IT COMPANIES BET ON VIRTUALISATION

Vanisha Joseph
The Economic Times

The human body is often hailed as a well-coordinated machine controlled by clear signals from the brain. Imagine multiple brains supervising the body’s functions. Clash of signals, wastage of resources and overstraining of body parts can be visualised, making the collapse of the machine inevitable. Similar would have been the fate of datacentres without virtualisation. Datacentres, controlled by multiple servers, were frowned at for exhaling large amounts of carbon, feeding the global warming albatross.

These multiple servers sucked in a lot of energy resulting in high maintenance costs, excessive heat generation and poor IT infrastructure. Datacentres were bound to destroy the environment and dig deep holes into the pockets of IT companies, pulling the shutters down for some. But virtualisation transformed them into green apparatus — eco-friendly machines topped with the ‘money honey’. It did so by allowing servers, earlier dedicated to one application, to be used for diverse applications. As a result, server efficiency and flexibility improved reducing the total numbers of energy-gulping physical servers.

With eco reality being integrated into the IT business agenda today, virtualisation is the green computing ace IT companies are betting on. The first eco-friendly perk virtualisation boasts of is power saving. With most servers and desktops being used only for 8-15 percent of the time they are powered on, machines are eating 60-90 percent of power when idle. Virtualisation helps reduce energy consumption by 80-90 percent. Marching ahead with this energy-efficiency banner is VMware. Be its distributed resource scheduler (DRS) that intelligently powers off unneeded physical servers or VMotion that allows the client to move an entire running virtual machine from one server to another or ESX Server letting customers to run 10 applications on a single hardware, VMware has plugged in the power-saving socket. “Every server consolidated in our application saves about 7,000 kWh per year, which is equal to removing 1.5 cars from the road or planting 55 trees,” says Ganesh Mahabala, regional director, Vmware (India & Saarc).

Not lagging behind are Sun Microsystem, IBM, AMD, Cisco, Foundry and Nortel. From IBM’s Virtualisation Engine to AMD’s Rapid Virtualisation Indexing, allowing the client to host more virtual machines (VMs) per server, to Foundry’s Vipron that cuts the number of application servers and ADCs needed saving on power to Cisco’s Inter-VSAN routing (IVR) eliminating the need for having dedicated resources for each SAN fabric, IT companies are pressing the energy-saving buttons.

“Computers are heat inefficient. If 500w is pumped in to operate them, another 500w is required to cool them. By reducing the number of servers, heat emissions fall, cutting the CO2 emissions the cooling appliances breathe out,” says Karthik Ramarao, director (technologies), systems practice, Sun Microsystems India. Virtualisation also cuts on hardware requirement, softening the tone of the e-waste outcry that the IT sector has heard for generations.

The green virtualisation flag being waved by the IT sector also brings in green bucks, as it is a cost-cutting strategy. Be it IBM’s consolidation of thousands servers onto 30 System Z mainframes expected to save $250 million over five years or Nortel’s CPU optimisation that can help an enterprise save $530K on power costs or Cisco’s Inter-VSAN routing that allows resources to be effectively shared, saving up to 67 percent on power, virtualisation shrinks the power bills, filling the pocket of IT companies. As per Gartner estimates, companies that ignore virtualisation will pay 15-20 percent more than they need to for IT by 2008.

Virtualisation also reduces the need for expensive infrastructure upgrades to deal with increased power and cooling demands. “Of every rupee spent on server power consumption, an additional 60 paisa is required to spend on cooling and backup. Virtualisation saves 60 percent of the energy bills on cooling and backup,” says Vamsi Krishna, senior manager (technical), AMD India.

 

GOVT MAY BRING ISPs UNDER USL NET

Niranjan Bharati, New Delhi
The Economic Times

Internet service providers (ISPs) such as Sify, Tulip and World Phone may soon have to subsidise the broadband connection in rural areas. The government is considering a proposal to bring the value-added service providers under the universal service obligation (USO) norms. Presently, telecom service providers are required to pay 5 percent of their adjusted gross revenue (AGR) as universal service levy (USL) to meet the USO norms. ISPs and other value-added service providers are, however, exempted from this levy.

“The government is contemplating several measures to increase broadband penetration in the rural parts of the country and levying USL on ISPs can be one of the tools for taking the programme ahead,” a source in the department of telecommunication (DoT) said.

Money raised through the initiative would be utilised to subsidise Bharat Sanchar Nigam Ltd’s (BSNL) rural broadband connections. DoT already provides subsidy to BSNL for spreading telecom network in the rural areas.

Progress on the front of broadband penetration has been quite low. Total connections as on April 30, 2008, stood at 4.01 million as against the government’s target of nine-million connections by 2007 and 20 million connections by 2010.

Worried over missing the target—both on the front of broadband and Internet—the DoT is in the process of devising new strategy for tackling the situation. The subsidy scheme is a part of that strategy. The scheme would be implemented in phased manner across the country and would also cover remote areas including the north-eastern states. This would cover common service centres (CSCs) being set up by the department of information technology (DIT) schools, primary health centres and gram panchayats in a phased manner.

The government is also planning to subsidise its broadband initiative by using existing USO funds. The DoT has about Rs 15,000 crore of unutilised money under the USOF scheme and is finding ways to spend this in a holistic way.

 

LACK OF ONSHORING SUPPORT PULLS INDIAN IT DOWN: REPORT

Deepshikha Monga, New Delhi
The Economic Times

India’s offshoring success story will need greater onshoring support to sustain it, notes the Black Book of Outsourcing’s 2008 State of the Industry report. The most comprehensive client satisfaction survey in the outsourcing industry saw Infosys fall out of the top 50 this year to rank 59. Three Indian firms, Wipro (6), Satyam (7) and Genpact (8), figure in the top 10. TCS moved up to rank 15 this year from 27 last year while HCL tumbled from 13 last year to 21. Other Indian firms in the top 50 are WNS Global (25), which fell from rank 3 last year, NIIT Technologies (36) and Patni (45). Cognizant and iGate, both of which have a large majority of their operations in India, were the other India-based service providers in the top 50.

Conducted by the US-based consultancy Brown-Wilson Group, the report is based on client experience responses of nearly 24,000 buyer executives. In what the report said was “indicative of the growing re-appreciation for US-centric firms”, Hewlett-Packard emerged numero uno in the rankings, followed by Perot, CSC, Unisys and EDS.

The report notes the rise of ‘reverse outsourcing’, the phenomenon of Indian companies opening offices in USA and hiring locally. “The reverse outsourcing development is too new for Indian companies to point to actual cost savings yet, but moving front office processes closer to the client is fast attracting buyer interest. Major suppliers are responding to the demand for enhanced, locally delivery customer service,” it said.

Attributing the decline of Infosys, which was ranked 10th last year, to ‘rising accounts of client discontent’, the report notes, “ over a dozen major customers cited the fact that Infosys has not melded their consulting and service delivery well. US clients cite a lack of American front-office support with an imbalance of too much delivered from offshore.”

Other notable falls this year were BPO firms ExlService and Firstsource Solutions. While EXL fell to 317, “distracted with management changes and possible acquisitions”, from last year’s 29, Firstsource Solutions, recorded the biggest fall, dropping to 1,550 this year. It was ranked 50 last year.

The 2008 report also said that clients in western Europe prefer regional vendors, while US is leaning towards western hemisphere providers as likely considered alternatives to China and India next year. A majority of analysts said that China will take another 10 years before emerging a rival to India. Respondents rated client experience, economy/inflation/recession and globalisation as the top factors dominating outsourcing strategies next year. Sectors likely to boost offshoring efforts in 2009 include banking, which is expected to increase offshoring by over 72 percent, investment management (68.5 percent), insurance (62.7 percent) and legal (59.4 percent). The most important supplier features for 2009 include a client-centric culture, cultural alignment and the right onshore-offshore balance.

 

INDIAN IT MARKET TO GROW BY 18 PERCENT IN 2008: FORRESTER

Bangalore, June 15, 2008
Business Standard | The Economic Times | 

The Indian IT market is expected to grow by 18 percent in the year 2008 to reach $38 billion, clocking second highest growth after Chinese (20 percent growth to touch $138 billion in size. According to a latest report from technology market research firm Forrester, this double-digit growth is a welcome news for technology vendors - who see slackness in the US and European markets, and advises them to now recognize India as a consumer of IT than just a supplier.

The report -The State Of A-PAC Enterprise Technology Adoption: 2008, gives highlights of data collected from 777 companies across the Asia Pacific region via Forrester's Enterprise Technology Adoption Survey.

These 777 companies were of the 1000 plus employee size from countries such as Australia, New Zealand, India, Korea, Singapore, Japan, China, and Hong Kong.

Forrester's Sr. Analyst, Jonathan Brown, who authored the report says, "The IT sector has long looked to India for top-drawer technology talent. But India is poised to become an increasingly important market for technology vendors as its population comes of age (half of India's population today is under 20), its rural areas become increasingly developed, and its engagement with the US increases. It's time the tech vendors no longer treat India as merely a skilled talent pool but also as a lucrative market in its own right."

The report states that though Asia Pacific economies are closely connected to each other through trade and cross investment, they differ enormously in their levels of economic development and the states of their IT infrastructure, and licensing models in favour of SaaS. Brown advises technology vendors to tap Japan for services rather than software, and be cautious in Chinese market and asks them to first determine what IT will not do with as much clarity as they describe what IT will do while in China.

 

BIG 6 SWITCH TO BIGGER DEALS, CORNER 2.4 PERCENT OF GLOBAL WORK

Bangalore
The Economic Times | Mint | The Financial Express | The Indian Express | DNA | Hindustan Times | Business Standard | 

The top six India-based offshore service providers, collectively referred to as the ‘SWITCH’ companies (Satyam, Wipro, Infosys, TCS, Cognizant and HCL Technologies), accounted for 2.4 percent of the total worldwide IT services market in 2007 as compared to 1.9 percent in 2006, according to a report by Gartner.

Collectively and individually, this group of companies have achieved growth rates that have outpaced the rest of the market, Gartner said while adding: “All indications are that the Western European market is the next target growth area for offshore services.”

Arup Roy, senior research analyst, Gartner, said: “With such strong growth rates that exceed the overall market, the India-based IT services providers are increasing in their competitiveness and taking market share away from the rest of the market. Increasingly, they are competing in larger outsourcing deals, with deal values routinely exceeding $100 million and spanning multiple years.”

The growth rates experienced by these IT firms has also seen them expanding expanding into a broader base of services. “Consequently, they (SWITCH companies) are now regularly invited to bid for larger and more-complex outsourcing contracts, requiring multiple services. There is a gradual shift in increasing their revenue share from discrete project-based outsourcing services to annuity-based multi-year outsourcing contracts, thereby ensuring ongoing revenue streams. The approach has involved expanding the portfolio of service offerings, tapping new regions and focusing more on high-value services,” Roy said.

In 2007, the India-based group of SWITCH companies accounted for 3.6 percent of the US IT services market, compared with 2.8 percent in 2006 and grew its Western European revenue 51 percent in 2007, almost four times the total market. In 2007 the group accounted for 1.9 percent of the Western European IT services market, compared with 1.5 percent in 2006.

 

TCS TRIMS FIXED PART OF MD, CEOs PAY

N Shivapriya, Mumbai
The Economic Times

India’s largest software exporter Tata Consultancy Services (TCS) decreased the fixed component of the salary for its MD & CEO S Ramadorai in 2007-08.

The move, which comes in the backdrop of an ongoing slowdown, reflects a curious contrast in India’s IT sector, while employees get bigger pay hikes compared to peers in other sectors, their chiefs live more modestly and take less extravagant pay hikes.

This contrasts with several other sectors, where employees get lower pay hikes but their top brass live in greater opulence. Although Ramadorai’s overall compensation went up, the fixed component of his salary came down from Rs 133 lakh in FY07 to Rs 129 lakh in FY08. The change represents a drop of about 3 percent as compared to hikes of around 8-10 percent it announced for its employees.

“TCS may have wanted to send out a signal about controlling costs. Core salary costs, which don’t include travel, visa and overseas expenses constitute about 20 percent of revenues for companies,” commented an HR consultant. The variable component, which earlier formed about 52 percent of Ramadorai’s total remuneration, has gone up to 62 percent in FY08, according to the company’s latest annual report.

Three executive directors, S Mahalingam, N Chandrasekaran and Phiroz Vandrevala, who were promoted in September 2007, also have a high percentage of their salary as variable component. All three earned over 70 percent in variable pay with COO N Chandrasekaran earning the highest at Rs 108 lakh and Vandrevala earning Rs 70 lakh.

“Business heads and CEOs typically have about 30-40 percent of the total gross compensation as the variable component. In this case, the variable component may have been higher because their performance may have been evaluated as ‘above target’ or higher than ‘on-target,” said R Suresh, managing director of HR firm Stanton Chase.

He said a comparison with Infosys Technologies on remuneration would be inaccurate, because CEO-level executives in Infosys were also shareholders of the company earning significant dividend income.