Infonetics Optimism on Service Provider Router/Switch Market contrasts with Cisco's Cautious Outlook

Introduction:

Market research firm Infonetics Research recently released vendor market share and preliminary analysis from its 4th quarter 2012 (4Q12) and year-end Service Provider Routers and Switches report. (Full report will be published February 25th.  Infonetics is quite upbeat about this market segment for 2013, despite the cautious outlook from market leader Cisco Systems.

Service Provider (SP) ROUTER and SWITCH Market Highlights:

  • For all major world regions except North America, the 4th quarter of 2012 was strong, with global IP edge and core router and carrier Ethernet switch revenue rising to $3.8 billion, up 12% from the previous quarter
  • While North America was down a bit sequentially in 4Q12, the region is up 13% from the year-ago 4th quarter, the highest year-over-year gain of any region
  • In 2012, sales of core routers slowed more than edge routers, as the coming move to 100G is making carriers increasingly cautious as they choose the next generation of higher-capacity core routers
  • The top 4 manufacturers in the router and carrier Ethernet switch segment stayed in dominant positions in 2012, with #1 Cisco and #2 Huawei holding steady, while Alcatel-Lucent moved into the #3 spot, bumping Juniper to #4
  • In the race for router-only market share, Cisco maintained the top position in 2012, but Huawei and Alcatel-Lucent boosted their revenue market share following big gains in 4Q12

2012 Global Revenue Share of Router and Switches to Service Providers according to Infonetics.

Analyst Perspective:

“The global carrier router and switch market ended 2012 with a small 4% loss, but it could have been worse,” notes Michael Howard, Infonetics Research’s co-founder and principal analyst for carrier networks. “Significant budget flushes from operators in Europe, China and Latin America buoyed the overall market in the final quarter of the year.”

“Looking ahead, we expect the service provider switch and router market to grow again in 2013. The US economy is in better shape and we are predicting an increase in worldwide carrier capex this year. In EMEA, activity looks good for the Middle East and, to some degree, Africa, and Europe seems to have hit bottom. If our talks with European service providers prove true, then we can expect a slow climb for the IP router and switch market there, albeit from this lower starting point. Operators know they need to spend on their networks or risk becoming uncompetitive.”


Cisco Systems Q2 Results and Forecast:

Let’s contrast that positive outlook with what market leader Cisco said earlier this month on its earnings call and at a Goldman tech investing conference.

On their 2Q earnings call, Cisco CEO John Chambers said, “In this quarter, total revenue for next generation networking, the routing segment declined 6%, driven by the timing of some large deals and challenging environment in a few key geographies such as Europe and China.”  Chambers added, “We saw continued momentum in the edge with the ASR 9000 growing comfortably about 30% year-over-year. And SP mobility strengthened by the strong ASR 5500 adoption going again in the upper teens.”

Goldman Sachs analyst Simona Jankowski interviewed Cisco’s Rob Lloyd at a recent Goldman technology conference.  Lloyd said that aggregate switch sales were up 3% in the last quarter.  Cisco has projected flat switch sales for the next couple of quarters, Jankowski noted.

Cisco Sees Other SP Market Segments with Faster Growth:

In contrast to routers and switches, other Cisco products sold to service providers grew much faster than routers and switches.  For example, service provider video sales were up 20% in the quarter. Mobility growth was in the high teens, while the Carrier WiFi business doubled (might be partly due to the acquisition of Meraki).  In a departure from its core router/switch business, Cisco is aggressively delivering innovative mobile solutions in three key areas: software, 3G access and intelligent infrastructure.

Cisco said that to provide the ability to handle the many connections required in the Internet of Everything, the Cisco ASR 5000 Series Evolved Packet Core (EPC) “sits at the heart of the market transition to 4G (LTE) technology.”  With more than 210 deployments by global service providers, the Cisco ASR 5000 Series was said to “provide the elasticity necessary to meet the dynamic and ever-evolving demands of the mobile Internet.”

Another area Cisco sees growing rapidly is Data Center Switching.  If service providers seriously move into the cloud computing market (except for Verizon and Savvis/Century Link, they haven’t yet), then they’ll buy a lot of data center switches- a market in which Cisco, Juniper, Brocade and Arista Networks are competing.

Conclusion:

Cisco’s SP Router market share held steady in 2012, as indicated by Infonetics, but sales declined 7% as per Cisco’s most recent earnings report.   We see big changes in the overall router/switch market for 2013 and for years to come.  We think that carrier WiFi routing, EPC for LTE, Data Center switching (with emphasis on Server to Server traffic flows) hold the most promise for future growth in the SP router/switch market.

It will be interesting to see if there’s a movement away from big iron switches into commodity based packet forwarding engines, as dictated by Software Defined Networking and the Open Flow protocol.  This author still isn’t sure if SDN is the real deal or a passing fad.


Reference:

IEEE ComSocSCV July 2012 meeting:Software Defined Networking (SDN) Explained — New Epoch or Passing Fad?

http://www.ewh.ieee.org/r6/scv/comsoc/ComSoc_2012_Presentations.php

0 thoughts on “Infonetics Optimism on Service Provider Router/Switch Market contrasts with Cisco's Cautious Outlook

  1. Juniper Networks, which lost SP S/R mkt share last year, just announced two new products in their SDN product suite.
    1. Services Activation Director application running within their Junos Space central management framework and ..
    2. A virtualized mobile control gateway (MCG) playing the role of the SGSN/MME in LTE, 3G and 2G mobile networks running on their JunosV App Engine (virtual machine orchestrator that supports the KVM hypervisor).
    http://www.sdncentral.com/sdn-blog/juniper-new-sdn-products-service-provider/2013/02/?utm_source=SDNCentral.com+Mailing+List&utm_medium=email&utm_campaign=c9f15c4783-RSS&utm_content=Yahoo%21+Mail

    http://www.juniper.net/us/en/products-services/?gclid=CNroy76g0LUCFQSynQodpC4APA

  2. Thanks Alan for reporting on these two different reports and how they are somewhat divergent. Thank you also for the excellent references from the IEEE meetings. Very helpful to those not immersed in SDN.

    It looks SDN is a hot topic at Mobile World Congress as BTI announced their Intelligent Cloud Connect

    http://www.btisystems.com/news-and-events/press-releases/bti-systems-announces-intelligent-cloud-connect.aspx

    “Intelligent Cloud Connect is an SDN-enabled integrated platform with management and control software….. it will replace the need to continue to purchase separate optical transport devices, switches, router ports, and network application appliances to handle and manage inter-data center traffic growth, with more control and flexibility to optimize services.”

    The sort of developments described by Juniper and BTI seems to point to an opportunity for smaller players to potentially disrupt the existing market.

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