Service providers are
requiring more capacity because of an increase in mobility and agile cloud
solutions, which are stimulating growth.
The
Worldwide Carrier Routing & Switching
markets increased revenue 7.0% in Q2 but remained flat 0.0% year over year.
Global capex was up 5% q/q, and IT spending increased 6% q/q. In spite of this
positive growth, ACG Research anticipates a challenging market in the second
half of the year and lower service provider routing spend in Q3 with projects
being pushed out to 2015. “AT&T and Verizon continue to surpass the
industry average for operating margin. AT&T posted 17.2% operating margin
while Verizon posted 24.4%. Many other SPs also saw solid margin gains, which
had a positive impact for service provider equipment vendors in the first half
of 2014,” states Ray Mota, CEO of ACG. “The router market outlook is uncertain
because of architectural transitions, consolidations and larger then expected
spending in the first half. The good news is that projects are not being
cancelled but just pushed out.”
The rise
in fixed broadband traffic and mobile broadband traffic on 3G/4G and LTE
networks will continue to put pressure on providers’ networks. Streaming
residential video is rapidly driving average household bandwidth requirements:
31% CAGR from 2.9 Mbps in 2014 to 7.3 Mbps by 2018. Smart phones, tablet, and
next-generation devices as well as pressure on service providers to provide
content-rich applications will force many service providers to upgrade their
access, aggregation, and core networks, and mobile backhaul.
Q2 Total
Worldwide Carrier Routing & Switching market posted revenue of $2.9
billion. Core Routing revenues were up 3.0% q/q but down 3.8% y/y. Edge Routing
and Switching revenues increased 8.0% q/q and slightly up 1.0% y/y.
Alcatel-Lucent
reported routing and switching revenue of $603 million, increasing 17.3% q/q
and 2.8% y/y. ALU’s solid quarter in routing is primarily attributed to the
company’s gains in the IP Edge Routing segment, Multiservice edge routing and
mobile backhaul. Cisco posted router and switching revenue of $1.46 billion, flat
-0.05% q/q and -4.3% y-y. Cisco, which had a solid Q1, is transitioning from a
hardware-based revenue to an annuity model, which impacted Q2. Juniper Networks
has router revenue of $579.8 million, increasing 12.2% q/q and 12.5% y/y.
Juniper continues to focus on launching new products and initiating cost
reductions to drive growth. With software defined networking gaining traction
as a solution for deployment, Juniper expects to capitalize on the anticipated
increase of SDN and network
function virtualization.
TREND and
DRIVER HIGHLIGHTS
- Data center
interconnect is a vital part of the service provider edge; 6% of the
overall edge market is dedicated to data center interconnect.
- Operators are
more focused on the drivers in the edge of the network. The outlook for
routers: the edge segment, which is projected to reach $12.2 B in 2018, is
three times the size of the core router market, which will increase $3.3
billion in 2018.
- Service providers
are struggling with both internal and external challenges: rapid
technology adoption, ongoing support for legacy technologies,
heterogeneity of technologies and multivendor networks. External
challenges include loss of high-margin legacy services, over-the-top
providers, low-cost providers, regulations, increasing traffic, and
competition from their own suppliers.
For more information contact sales@acgreasearch.net.
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