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Monday, February 17, 2014

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. 

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