ACG Research

ACG Research
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Monday, February 18, 2013

2012 Service Provider Routing and Switching Market Ends in Softness for Core and Flatness for Edge

From 2011 to 2012 Juniper Networks, which was hit the hardest of the top vendors, declined -14.3% in the global carrier routing and switching markets. Cisco increased 2.5% and Alcatel-Lucent increased 6.1%. 

The Worldwide Carrier Routing & Switching markets increased revenue 3.3% in Q4 but decreased 2.3% for the entire year. Additionally, overall profit margins, ASPs, were down -7.9% for 2012 due to softness in core routing. ACG Research anticipates global economic uncertainty, a challenging market and aggressive competition will continue to put pressure on vendors’ pricing and margins in 2013. “Service providers have been deferring spending in the core and, instead, investing in the edge,” states Ray Mota, managing partner. “Despite weaknesses and challenges in global economies, the long-term demand for high-performance and innovative networks continues to be strong. Mobility, Big Data, and software-defined networking will instigate a significant shift in networking and will be top-of-mind issues in 2013.”

Q4 Total Worldwide Carrier Routing & Switching market posted revenue of $2.8B. Core Routing revenues were down 15.8% q/q and 18.5% y/y. Edge Routing and Switching revenues were up 8.5% q/q and 3.9% y/y. 

Cisco posted a total worldwide decline of 3.8% q/q and a decrease of 4.2% y/y. In spite of the decreases Cisco continues to address shifting market priorities by refocusing on the core and edge networking market segments. Alcatel-Lucent, which posted a strong quarter, increased 17.2% q/q and up 8.6% y/y. ALU is benefiting from significant activity by MSOs as they focus on subscriber retention and expansion. Juniper remained flat at 0.2%, q/q and 1.0% y/y. In spite of this flatness, Juniper is seeing good traction with bookings of the MX, and the company reports that it has finally started shipping.

Although worldwide economic issues are plaguing regions, demand for mobile broadband and related services continues to increase and put pressure on providers’ networks. According to Cisco’s Visual Networking Index, global mobile data traffic increased 70 percent in 2012. Other services, such as cloud, virtualization, Big Data, machine to machine and software-defined networking, are also putting pressure on data centers and networks and redefining the way applications run on the network, exposing the underlying limitations of the networks. These demands are fueling operational complexities and costs that continue to be a challenge for service providers. 

  • Software-defined networking is the most recent buzzword to hit the telecom industry. SDN provides distinct control plane that allows fundamental changes to be programmed across the network as “network applications.” Enterprise networks will continue to lead the SDN adoption even though the really big potential impact will be “the great carrier revival,” which will take place when carriers have the WAN infrastructure in place to support new services and to create a new telecom revolution. 
  • Next-gen networks will be much more open, not closed, and include software and hardware components from multiple vendors working together. This development represents significant new business opportunities for those vendors that introduce products that interoperate and can generate new revenue opportunities.
  • The service provider edge continues to be competitive because of diverse range of applications and solutions, requirement variations in the regions, and cross-technology solutions. Core has been in a soft cycle but we anticipate growth in 2013 as the delays in upgrades are addressed.

For more information about ACG Research's Q4 Router and Switching report contact

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