ACG Research

ACG Research
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Wednesday, May 16, 2012

Cisco Benefits from Service Providers’ Expansion and Capacity Build-out

Cisco reports that its quarter-over-quarter and year-over-year increases were due to service providers’ build outs and expansion of their networks. 

Although vendors cited weak economies and decreased demand from service providers as factors that contributed to their weak revenue increases in Q1, ACG Research still anticipates solid growth in the Worldwide Carrier Routing and Switching markets in 2012 as mobility and demand for video continues to drive providers to invest in wireless networks. “Service providers have certainly held tight reins on their CapEx, but they are still spending and vendors need to fully understand the their buying patterns, market trends and consumers’ demands to capitalize on SPs’ limited spend,” states Ray Mota, managing partner. “Yes, some service providers are taking a wait and see approach on expansion, but although it might feel comfortable to wait it is rarely a successful investment strategy. Providers should look at long-term investments in new services.”

Q1 Total Worldwide Carrier Routing & Switching market posted revenue of $2.7B. The global market decreased 4.5% q/q and 0.6% y/y. Core Routing revenues were down 0.8% q/q and down 8.2% y/y. Edge Routing and Switching revenues were down 5.6% q/q but up 1.9% y/y. 

Cisco posted total worldwide growth at 2% q/q and 14% y/y. Cisco continues to gain traction with the CSR-3, reporting triple-digit growth and that the company “has achieved $1 billion in total orders to more than 190 SP customers in 30 countries in just 1.5 years, 20 new customers in Q1 alone.” Brocade also posted positive increases, 30% q/q and 57% y/y. Juniper decreased worldwide routing revenue 4.8% q/q and 28.3% year over year; however, the company posted 39% q/q increase in access aggregation switching, which is in part due to solid sales of infrastructure products. Alcatel-Lucent, which is benefiting from the market momentum for 100G IP/optical as well as providers replacing and leveraging 100GE and IPv6 transition technologies decreased 11% q/q but increased 11% y/y.

Market Share ($)
 Q-Q MS Point +/-

  • Emerging markets are fueling growth in most telecomm sectors and the rapidly growing demand for services and products is fragmenting the customer base and putting pressure on market leaders to innovate to maintain market share.
  • Service providers held tight reins on their CapEx in 2011, and vendors are approaching 2012 with caution as they anticipate that this trend will continue.
  • The strong growth in IP traffic is driving the demand for switches and routers in service providers’ networks. This growth will most likely increase in 2012 as fixed and mobile broadband subscriber penetration rates increase. The growth in demand by consumers for video applications will also fuel the demand for more switches and routers. The result will be that carriers will need to continue investing in their IP infrastructures or risk losing subscribers.  The market is seeing the build-out of 3G wireless networks in developing countries; in developed nations carriers are investing in LTE to meet the demands for mobile bandwidth.
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