Sasken rides tech spend bounce

Sasken Communication Technologies, one of the leading Indian software players in the technology space, is witnessing a revival in tandem with the global return of technology spending, just in time for its proposed IPO.

The company's net profit grew 1,341 per cent at Rs 18.3 crore for 2003-04 compared with Rs 1.27 crore recorded in the previous fiscal year.

Turnover, which had fallen sharply during 2001-02 and stagnated the next year, was up sharply by 52 per cent last year (2003-04).

Importantly, the current trend is expected to continue. The company will "grow healthily" this year, thanks to a "good growth momentum", says Rajiv C Mody, chairman and CEO. The telecommunications space in which it operates, has gone through a massive restructuring and "the worst is behind us."

The bottomline, which had turned red in 2001-02 is up again, registering a healthy net margin of 11 per cent in 2003-04. What is more, margins are likely to improve further over time, adds Mody.

Tech spending is necessarily driven by a new technology which catches the imagination and this time it is wireless.

"Wireless technology is in its infancy and more and more resources will go into it as the wireless handset is a consumer device." When 500 million handsets are sold every year, it enables a lot else - in areas like silicon, infrastructure and base station controllers.

In saturated markets the movement forward is in broadband over wireless, HDTV becoming accessible through handsets.

This throws up associated challenges like managing such systems and networks, billing, securing transactions (banking over handsets) and of course constantly bringing down costs.

In emerging markets like China and India, the driver is both the rollout and, particularly in the case of China, consumers quickly upgrading to smarter and smarter handsets.

"The real technology opportunity for companies like Sasken will come in the emerging markets when operators play a role in handset design and applications; then local content will go up."

In this technological new frontier Sasken's forte is its proprietary mobile protocol stacks for GSM-GPRS and WCDMA networks, meeting the designing needs of semiconductor companies and developing applications.

"Our applications run on handsets in various markets, over a million handsets carry our stuff. There are over 400,000 installations in the US which carry our IP. We are working with radio access network equipment suppliers, designing chips and testing mobile handsets," outlines Mody.

The intellectual property based income (royalty, licensing fees) accounts for 24 per cent of revenue, which is down from 47 per cent in the last boom year (2000-01).

The rise in the contribution of services to the topline explains the survival strategy that product companies have had to adopt during the downturn.

Prospects of product revenues are bright as "now royalty streams are beginning to flow and will become robust in four to six quarters."

The continuing thrust in the field of intellectual property is reflected in the movement on the patents front.

"We have so far filed for 39 patents, of which two have been granted. We hope to file for 100 patents in two years. Interestingly, the proportion of product revenue is likely to remain the same in the near future as services revenue is also picking up. But there is a "broad vision, to reach a 50:50 ratio in products to services income in five years."

The return to business as usual for a technology company is reflected in R&D spending. It 1999-2000, Sasken spent 4 per cent of its revenue on R&D, last year (2003-04) the figure was 1.2 per cent, but this year this is slated to go up to 2-3 per cent.

This overall expansion of business is reflected in the stepup in recruitment. The present staff strength of 1,500 is likely to touch 2000 by the end of the financial year. They will be housed in the four centers, with two new ones added in Bangalore and one in Pune during the last year.