is "approaching criticality". Once a product gains acceptance in the marketplace, revenue forges ahead of costs and margins (profitability) improve. Menon expects profitability to grow from 30 per cent of revenue to 50 per cent during the period 2004-06.
Nayak feels that "there is a phenomenal opportunity for Tejas. Over the next few years, by leveraging market share by becoming OEM supplier to more than one of the big five, we will be able to achieve volumes and reduce costs. The global opportunity in the space we are is $ 15-20 billion." These product companies, it seems, have nowhere to go but up.
