Sector Analysis: IT Infrastructure Services

I.T. Infrastructure Services Offerings:
Broad areas:
Servers and Virtualization
Storage and ILM
Network Management
Data Center Management
Business Continuity
Application Management
Security, Compliance and Risk Management

Trends Influencing Infrastructure Services:
Market Trends:

• High Investments in IT infrastructure in sectors like Banking Finance & Telecom
• Offshoring to play a key role to deliver sustained ROI
• Application outsourcing and remote network monitoring -opportunities for the offshore providers
• Integrated infrastructure support services for high value integrated deals

Technology Trends:

• Information Life Cycle Management
• Emerging Areas –Portable storage Security, DB Activity Monitors, DB Hardware Encryption & Host Activity Monitors/Enforcers
• Increasing emphasis on Security
• Server virtualization and utility computing frameworks for real-time infrastructure

Remote-managed Infrastructure Service: The new wave!
Gartner defines global Remote IT infrastructure services as "the remote support and management of various IT services that are related to infrastructure support from global delivery sites." Indian IT industry body NASSCOM claims that between 60%, to 70% of the IT services surrounding a company's data center can be managed remotely. It estimates that 40% to 60% of the overall infrastructure management services market can be efficiently delivered from an offshore or near-shore location, which adds up to a market potential of $55bn. Wipro Technologies has already won infrastructure management deals with the likes of JP Morgan, Thames Water and travel services firm TUI AG, for whom it manages more than 1,000 desktops and laptops, and 300 servers. The country's fifth-largest player HCL Technologies won a landmark $330m deal with electronics retail chain DSG International in January this year to support its infrastructure and applications in the UK and Ireland. Western infrastructure outsourcing vendors have countered this trend by establishing offshore infrastructure centers of their own in order to remain price competitive. Perot Systems announced last December that it would offer to run clients' mainframes, Intel, messaging, and Unix services, from its facilities in Noida and Bangalore. In November 2005, IBM Global Services acquired Indian infrastructure services vendor Network Solutions Ltd, a company with 1,000 employees that provided remote infrastructure services to clients including HSBC and Citibank. Tata Consultancy Services, India's largest applications services firm, has a dedicated remote infrastructure-management center in Chennai with a capacity of more than 2,500 seats. Wipro Technologies claims to have the largest infrastructure services practice of the Indian majors, with more than 6,500 infrastructure experts supporting over 200 clients in the US, Europe, and Japan, as well as domestic customers.HCL announced 10 major infrastructure management deals in the quarter ending December 31, 2005, seven of which were with existing clients. Clients have already acclimatized to offshore delivery models for applications maintenance work, and they will quickly increase their use of offshore sourcing for infrastructure management if the suppliers can demonstrate robust enough propositions in terms of service delivery and business-continuity planning. Remote Infrastructure Management (RIM) services offers all the benefits of managed services coupled with benefits of further reduction in cost of IT Infrastructure support, faster issue resolution time and access to top-notch talent on a round-the-clock basis.

Business Overview: Trends in India and the other Developing countries
India has emerged as the fastest growing technology hub in the world, its growth dominated by IT software and services such as application development and maintenance, system integration, IT consulting, application management, infrastructure management, testing and web services. IT infrastructure outsourcing: Mainframe-related outsourcing is a $29 billion market. Network-related outsourcing is a $7 billion market, while the desktop outsourcing market is a $18 billion market. Add to this the distributed environment related outsourcing market, estimated to be close to $57 billion. Unlike the strategies of global players like IBM, CSC and EDS who have been using the take-over route, taking over assets of their clients and moving infrastructure on to their balance books, Indian players clearly do not have the advantage of size i.e. it sticks to infrastructure management services.

While Indian vendors would clearly prefer a 100 percent offshore model as margins are better, it has been dominated by global giants and Indian players do not have enough reference customers currently to make a larger impact. The ideal route would be to start with an onsite model and then move the services offshore, as is done in the software services industry. IT infrastructure management services demand the right mix of onsite and offsite models. The nature of the services involved decides this. For instance, helpdesk management and network management works well with remote management mainly because of the customer’s confidence in the same. However, most large companies may not be comfortable outsourcing their network security management needs. In terms of mainframe data centre outsourcing, Indian vendors have limited exposure to mainframe operations. The largest of the Indian IT services providers, TCS, has just 1100 MIPS of mainframe capacity. In the few instances, the work is done wholly onsite. While this reduces the client’s risk, it also reduces savings since Indian vendors are supposed to pay staff prevailing charges onsite. Functional IT outsourcing services (including application management, IS outsourcing/infrastructure, network and desktop management services) sourced from India grew by nearly 28 per cent in FY 2004-05. While application management services remain the mainstay of this segment, increasing traction in remote infrastructure management services is helping Indian companies increase their share of revenue earned from IS outsourcing engagements. At the enterprise side, analysts estimate that Chinese and Indian corporations’ IT infrastructure spending will outpace spending by American firms. In the last year, 69 percent of Indian corporations had an increase in their IT budgets, compared to just 39 percent in North America. Forrester Research estimates that India and China alone will spend close to $1.1 trillion in the coming decade on new infrastructure. Developed countries’ increased outsourcing of IT functions to emerging markets has caused enterprises to make large, continuous investments in emerging economies to augment their IT infrastructure. The increased infrastructure enables the outsourcing and replaces equivalent (higher cost) deployments in the US. Countries such as India and China have growth rates of close to 20 percent in the outsourcing segment, significantly higher than those in developed countries. Moreover, the lack of legacy hardware and software provides opportunities for quickly delivering solutions tuned to the emerging markets’ specific constraints. The speculation on possible areas of innovation in data centers for large enterprises, shared utility-computing services for SMBs that support the developed markets. Emerging economies present a unique green-field opportunity in data-center services and data-center differentiated sales. Several differences exist from equivalent opportunities in developed nations. Existing data centers’ expansion rate and the creation of new data centers are much higher than that in the US. There’s a compelling need for a turnkey-datacenter solution—something that, to our knowledge, no one in the industry offers. This could, for example, involve a data-center synthesis environment that addresses all aspects of the data-center design (including the physical design) as well as the compute, storage, and networking elements. Designing modular data centers that are cost efficient at all points of the data center’s growth while providing the required performance reliability guarantees is a challenge. Another key challenge is in the provisioning and costs of network bandwidth across continents, particularly given the high costs of linking the domestic Internet to the Internet backbone.