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Hughes Software: Voice over the Internet

Nov 24, 2000

Today the software industry is hungry for more bandwidth and the future does not seem to be any different. First it was only data that was transmitted over the Internet. Today, it has come to voice and video. Ideally, people would like to watch movies over the Internet, companies would like to hold conferences with executives all over the world and perhaps the only limit to the Internet is our imagination. Providing solutions for this kind of demand is no easy job. Well to put it in very simple English it is providing technology and not a solution. All solution providers will use the technology. Technology, thus far, has been dominated by the west. The Indian software success story started with cheap labour but companies like Hughes have added a whole new value add dimension to it.

In June 00, Hughes announced the launch of its software offerings based on H.323 (protocol) and media gateway control protocol. This enables telecommunication companies, original equipment manufacturers (OEMs), and service providers to offer voice over IP (VoIP) solutions, which means transmission of voice over the Internet.

This product suite facilitates communication networks worldwide in utilizing the Internet as well as LAN-based intranets to transmit voice, video, and real-time data. The product is designed to meet the stringent requirements of a carrier-class solution. This will help networks to pass on the benefits of reduced connectivity charges and yet assure high Quality of Service (QoS) (which means assured bandwidth and no interruption in your movie or meeting) over packet based public and private networks.

The market for only VoIP is projected to be worth Rs 2,790 bn by 2005. The largest regional market will be located in North America (Rs 1,349 bn by 2005), followed by Western Europe ( Rs 628 bn by 2005). Imagine the potential considering the fact that the whole of the Indian software industry exports are estimated to be Rs 2,325 bn by 2008.

Potential market share
(Rs bn)  
Total Revenue of Indian software industry 244
Hughes Software Net sales 1.1
Total market share 0.40%
Share of export market 0.60%
Total expected market for VOIP (2005) 2,790
Assuming 1% market share 27.9

Consider only 1% of the VoIP market, the size of Hughes would be approximately Rs 28 bn by FY05. This would mean a CAGR of 92%. Even if the projections fall short by 50% the potential for growth is tremendous. Considering the fact that it has other product suites and services to offer the future is very bright for Hughes.

At Rs 1000 Hughes is valued at a P/e multiple of 75x, which is amongst the best in the industry. Having a first mover advantage in the software industry does not necessarily lead to significant advantages due to the large number of competitors. However, being the first technology provider is what will determine leaders. Sweet are the advantages of technology.

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