IT spends by Industry Verticals
How industry verticals will spend on IT this year
The big spenders on IT are pulling back on investment while
verticals that were never regarded to be IT savvy are finally going shopping
for new solutions. by Brian Pereira
One of the objectives of the Infrastructure Strategies survey is to analyze
spending trends for IT across various industry verticals. The verticals analyzed
this year were BFSI (including the insurance sector), Chemical & Pharma
(which includes healthcare), Manufacturing & Engineering, FMCG/Consumer
durables, Govt./PSU, Telecom/IT/ITES, Services, Auto & Auto components.
The survey results yielded a few surprises. Firstly, BFSI sector as a whole,
the big spender last year, has almost halved its annual IT budget for the year
2004-2005 (on an approximate basis). The other sector that will sharply reduce
its IT budget this fiscal is Services.
Secondly, the Govt./PSU sector plans to increase IT spending in the current
fiscal. The other sectors that have increased their IT budget, albeit marginally,
are Chemical & Pharma, Manufacturing & Engineering, FMCG/Consumer durables,
and of course, Telecom/IT/ITES.
Though most verticals have increased their respective IT budgets this year,
on the whole, the average IT spend has dipped slightly (by Rs 50 Lakh).
When asked how they spent the amount budgeted for IT investments, 67 percent
of all respondents said expenditure matched the amount budgeted. 10 percent
said IT investments exceeded the budget, while 23 percent said they spent less
than the amount budgeted.
Let's take a closer look at the spending patterns in each industry vertical.
BFSI cuts down
It seems that most banking institutions have completed their projects, so future
investment will go towards upgrades. And this has been reflected in the survey.
During 2003-2004 BFSI spent Rs 1026 lakh on IT infrastructure; the approximate
IT budget for 2004-2005 has decreased by almost 50 percent to Rs 541 lakh.
The three key focus areas for BFSI are Enterprise wide Applications, Bandwidth/Connectivity,
and Enterprise Hardware. And the top three areas for investment are Bandwidth/Connectivity,
Enterprise Hardware, and Security.
Last year 83 percent of BFSI respondents invested in bandwidth and connectivity
solutions. In the next one year 69 percent are likely to do so. 52 percent plan
to invest in leased lines for Net access; 34 percent will invest in either ISDN
or dial-up for the same purpose. 28 percent plan to invest in leased lines for
LAN/WAN, campus connectivity. Most of the respondents said the drivers for increase
in bandwidth requirement are enterprise wide applications and centralization
of IT infrastructure.
Last year 72 percent spent on hardware and in the next one year 66 percent will
do so. We think a chunk of this investment will be on upgrades and replacement
of legacy hardware. This is a top three priority for 41 percent of BFSI respondents
in the next one year. BFSI companies plan to invest mainly in Windows 2000 Server
(42 percent), structured cabling (58 percent), routers (54 percent) and switches
BFSI also spent heavily on IT Security solutions. Last year 62 percent invested
in security and in the next one year 69 percent will be investing. Financial
institutions are likely to spend almost a third (30 percent) of their IT budget
on IT Security this year. Of the 27 BFSI companies that plan to invest in IT
Security, half will spend on Anti-virus solutions (56 percent) and Firewalls
In addition to the three key areas mentioned above, Data warehousing is also
going to be a focus area during 2004 - 2005. With the aim of improving customer
service levels and tapping into potential business, banking institutions will
use data warehousing and data mining for analyzing customer records and business
transactions. 41 percent plan to invest in data warehousing in the next one
Govt./PSU goes shopping
In the last fiscal, this sector spent approximately Rs 993 lakh on IT; for 2004-2005
it has budgeted approximately Rs 1065 lakh. The increased investment in IT is
due to the boost in e-governance, especially in IT-savvy states that vie for
The top three areas for investment will be Enterprise Hardware, Enterprise Packaged
Software, and Bandwidth/Connectivity.
Last year 83 percent invested in Enterprise Hardware and the same number is
likely to invest in the next one year. Traditionally many Govt./PSUs invested
in Windows NT/2000 servers, but investment in Linux is expected to increase;
38 percent plan to invest in the open source server OS. 38 percent will also
invest in Windows 2000. In the case of peripherals/networking gear, 83 percent
plan to invest in PCs, workstations or other peripherals, 67 percent will invest
in network printers and 50 percent of the respondents will buy or upgrade routers.
Govt./PSUs have also invested heavily in Enterprise Packaged Software in the
past. Last year 67 percent invested in this area and 63 percent plan to invest
this year. In the next one year the average percentage amount spent on packaged
software is likely to shoot up to 33 percent (from 13 percent last year).
At present most Govt./PSUs have NOS, RDBMS, Web/Proxy/Mail server and Infrastructure/Network
Management tools. 38 percent plan to invest in either or all of these areas:
RDBMS, Web/Proxy/Mail server, Infrastructure/Network Management tools.
The other key area for investment is Bandwidth/Connectivity. Last year 67 percent
invested in this area and 63 percent plan to invest in the next one year. In
the next one year, Govt./PSUs are likely to allocate 29 percent of the IT budget
(on average) for connectivity. 43 percent plan to invest in leased lines for
Internet access and 30 percent are going in for Satellite for the same purpose.
Besides VSAT and leased lines, RF links will also be used for LAN, WAN, Campus
connectivity. RF links and VSATs are ideal for rural areas where telecom infrastructure
is yet to develop.
What comes as a surprise is the interest in ERP, one of the top three IT priorities
for 2004-2005. Perhaps widespread adoption of ERP in government departments
or PSUs will speed up processing and reduce paperworkboth are much-needed
in bureaucratic environments.
Chemical & Pharma to increase investment
Traditionally, IT has not been a top priority for Chemical and Pharma companies.
But on an optimistic note, we can expect a change of attitude in the near future
due to exciting applications such as tele-medicine and video conferencing over
The three key areas of investment for Chemical & Pharma are Enterprise Hardware,
Bandwidth/Connectivity, and Enterprise Packaged Software.
70 percent invested in Enterprise Hardware last year; 52 percent plan to invest
in hardware in the next one year. Chemical & Pharma companies have invested
mainly in Windows 2000/NT servers. In the next one year, 33 percent plan to
invest in Windows 2003, and these are likely to be upgrades. As with Govt./PSUs,
Linux is also gaining in popularity in this vertical29 percent plan to
invest in Linux in 2004-2005.
Over half the respondents plan to invest in networking gear and peripherals
in the next one year. So it looks like Chemical & Pharma companies are going
to expand their networks and replace peripherals.
ERP is one of the top three IT priorities for 2004-2005 and this could also
be the reason why Chemical and Pharma firms are keen to invest in Bandwidth/
63 percent invested in Bandwidth/Connectivity last year. The same number of
respondents will invest in this area in the next one year. In the next one year
52 percent plan to invest in leased lines and 24 percent will invest in ISDN.
However, investment in dial-up is decreasingjust 16 percent plan to invest
VSAT and leased lines are preferred for LAN/WAN, Campus connectivity. But interest
in VPNs is increasing24 percent plan to invest in VPN. 20 percent plan
to invest in either VSAT or leased lines. 68 percent feel there is a likelihood
of increase in bandwidth requirement in the next one year.
56 percent invested in Enterprise packaged software last year. 41 percent will
invest in packed software in the next one year. In the next one year 26 percent
plan to invest in NOS, 35 percent will invest in RDBMS. 22 percent will invest
in Web/Proxy/Mail servers.
Manufacturing & Engineering looks at IT standardization
In the past Manufacturing/ Engineering firms have invested mostly in Bandwidth/Connectivity,
Enterprise Hardware, and Enterprise Packaged Software, and Security. The three
key areas for investment in the next one year are Enterprise Hardware, Security,
Last year 75 percent invested in Enterprise Hardware and this year 67 percent
plan to do so. The average percentage amount spent on Enterprise Hardware is
likely to be 28 percent of the IT budget in the next one year.
Manufacturing & Engineering companies have made investments in proprietary
Unix and Windows NT/2000 servers. 32 percent said they plan to invest in Windows
2000 and 26 percent will invest in Windows NT during 2004-05. However, fewer
are investing in Unix (17 percent) as compared to last year. Those who did invest
in Unix now plan investments in Linux (18 percent).
In the past, investment in peripherals/network gear infrastructure has been
high in all areas except PDAs. Since most of these companies have already invested,
this year about half of the respondents will invest mainly in switches, PCs/Workstations,
laptops and networking printers.
In the last one year 46 percent invested in Security; 58 percent plan to do
so in the next one year. In the next one year Manufacturing & Engineering
companies will invest in firewalls (47 percent), anti-virus (40 percent), and
IDS (31 percent).
68 percent invested in Bandwidth/Connectivity in the last one year. 62 percent
plan to do so in the next one year. For Net access, 52 percent plan to invest
in leased lines and 23 percent will invest in ISDN. For LAN/WAN, campus connectivity
27 percent will favour VSAT, 25 percent will invest in VPN and 24 percent will
invest in leased lines. 65 percent said there is a likelihood of increase in
bandwidth requirement in the next one year. The drivers for increase in bandwidth
are enterprise-wide applications, video conferencing solutions, and messaging
FMCG/Consumer durable needs new IT solutions
In recent times we have witnessed rapid growth and development in the FMCG/Consumer
durables vertical. The growth in (world-class) malls in urban areas calls for
new infrastructure, and that includes IT. This trend is reflected in our survey.
IT spending in this sector is likely to increase in the next one year.
In the next one year the three key investment areas are Bandwidth/Connectivity,
Storage, and Securityover half the respondents will invest in these areas.
For Net access, FMCG has mostly preferred leased lines (77 percent), dial-up
(59 percent) and ISDN (41 percent). 45 percent plan to invest in leased line
and 27 percent are likely to invest in dial-up. For LAN/WAN, campus connectivity
many FMCG companies have invested in leased lines (50 percent) and VSAT (36
percent). But there has also been interest in RF links and Gigabit Ethernet.
36 percent plan to invest in leased lines. 64 percent feel there is a likelihood
of bandwidth increase in the next one year. Half the respondents said the areas
driving bandwidth in FMCG are Enterprise-wide applications, VOIP applications
and video conferencing solutions.
Surprisingly, as per the survey, none of the respondents invested in convergence
technologies last year; just 9 percent plan to invest in convergence this year.
The average percentage amount spent on Storage in the last one year was 34 percent
of the IT budget. In the next one year this is likely to decrease to 24 percent.
As with other verticals, the main focus has been on backup devices60 percent
of FMCG companies have bought such solutions in the past. As compared to last
year, this year more companies will invest in SAN storage (27 percent). The
other areas that will see investment this year are NAS and backup devices. Inventory
databases and order processing applications are the main drivers for storage
in this vertical.
The average percentage amount spent on IT Security in the last one year was
26 percent of the IT budget. This is likely to decrease to 18 percent in the
next one year. 37 percent plan to invest in anti-virus, while 37 percent are
likely to invest in firewalls. There is also a rising interest in Intrusion
Detection Systems (21 percent).
Telecom/IT/ITES to invest again
Traditionally, Telecom and IT savvy companies have spent consistently on IT
solutions. With the high rate of technological obsolescence, these companies
would periodically replace or upgrade equipment. For instance PCs were upgraded
or replaced every two years or so. The downturn in the economy led to a period
of cautious spending in technology. But the pundits predict that Telecom/IT/ITES
companies have reached that phase in the cycle where equipment needs to be replaced
once again. So is IT spending likely to increase in the next one year? Let's
examine the survey results once again to find out.
IT is no longer limited to just the telcos and the IT savvy companies. Many
businesses now use IT for services (IT enabled services or ITES). In fact the
highest business priority for this vertical is 'Provide better quality of service.'
According to a majority of the respondents in this vertical, the top three IT
priorities for 2004-2005 are 'Security,' 'IT Standardization,' and 'Upgrade/replace
During 2003-2004 the total IT spend from Telecom/IT/ITES was just Rs 368 lakh.
This is well below the average spend of all verticals (Rs 528 lakh). Comparatively,
this is much lower than BFSI and Govt./PSU verticals.
On an optimistic note, Telecom/IT/ITES will once again be going on a shopping
trip since the total IT budget has increased. The approximate annual IT budget
for 2004-2005 is Rs 438 lakh.
In the past all respondents invested in Security. This is also an indication
that security awareness is high in this vertical. Other important areas are
Bandwidth/ Connectivity, Enterprise Hardware and Storage.
But considering recent investments the top three technology areas are Bandwidth/Connectivity,
Enterprise Hardware, and Security.
Last year 87 percent invested in Bandwidth/Connectivity. 78 percent are likely
to invest in the next one year.
The average percentage amount spent on Bandwidth/Connectivity in the last one
year was 22 percent of the IT budget. In the next one year this is likely to
increase to 25 percent.
Leased lines (86 percent) and dial-up (45 percent) are the most favorable options
for Net access. But a third of the respondents said they also use other technologies
like DSL, ISDN and Satellite.
50 percent plan to invest in leased lines, and 23 percent will opt for dial-up.
For LAN/WAN, Campus connectivity, most favor leased lines (59 percent) and VPN
(59 percent). But 27 percent also use Frame Relay, Gigabit Ethernet, and WLAN.
23 percent employ RF links for connectivity.
41 percent plan to invest in VPN and 32 percent will opt for leased lines. 27
percent are likely to invest in RF Links and another 27 percent said they would
opt for WLAN.
Evidently, telecom and IT/ITES companies use a diverse mix of connectivity options.
86 percent of the respondents feel bandwidth requirement is likely to increase
in the next one year. Respondents cited several reasons for the increase in
bandwidth. These are 'Centralizing IT infrastructure,' 'Increase in number of
employees/offices,' and 'VoIP.' But the most important area is 'Increase in
number of employees/offices.'
32 percent said the expected rate of annual increase in total bandwidth is more
The other key technology area for Telecom and IT companies is hardware. Last
year 83 percent invested in Enterprise Hardware. And 70 percent are likely to
invest in the next one year.
The average percentage amount spent on Enterprise Hardware in the last one year
was 44 percent of the IT budget. In the next one year this is likely to decrease
to 34 percent.
The tech-savvy Telecom and IT companies have invested in various Servers. Besides
investing in Windows NT (76 percent) and Windows 2000 (86 percent), over half
the respondents have also invested in Unix, Linux and Solarisand these
are the Telecom companies. 62 percent have invested in Linux.
With regard to planned server investments for 2004-2005 the survey indicates
that 33 percent will invest in Solaris and fewer will invest in Unix servers
(14 percent) and Linux (19 percent). The one-third that plan to invest in Solaris
are mainly the telcos.
38 percent will invest in Windows 2003 and 29 percent plan to invest in Windows
Over 90 percent have invested in various peripherals/networking gear, the exception
to this is PDAs (43 percent) and hubs (71 percent).
Many of the respondents expect to upgrade their PCs and workstations and replace
old peripherals in the next one year. 62 percent plan to invest in PCs/workstations
or other peripherals. The respondents said they would also focus on their networks67
percent plan to invest in switches, 52 percent are likely to spend on routers,
and 57 percent plan to invest in structured cabling solutions.
Security awareness is high among Telecom/IT/ITES firms. Last year 74 percent
invested in IT Security. 70 percent are likely to invest in the next one year.
The average percentage amount spent on IT Security in the last one year was
19 percent of the IT budget. In the next one year this is likely to decrease
to 18 percent.
Telecom/IT/ITES companies plan to invest mainly in anti-virus (43 percent),
firewalls (39 percent), VPNs (35 percent) and IDS (30 percent). However some
are investing in other solutions like Access Control Devices (22 percent).
Services to focus on standardization
IT infrastructure, particularly connectivity and hardware has always been a
focus for the Services sector. The top three technology areas for investment
in Services are Bandwidth/Connectivity, Security, and Enterprise Hardware.
Bandwidth/Connectivity is crucial for service networks, through which intra-office
communication and data exchange occurs. 72 percent invested in this area last
year. In the next one year 62 percent are likely to invest. A majority of the
respondents (70 percent) use leased lines for Net access. Around half also use
dial-up (56 percent) and ISDN (48 percent) mostly as a backup link. 26 percent
plan to invest in leased lines while 22 percent are likely to invest in dial-up.
Leased lines are also preferred for LAN/WAN, campus connectivity (37 percent).
Some respondents (15 percent) use VSAT and VPN for this purpose. A few (11 percent)
are also experimenting with other options like RF links, Gigabit Ethernet and
WLAN. 15 percent plan to invest in VSAT and 11 percent will invest in leased
44 percent feel there is a likelihood of increase in bandwidth in the next one
year. Many of the respondents said that the drivers for the increase in bandwidth
are intranet (67 percent), enterprise wide applications (58 percent), and messaging
applications (58 percent).
Customer data needs to be protected to ensure confidentiality. IT Security for
networks and systems is equally important. Last year 62 percent invested in
Security solutions; in the next one year 52 percent are likely to do so. The
Services industry seems to be quite security conscious and companies plan to
invest in anti-virus (35 percent), IDS (31 percent), firewalls (27 percent),
VPNs (23 percent), and other security solutions.
Half the respondents believe that robust Enterprise Hardware is essential for
customer services. 55 percent invested in hardware last year. 48 percent are
likely to do so this year. The average percentage amount spent on Enterprise
Hardware in the last one year was more than a third (37 percent) of the IT budget.
This is likely to decrease to 25 percent in the next one year. Since that's
of the IT budget, Services companies are still serious about IT standardization
and upgradesand this is one of the top IT priorities for this sector.
The Windows platform is predominant for server infrastructure with 74 percent
having invested in Windows 2000 and 43 percent in Windows NT. Linux has also
been quite popular so far with 43 percent having invested in the open source
server. However, don't expect too many fresh Linux investments in futureonly
22 percent plan to invest in Linux during 2004-05. And this investment will
be mainly for upgrades. 26 percent plan to invest in Windows 2003 and 13 percent
plan to invest in Windows 2000.
With regard to Peripherals and Networking gear, a large number of respondents
invested in all areas, except PDAs. All (100 percent) invested in switches,
96 percent bought network printers and 87 percent invested in structured cabling.
87 percent also invested in PCs, workstations or other peripherals.
During 2004-2005 respondents have reduced investments in various Peripherals
and Networking gear. However 65 percent plan to invest in switches, 52 percent
will invest in PCs, workstations and other peripherals and 48 percent will invest
Auto & Auto components
The booming auto industry in the country saw the entry of many multinationals,
particularly from East Asia and Europe. Manufacturing units and assembly lines
sprung up within months as the MNCs found it more economical to relocate old
plants here. This industry has witnessed a CAGR of 20-25 percent and a research
firm has predicted that exports will cross the $1 billion mark anytime now.
Naturally, we expect investment in this vertical to increase. But the survey
results tell a different storythis year the total IT spend has been reduced.
Last year this vertical spent a total of Rs 456 lakh; in the next one year,
total IT spending from this vertical will decrease to Rs 398 lakh.
As compared to last year, investments made in the various technology areas will
remain more or less same in the next one year. The top three areas (where most
are investing this year) are Enterprise Hardware (85 percent), Security (75
percent), and Enterprise packaged software (75 percent).
In the last one year those who invested in Enterprise Hardware, allocated a
quarter (25 percent) of the IT budget (on average) for it. In the next one year
this average will dip slightly to 23 percent.
With regard to server infrastructure half the respondents (53 percent) will
invest in Windows 2000, fewer will invest in Unix (11 percent), though investments
in Linux will continue (32 percent).
Most Auto companies have invested in sundry peripherals/network gear infrastructure.
In the next one year, many (79 percent) plan to invest in PCs/Workstations/other
peripherals. Half (or more than half) the respondents plan to invest in Switches,
Routers, Structured Cabling, Network Printers, Laptops and Power conditioning
Though Security is one of the top three IT priorities for Auto/Auto Components
companies, they are not keen to spend much in this area. In the last one year,
the average percentage amount allocated was just 10 percent of the IT budget
and in the next one year this average is likely to increase to 14 percent. Auto
companies plan to invest mainly in anti-virus (65 percent) and firewalls (47
Average spending on Enterprise Packaged Software is also low. Last year, on
average, just 10 percent of the IT budget was allocated for it and in the next
one year this is likely to increase to 21 percent.
Among those who invested in packaged software, most invested
in Web/Proxy/Mail server (89 percent), RDBMS (83 percent), and NOS (78 percent).
50 percent plan to invest in NOS and 61 percent will invest in RDBMS in the
next one year.
Brian Pereira can be reached at