6th June 1996
The Madras-based Future Software Pvt. Ltd., has signed an agreement with two Samsung group companies to jointly develop an ATM (assynchronous transfer mode) product, to be launched in international markets in six months.
The product will be high-value and low-volume, according to Mr. K.V. Ramani, Chairman and Managing Director of the company, which specialises in communications software. He said. “We had some technologies in the ATM area that Samsung was interested in. So we are jointly developing a product with them.”
The deal is expected to bring in $1 million in royalties, which can go up to $3-5 millions. The product will be sold under the brand name of a Samsung subsidiary and will also carry the name of Future Software as the company having proprietary rights over it.
Future Software had previously worked for Samsung in the area of datacom and earlier licensed software to the Korean Company. “But the agreement to make modifications on this particular product and customise it for Samsung was signed recently, “Mr. Ramani said.
The company is currently developing another product-a high-technology 100 megabits high-speed bridge, which is expected to hit the market in three or four months. An Ethernet switching product for a Silicon Valley company and ISDN based products for German customers are in the pipeline.
Future Software has been specialising in communications software since its inception 10 years ago. Today, the company is also looking at multimedia in communications and computing.
From on-site and offshore projects, the company’s has started to shift focus on product development. “Four years, ago, we decided that projects alone were not adequate for growth. So we started developing data communication, telecommunication and networking products, which we are licensing abroad,” Mr. Ramani said. The company has floated a subsidiary in the US to license and support its software products.
The first product was an experimental switch developed in collaboration with a German company, for which it is still collecting royalties, Future Software is currently licensing ATM software related to ATM signalling, user interface and public network interface to several international companies.
Licensing from products contributed to Rs.2 crores or 40 per cent of company’s turnover in the current year. While the largest source of income (50 per cent) are turnkey projects for international companies, the share from its products is expected grow faster.
The shift in focus by Future Software was aimed at fuelling its growth, as licensing of products is lucrative. Mr. Ramani clarifies. “For instance, licensing an entire ATM suite comes to around $100,000. If we license it to 10 people we earn around a million dollars.” Around 98 per cent of the company’s foreign exchange earnings are retained in India out of every one dollar earned, only two cents are spent for travelling abroad.
The profile of Indian software exports however reveals that the largest portion of the revenue for Indian companies comes from offshore and on-site projects, while less than 10 per cent comes from product development, in which the risks are higher.
A report prepared by ICICI Securities indicates that risk levels increase when companies get into product development. But risk levels for niche markets, such as the one in which Future Software is operating, is lower than those for mass-market products.
According to Mr. Ramani, software companies shy away from product development since it involves prediction what the market will want in three years.
Also, most Indian companies do not have sufficient experience to negotiate contracts. They are used to standard licenses. the terms of which are not really negotiable. Indian Software companies that had started off shore body shopping turned to off-shore primarily due to visa restrictions and high cost of manpower. But, making the transition to product development may not be easy.
Future Software, which posted a turnover of Rs.8 crores in 1995-96, has set a target of Rs.30 crores by 1997-end. The company may go public in two years to fund operations in Europe and Asia-Pacific Companies will be set up in the two regions to license products and provide support services.