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.
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