Tejas breaks into global league

NEXT BIG THING/ OEM deal with one of big five will mean volumes and lower costs

Tejas Networks, the startup which manufactures products (proprietary boxes) for optical telecom networks, has made a major breakthrough by signing a deal to become an OEM supplier for one of the five leading global telecom equipment majors.

This has opened up enormous opportunities for Tejas and made a major statement about Indian technology startups' ability to develop cutting edge equipment.

Having signed up with one out of the big five (Nortel, Lucent, Alcatel, Siemens and Cisco which between themselves account for 90 per cent of the global telecom equipment market), "we have made it to one-fifth and feel in time we can become a world leader in our area," says Sanjay Nayak, CEO and managing director of Tejas.

The deal is critical because telecom network equipment and systems have become standardised and, as opposed to the situation in the eighties and nineties when every major manufacturing country had its national telecom equipment company, now there are the five major end to end equipment manufacturers.

Also, since the technology bubble burst in 2000, every R&D dollar spend has to be carefully weighed. Hence has arrived the age of OEM suppliers who develop and supply entire products (there are 30 to 40 such elements in a network) to the big five. For an emerging company in this field, to strike one OEM deal is to be able to clearly signal that it is arriving.

Today all telecom equipment majors are looking at long term OEM relationships, particularly for point products. (The biggies are concentrating on the platform part of the technology.)

Hence has arisen the great opportunity for Tejas with its next generation intelligent optical access products using ethernet over SDH (synchronous digital hierarchy) technology.

"India can become the point product country of the world and we have demonstrated how to build a great product out of India," says Nayak with great confidence. Point products are technologically significant as what was core yesterday has moved to the periphery today as a point product, with all the sophistication intact.

The deal with one of the big five is not a flash in the pan and comes after deals signed with a Taiwan company, Arris of the US and ITI in India. Tejas, which set out in 2000 first demonstrated how it could build world class cutting edge products.

The second breakthrough was figuring out a business model that took into account emerging global technology imperatives.

"It will be difficult for the equipment majors to develop point products themselves. So there is a phenomenal opportunity for us. Over the next few years, by leveraging market share by becoming OEM supplier to more than one of the big five, we will be able to achieve volumes and reduce costs. The global opportunity in the space we are in is $15-20 billion," Nayak estimates.

Tejas's emergence globally has been helped by several factors: growing global respect for the Indian IT brand, India emerging as a key market for telecom equipment, Tejas scoring successes with Indian network builders and being able to use the calling card of Silicon Valley Indian icon Gururaj 'Desh' Deshpande who is Tejas's chairman.

This year (2004-05) Tejas is likely to almost treble its turnover to Rs 90 crore and turn cash positive. It will also be a year of growth, raising headcount by over 50 per cent to cross 150 by the yearend.