Vendors Report Solid Growth in 2Q15 Worldwide Router and Switching Markets

Increases in fixed broadband traffic and mobile broadband traffic on 3G and LTE networks are driving infrastructure growth

The Q215 total Worldwide Carrier Routing and Switching market increased 9.2 percent quarter over quarter and 3.1 percent year over year. The core routing segment had revenues of $638 million, increasing 11.1 percent q-q and up 12.5 percent y-y. The edge/switching segment posted revenue of $2.4 billion, up 8.7 percent q-q and up 0.9 percent y-y.

New applications, increases in Internet data and video traffic continue to drive global router and switching markets. Cloud and content service providers have been rapidly expanding their data center capacities to handle the demand for new services. These drivers require flexible and scalable networks and vendors are seeing the benefits; the 2Q total Worldwide Carrier Routing and Switching market posted revenue of $3.0 billion. 

One trend that continues to gain traction is providers focusing on their networks that connect the data centers. Inter-data center networks are changing to support new services and network requirements for bandwidth scalability, low latency, security, virtualization and automation. It is anticipated that by 2019 there will be 60 percent more data centers in the world’s metropolitan areas than there are today, and data center interconnect volumes will increase by more than 400 percent.

“Despite so many POCs in SDN and NFV being deployed, the overall market still needs scalable reliable routers for providers’ critical services,” states Ray Mota, CEO of ACG. “Routers aren't going away any time soon. What we will see is a variety of physical and virtual deployments with expanded TAM into Webscalers that need carrier-grade virtual routers and high-performance MPLS switching.” 

TREND and DRIVER HIGHLIGHTS

• Increasingly, operators are turning to NFV as an enabler of new services, short service innovation cycles, and as a means to drastically reduce the operational cost of new and existing services.

• Traditional architectures are not capable of delivering a sustainable business model because of long deployment times and the resulting complex manual and proprietary systems interfaces required to support. These factors have been identified as the major causes of high-cost, poor capacity scaling and long innovation cycles. Traditional appliance-based solutions are unable to react quickly to new and changing service opportunities and requirements, thus limiting revenue opportunity and increasing customer churn. Deploying multiple technology silos to deliver a mixed portfolio of services plus the operational implications of multiple specialist teams, adds further opex expense.

• Internet of Things is starting to generate some real revenue for many service providers and the need for more security and scalable big data analytics will help offset the market with higher margins than traditional hardware equipment.

For more information about ACG’s services, contact info@acgcc.com.

Ray Mota

rmota@acgcc.com
www.acgcc.com

1Q Worldwide Router and Switch Markets Affected by Lower Global Capex Spend

Global capital expenditure is expected to increase only two to three percent in 2015.

The Worldwide Carrier Routing & Switching markets decreased revenue in Q1 but was up slightly year over year. The Q1 Total Worldwide Carrier Routing and Switching market posted revenue of $2.8 billion. The core routing segment had revenues of $570 million, increasing 1.2 percent q-q and up 3.6 percent y-y. The edge/switching segment posted revenue of $2.2 billion, down 8.0 percent q-q but up marginally 0.2 percent y-y.

Worldwide Carrier Routing & Switching Markets 1Q15

U.S. capex was down 14 percent in 1Q and is projected to be down 10 percent in 2Q. The second half of 2015 is expected to be positive, with capex ranging from 2 to 6 percent, but overall for 2015, U.S. capex is projected to decline 4 percent. Europe is projected to increase approximately 5.8 percent, APAC will be up 6 percent and CALA, which was down 4 percent last year, will grow 2.2 percent.

Disruption continues to affect the router and switching market; social, mobile, analytics, and SDN/virtualization adoption has resulted in more data being transmitted and stored through mobile and computing devices. “Currently, carriers have infrastructure that is complex and is somewhat inflexible,” states Ray Mota, CEO of ACG. “This means they have to be very risk adverse. Carriers must start transitioning their architectures to so they just program the services, not rearchitect the network every time they have a new service. Service providers are looking for low-risk deployments while doing their network transformations and are looking at hybrid networks, a network that utilizes both the purpose-built Physical Network Function and Virtual Network Function, which are targeting almost all segments and functions of the network.”

TREND and DRIVER HIGHLIGHTS

Network innovations will facilitate bandwidth increases by expanding the capacity of the access network, reducing service providers’ costs, and creating new incentives for subscribers to stay on-net. For example, the benefits of LTE-Advanced include optimized heterogeneous networks with a mix of macro cells and small cells to improve coverage and reduce costs and use of multicarrier to support higher data rates.

LTE initiatives are also driving demand for mobile backhaul, evolved packet core, and edge routing solutions; however, there will be a decrease in the mobile backhaul business as LTE roll-outs end. In 1Q some vendors benefited from a second round of investments in LTE backhaul infrastructure to raise capacity for demand.

Wireline carriers remain focused on enhancing the fiber footprint, expanding its reach (FTTX) and capacity (100 gig) to facilitate improved broadband offerings, carrier Ethernet services, and cloud capabilities. Increasing traffic volumes at the network edge should drive demand for core upgrades, which may benefit sales of coherent transport products, OTN switches and core routers.

Data center interconnect positively impacts both the optical and packet domain. Currently, ACG sees six to eight percent of edge routers being dedicated to DCI. ACG sees three main areas that will be the foundation for DCI: Optical, Layer 2 and Layer 3.

For more information about ACG's router and switch services, contact sales@acgcc.com.

Ray Mota

rmota@acgcc.com

www.acgcc.com

Worldwide Carrier Routing and Switch Market Posted Increases in 4Q

The Worldwide Carrier Routing and Switch market increased year over year q-q 1.5 percent and slightly increased 0.1 percent y-y, with revenues of $2.9 billion. The core routing segment posted revenues of $563 million, increasing 4.8 percent q-q but down 6.9 percent y-y. The edge/switching segment posted increased revenue of $2.3 billion, up 0.7 percent q-q and up 1.9 percent y-y. 

In 4Q14, the EMEA region increased revenue a solid 6.1 percent, and APAC grew revenue 4.7 percent. The Americas posted a decrease of 2.7 percent. 

Disruptive IT market trends continue to challenge the capabilities of networks and propel providers to consider software-defined networking as a vehicle to reduce service delivery costs and increase service velocity. This trend has affected the router and switch markets, resulting in limited spend in router and switch as carriers continue to explore SDN, trial SDN or implement SDN. The fourth quarter is usually an indicator for the coming year. 

TREND and DRIVER HIGHLIGHTS

Carriers’ ARPU is not sustainable and cannot maintain capex over revenues. Some carriers feel that flat revenue is acceptable; however, they do not seem to recognize that flat revenue is a race to the bottom. With capex the problem is not spending; it is about innovation, agility and operational costs and being able to compete more aggressively on deploying services. Explaining the repercussions of flat ARPU and exorbitant revenues ratios of ARUPs to an executive and any SPs with a “wait and see” position is going to be a challenge. Companies must understand that changing mindset is a top-level approach. 

Service providers are making significant investments, and companies such as AT&T, Verizon, Sprint, and T-Mobile are actually seeing solid profits. Sprint, which was late to market, posted profits in the 20 percent to 30 percent range. Verizon posted profits in the high 40 percent to 50s percent range. Most vendors saw decreased revenue in Q4, which can be attributed to the special promotions or end-of-year give-a-ways impacting their profit margins between 5–10 percent. 

Wireless is still a priority because of the revenue it is generating. Carriers’ aggregated ARPU for fixed data is flat. Fixed voice ARPU is starting to decrease. Mobile voice is also decreasing. From an aggregated perspective mobile data is flat. Although some carriers report profit margins most worldwide carriers (67) report that ARPU is flattening or decreasing. 

ACG is projecting the following in capex spending for 2015:
• North America  -3%
• Latin America  -4%
• EMEA         +1.3%
• APAC         -5%
• China         +6%

2014 has been an interesting year for carrier routing, which has been affected by shifts in capex spending in wireline, mobile, SDN, and NFV. Operators are focused on monetizing their increasing data traffic, which is driving demand for mobile broadband. The need for more control of the network has produced more options available at the higher layers, such as software programmability and network analytics. This is where the long-term value is as hardware becomes simpler and more cost effective. New systems are being built on flexible platform architectures that are intelligent and open to enable programmability. With the creation and delivery of these intelligent platforms, developers and vendors can upgrade and share their systems rather than locking them down.

For information about ACG's router and switching services, contact sales@acgcc.com.

Ray Mota

rmota@acgcc.com

www.acgcc.com

Telecom Performance in 2014 Indicates Growth

The Worldwide Router and Switch markets are expected to grow moderately and steadily from 2014–2018 with growth being driven by the increase in fixed broadband traffic and mobile broadband traffic on 3G and LTE networks. 

The total Worldwide Service Provider Carrier Router-Switch market is projected to increase from $11.4 B to $13.8. B by 2018 (CAGR 5.1 percent). From a regional perspective, APAC will lead the growth as carriers respond to increases in data traffic, big data, virtualization, software-defined networking and machine to machine as well as the unrelenting demand for innovative and intelligent applications and services. The projected five-year growth will be strongest in APAC (CAGR +6.3 percent), North America (CAGR +5.1 percent), and EMEA (CAGR +4.5 percent).

Wall Street firms report that the 2013 year-to-date telecom performance was 6.2 percent; IT was 10 percent. These numbers are indicators of future economic growth within these sectors. Worldwide, there is a correlation between different types of technology and the impact on GDP or economic growth. For example, for every 5 percent broadband penetration related to consumer business or mobility there is a 1.6 percent increase in GDP. In the communications, technology or IT in the enterprise spaces, we see a similar type of correlation; for every 5 percent increase in the use of IT within the enterprise space there is approximately 0.5 percent increase in productivity. This insight is important for companies as they need to change their mindset on how they create solutions for a customer.

Trends

• The outlook for routers: the edge segment, which is projected to reach $12.2 B in 2018, is 3X the size of the core router market, which will increase $3.3 B in 2018.

• Live SDN deployments in WAN IP and transport solutions will gain significant traction, and the edge, metro and core domains will each become larger as a percentage of total SP SDN sales than the data centers are by 2018 (including both hardware and software SDN products). This is driven by the diversity of platforms participating in SDN solutions in those domains (IP/MPLS, Ethernet/MPLS, Optical and Packet Optical Transport Systems, for example), the broad extent of their deployment in SP infrastructures globally, and the range of optimizations in each domain being ushered in as part of the SDN transformation.

• Total potential for SDN enabled equipment in the core will reach $7.5 billion in 2018, but not all of those platforms will be used for live SDN deployments.

The demand for new applications, increases in Internet data and video traffic will continue to drive markets during the forecast years. These drivers will require flexible and scalable networks. This year, the network that connects the data centers will be the industry’s focus. Inter-data center networks need to change to support new services and network requirements for bandwidth scalability, low latency, security, virtualization and automation. 

For more information about ACGResearch’s router and switch service, contact sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

2013 Service Provider Router and Switching Market Ends Year Flat to Slightly Up

GDP instability in emerging countries, NSA, product transitions and a major shift from purpose-built to virtualized routers is having an impact on the market.

The Worldwide Carrier Routing & Switching markets decreased revenue 0.5% in Q4 but increased slightly 0.7% for the entire year. In spite of positive growth and doubling of profitability reported by Tier 1 providers. Q4 Total Worldwide Carrier Routing & Switching market posted revenue of $2.9 B. Core Routing revenues were down 0.8% q/q but up 16.3% y/y. Edge Routing and Switching revenues were down 0.4% q/q and down 2.8% y/y.

Although Alcatel-Lucent is benefiting from the growth in IP core, which continues to see increases in 100GE adoption, providers refreshing core routers, increases in IP-Optical convergence and SDN, the company decreased 1.6% q/q and 5.7% y/y. The company benefited from CapEx spending in the first three quarters of 2013 but which dried up in Q4. Cisco, as the company projected, posted a total worldwide decline of 7.4% q/q and a decrease of 2.4% y/y. In spite of the decreases Cisco is currently undergoing product transition and shifting to a virtualizing product portfolio. The company was impacted by slowdown in emerging countries. Juniper posted increases of 3.2%, q/q and 15.3% y/y. Juniper reported that its MX line of edge routers drove growth (22%) in routing revenues.

Software-defined networking has been one of the top trends in 2013 with vendors introducing products geared at addressing traffic and revenue problems associated with the network. Live SDN deployments in WAN IP and transport solutions will gain significant traction, and the edge, metro and core domains will each become larger as a percentage of total SP SDN sales than the data centers are by 2018 (including both hardware and software SDN products). This is driven by the diversity of platforms participating in SDN solutions in those domains, the broad extent of deployments in SP infrastructures globally, and the range of optimizations in each domain being ushered in as part of the SDN transformation.

2014 will be the year of SDN trials in the service provider space with actual deployments occurring in 2015 and larger scale trials deploying in 2016. CPE and Edge are the areas that SDN will impact. We caution vendors to be mindful that they are not in a race to the bottom. Vendors must add value by including better management and orchestration. Having a platform that allows more agility and increases service deployment will be more important than the initial CapEx saving. 

For more information about ACG Research's Router and Switching service or other syndicated and consulting services, contact sales@acgresearch.net. 

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Carriers’ CapEx Focuses on Edge Segment

The Total Worldwide Service Provider Carrier Router-Switch market is projected to increase from $11.9 B to $15.4 B by 2018 (CAGR 5.3%). From a regional perspective, the Americas and APAC will lead the growth as carriers respond to increases in data traffic, Big Data, virtualization, software-defined networking and the unrelenting demand for innovative and intelligent applications and services. The projected five-year growth will be strongest (in order of growth) in North America (CAGR +5.2%), APAC (CAGR +5.1%), LAM (GAGR 5.0%) and EMEA (CAGR +3.1%).

Carriers are focusing their CapEx on the edge segment. Why? The edge has significant impact on customers’ experiences and subscriber revenue. The edge segment, which is projected to reach $12.1 B in 2018, dominates the router market and is 3X the size of the core router market, which will increase $3.2 B in 2018. Driving edge growth is 1) the increase of bandwidth capacity of edge routers, 2) integration of network service functions, such as video services, NAT, security and threat management, 3) movement toward SDN, which approaches the network as an amalgamate and configurable resource and 4) traffic being pushed to the edge. Additionally, the cost of increasing bandwidth capacity in the core and carriers running their core networks hotter, and thus utilizing more resources, has pushed traffic to the edge.

Mobile backhaul is also driving this edge growth; more people are connecting with multiple devices, which is propelling operators to upgrade their backhaul networks with routers to support mobile services based on LTE and HSPA+ technologies. Mobile operator CTOs have been and will continue to focus on network cost economics, 3G-WiFi integration, and carrier aggregation.

The core router market, which is anticipated to grow to $3.2 B/5.4% by 2018, is also undergoing a transition. Carriers are utilizing a combination of MPLS and optical switching to handle traffic loads that are crossing the core and which do not require detailed analysis. The advantage of adding optical switching to a packet switch for carriers is twofold: this combination is more scalable, and time and costs associated with converting traffic between electronic and optical platforms are both reduced.

CapEx for the second half of this year is looking positive and expected to increase 7% year over year. Key drivers are LTE investment in mobility and Carrier Ethernet and 100G in the wireline side.

In the next five years service providers will continue to focus on monetizing emerging opportunities, which will require networks that enable them to accelerate service innovation, scale services, and expand the customers’ experiences, all within a viable economic framework.

For more information about ACGResearch’s Router and Switching services, contact sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net       

Edge Leading the Positive Growth for Router Market in Q2

The Worldwide Carrier Routing and Switching market increased both quarter over quarter and year over year, 14% and 5% respectively, with revenues of $3 billion. The core routing segment posted revenues of $590 million, down 6.6% y-y but up 7.4% q-q. Core has been in a soft cycle but we anticipate growth as the delays in upgrades are now starting to be addressed. The edge market posted solid revenues of 2.4 million, 8% y-y and up 16% q-q. The SP edge market continues to be competitive because of the diverse range of applications and solutions, requirement variations in the regions, and cross-technology solutions. 

       

Worldwide Carrier Routing & Switching Market Shares
Vendor	Rank	Revenue ($M)
Cisco	1	$ 1,524.8
Alcatel-Lucent	2	$    586.9
Juniper	3	$    515.2

Trends

·  Operators are more focused on the drivers in the edge of the network, which is increasing demand for edge products. Carriers are increasingly moving to 100G, which is contributing to the caution carriers are exhibiting as they choose their next core routers.

·   Enterprise networks will continue to lead SDN adoption even though the really big potential impact will eventually come from carriers, which will take place when carriers have WAN infrastructure in place to support new services.

·   A key driver contributing to service provider router and switching market growth is the increasing demand for mobile broadband and providers investing in wireless networks to meet that demand.

·   Interest in software-defined networking has increased in momentum for two primary reasons: 1) a less than positive macroeconomic environment and 2) SPs are searching for a new way to deliver services and realize OpEx savings.

In spite of weaknesses and challenges in some global economies, the long-term demand for high-performance and innovative networks continues to be strong. Mobility, Big Data, capacity constraints and better utilization on network assets, which is instigating a significant shift in networking, is top-of-mind for providers. Service providers are looking to vendors for solutions that support these demands. In response vendors are delivering cutting-edge products and services that address virtualization, software-defined networking, and cloud. For more information about ACG's router and switching service, contact sales@acgresearch.net.     

Ray Mota

rmota@acgresearch.net

www.acgresearch.net                                                                                                                

Increases in Total Worldwide Service Provider Carrier Router-Switch Market Projected

The Total Worldwide Service Provider Carrier Router-Switch market is projected to moderately increase from $11.7B to $15.1B by 2018. From a regional perspective, APAC and the Americas, respectively, will lead the growth as carriers respond to increases in data traffic, big data, virtualization, software-defined networking and the unrelenting demand for innovative and intelligent applications and services. The projected five-year growth will be strongest (in order of growth) in APAC (CAGR +6.4%), Americas (CAGR +4.9%), and EMEA (CAGR +4.9%). ACG anticipates that the total router and switching market will increase 4.6% in 2013 as well as increase in each successive year. 

In spite of challenges facing global economies, the emphasis on new and innovative services will instigate a significant shift in networking. Cloud services and machine-to-machine connectivity, which have redefined the way applications run on the network, exposing their underlying limitations, have contributed to the explosion of inter-data center traffic. The long-term demand for high-performance and innovative networks/architectures that address inter-connected data centers will increase in momentum. 

In the next five years service providers will continue to focus on monetizing emerging opportunities, which will require networks that enable them to accelerate service innovation, scale services, and expand the customers’ experiences all within a viable economic framework. Service providers are looking at vendors’ solutions that provide a single operating system, operational simplicity and a platform with the highest possible scale across bandwidth, subscribers, and services. 

For more information about ACG Research's syndicated and consulting services, contact sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

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. 

QUARTERLY TREND AND DRIVER HIGHLIGHTS

• 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 sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Looming Fiscal Cliff and Europe Uncertainties Continue to Undercut Router Market Growth

In addition to economic uncertainty, vendors in the router and switching market are dealing with more intensive competition, diminishing service provider’s profit margins, and their largest customers cutting spending and delaying purchases of new equipment.

Against a backdrop of global economic instability and political unrest, the Worldwide Carrier Routing & Switching markets reflected typical cyclical performance, remaining slightly flat in Q3. ACG Research anticipates global economic uncertainty, a challenging market and aggressive competition will continue to put pressure on vendors’ pricing and margins. “Enterprise CEOs will, most likely, remain conservative and more focused in their IT spending and hiring for the remainder of the year,” states Ray Mota, managing partner. “These factors will continue to force vendors to innovate and develop technology that can deliver significant operational savings as well as address market demands for new and cutting-edge services that are application focused. Despite some vendors providing low guidance for Q4, AT&T announced a CapEx increase of $2.5 billion per year.”

Q3 Total Worldwide Carrier Routing & Switching market posted revenue of $2.75B. The global market decreased 1.7% q/q and 2.5% y/y. Core Routing revenues were down 1.9% q/q and 9.6% y/y. Edge Routing and Switching revenues were down 1.7% q/q and down 0.4% y/y.

Cisco posted a total worldwide decline of 0.3% q/q and a decrease of 0.8% y/y. In spite of the decrease Cisco reports that its CRS and ASR series continue to demonstrate strong traction. Alcatel-Lucent decreased 2.16% q/q but was solidly up 8.2% y/y. ALU’s 100 Gig is a big differentiator for the company, and the company continues to see more sales traction with this port for core solutions, edge and metro. Juniper increased worldwide routing revenue 1.2%, q/q but was down 7.7% y/y. The company cited the reduction in service providers purchasing high-end networking equipment, difficulty penetrating new markets with new products and strong competition from Cisco as factors influencing its quarterly results. 

Vendor	Q-Q MS Point +/-	Y-Y MS Point +/-
Cisco	+0.8	+1.0
Alcatel-Lucent	-0.1	+1.8
Juniper	+0.5	-1.0
Tellabs	-0.1	-0.4
Huawei	-0.2	-0.2

In the US the threat of the “fiscal cliff” is creating a tremendous uncertainty and service providers are monitoring it closely in order to get some visibility on what kind of impact it will have on consumer, small, mid and enterprise business spending. The threat of another recession could potentially extend service providers’ build-out of new services that, in turn, could impact their CapEx spending. ACG plans to monitor this closely in 2013 with our service provider capacity index service, which tracks the rate of change in capacity and how “hot” SPs are running their networks.

QUARTERLY TREND and DRIVER HIGHLIGHTS

• Core network traffic is growing in excess of 50% per year and new services such as content-rich digital media, cloud and mobile placing new requirements on the network.
• Competitive factors such as lower pricing and reduced margins are putting pressure on the routing segment.
• Interest in mobility and cloud computing continues to grow, especially with SPs that recognize that to have a cost-effective, scalable, automated data center that enables them to offer new services/products they need technology that can deliver significant operational savings.
• In a recent ACG survey, 78% of respondents reported that they have SDN plans that were either under discussion or were planned deployment. Interest in SDN has increased in momentum for two primary reasons: 1) a less than positive macroeconomic environment and 2) providers are searching for a new way to deliver new services and realize significant operational savings while increasing service velocity.

For more information about ACG Research's Router and Switching service, click here or contact sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Second Half of 2012 Poised for CapEx Spend

Although there is instability in global economies, demand fundamentals remain intact and network traffic continues to rapidly increase, adding more performance pressure on service providers’ networks. The outlook for the second half of the year is for SPs to spend, invest, and upgrade networks and launch new projects.

The European debt crisis as well as a reduction in service providers’ CapEx spend continues to affect the global router and switching markets. Vendors cited the turbulence in Greece, Spain, and Portugal and decreased demand from service providers as factors that contributed to their weak revenues in Q2. ACG Research still anticipates growth in the Worldwide Carrier Routing and Switching markets by the end of 2012. One factor that will affect growth is the surplus of CapEx, with some operators reporting having spent less than 50 percent of their CapEx thus far. “Growth in network traffic continues to rapidly expand and add more stress on SPs’ networks. Service providers have to make the investments and upgrades in their networks to meet capacity requirements; it’s that simple,” states Ray Mota, managing partner. “In the long term, this bodes well for vendors, and if SPs remain true to being flat or slightly up then the spend in the second half of the year should be positive.”

Q1 Total Worldwide Carrier Routing & Switching market posted revenue of $2.8B. The global market increased 2.7% q/q but decreased 5.1% y/y. Core Routing revenues were down 0.6% q/q and down 11.4% y/y. Edge Routing and Switching revenues were up 3.6% q/q but down 3.3% y/y.

Cisco posted a total worldwide decline of 2.1% q/q but an increase of 2.3 y/y. Cisco reports macroeconomic conditions contributed to the decrease in its Q2 revenues. Brocade posted a significant decrease, 23% q/q but a solid increase of 1.8% y/y. Juniper increased worldwide routing revenue 4.6% q/q but decreased 20.2% y/y; the company stated cautious purchasing prioritization by service providers, which is 64% of Juniper’s revenue, and some large enterprises as factors influencing their quarterly results. Alcatel-Lucent, which continues to institute more cost cutting measures, staff reductions and management restructuring, increased 6.6% q/q but decreased 2.2% y/y. 

Vendor	Rank	Market Share ($)	Q-Q MS Point +/-
Cisco	1	54.7%	-2.6
ALU	2	18.4%	0.7
Juniper	3	16.7%	0.3
Tellabs	4	2.5%	0.5
Huawei	5	1.9%	0.2

QUARTERLY TRENDS and DRIVERS HIGHLIGHTS

• Service providers and enterprises are looking at networks that are flatter, that reduce complexity and OpEx, while delivering greater performance and scale.

• Core network traffic is growing in excess of 50% per year, and new services such as content-rich digital media, cloud and mobile broadband place new requirements on the network for optimal distribution and delivery. Core routers, consequently, must scale rapidly and meet demanding network performance objectives with the lowest possible total cost of ownership.

• A key driver contributing to service provider router and switching market growth is the increasing demand for mobile broadband and providers investing in wireless networks to meet that demand.

Click here for more information about ACG Research's router and switching service.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net