Brocade 2015 Omega Award for HotSeat Video

Brocade Communications was the ACG Research HotSeat Winner of 2015 for the video Evolution of Mobile Network Visibility. The video features a discussion about Brocade’s significant new network visibility product announcement: carrier-grade, physical and virtual network packet brokers, virtual TAPs, an SDN based session director and a single pane of glass management application. Sanjay Munshi, senior director of product management at Brocade Communications, and Michael Bushong, vice president of product management, accepted the award on behalf of the company.

Global Router and Switching Market Will Grow to $14.2 B by 2020

Demand for high-speed Internet, big data solutions, SDN, and cloud computing are expected to positively impact demand for the routers and switches

The Worldwide Router and Switching market is projected to increase from $11.9 billion to $14.2 billion by 2020 according to ACG Research. ACG anticipates that the total router and switching market will increase 5% in 2016 as well as increase in each successive year. Core routing revenue will increase 3.9% and Edge routing revenue will grow 2.7% during the forecast period. Recent technological advancements such as big data solutions, software defined networking, and cloud computing are expected to positively impact demand for the router and switch market. Vendors continue to upgrade their networks and technologies, and with the shift in demand from hardware networking solutions to software-based solutions, the demand for core Ethernet devices is expected to rise. 

The projected five-year growth will be strongest in the APAC region, CAGR +4.0%, followed by the Americas, CAGR +3.7%, and EMEA, CAGR +2.8%. “There will be modest yet consistent growth projections for each router segment for 2016–2020 except for Multi-Services Edge Routing segment,” says Ray Mota, principal router and switching analyst. “Legacy technology and next-gen IP have converged into one box at tremendous cost benefits for providers and the need for these devices continues to decrease. With network performance and quality of the networks becoming a key differentiator and with an increase in the penetration of mobile devices such as smartphones and tablets, many service providers are upgrading their networks to support and monetize traffic growth. This escalation in mobile data traffic will have a positive impact on router sales.”

The global demand for data centers is also contributing to router growth. According to the Cisco® Global Cloud Index, data center traffic will grow nearly three-fold and by 2019 data center traffic will reach 104 zettabytes per year. Eighty-three percent of this data center traffic will be from the cloud and 80 percent of data center workloads will be processes in the cloud. Because of the increasing application of big data analytics and cloud-based services, the worldwide demand for data centers is expected to increase and this increase will fuel the adoption of Ethernet switches and routers.

“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 within a viable economic framework,” says Ray Mota. “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.”

TREND AND DRIVER HIGHLIGHTS

Growing operational needs of businesses and the advent of IoT will spur the increase in the global Ethernet switch and router market during the forecast period. The ability of Ethernet switches and routers to aid consumers and businesses in accessing advanced technologies is estimated to result in modest growth.

Mobile data traffic is projected to explode over the next six years as operators deploy faster networks and consumers add more devices to the mobile networks. This surge in demand is due to increase in smartphone usage, rise in wireless devices in networks combined with deployment of faster networks such as 3G/4G/5G and LTE. 

Wireless vendors are already drawing up architectures and scoping out the requirements of next generation wireless platforms; the monetization of current investments amid rapidly changing consumer buying behaviors is a priority of carriers. Major transitions and disruptions from SDN/NFV are also playing out before 5G standards can be decided. How networks proliferated by SDN and NFV will look in next 3 to 5 years is going to impact 5G standards and subsequent deployments.

For more information about ACG's router and switching services contact info@acgcc.com.

Ray Mota

rmota@acgcc.com
www.acgcc.com

Another Positive Quarter for the Global Router & Switching Market

Demand for data center interconnect products is driving growth in the routing and switching market

The 4Q15 total Worldwide Carrier Routing and Switching market increased 6.9% percent quarter over quarter and 3.9% year over year. The core routing segment posted revenue of $605.7 million, increasing 3.1% q-q and 7.5% y-y. The edge/switching segment posted revenue of $2.5 billion, increasing 7.9% q-q and 3.1% y-y.

In 2015 we saw

• Significant increase in deployments of 100 GE ports, driven by the growth in IP traffic as well as the availability of higher capacity line cards.

• Core router upgrades and replacements prompted by the move to 100GE helped the market to grow in 4Q15. The core router space saw diversification and expansion from traditional IP/MPLS and Internet peering to metro and DCI. Some vendors, specifically Juniper and ALU/Nokia, experienced growth in most regions because of this diversification.

• The increase in demand for high-speed Internet, expansion of cloud networking combined with adoption of virtualized technology has companies thinking of upgrading their technology.

• And with the shift in demand from hardware networking solutions to software-based solutions, the demand for core Ethernet devices increased.

In rank order, Cisco Systems, Alcatel-Lucent, Juniper Networks, and Huawei Technologies were the market share leaders in the Service Provider Router & Carrier Ethernet Switch markets, accounting for almost 90 percent of revenue in 2015.

The Worldwide Carrier Routing and Switch market has been affected by increases in fixed broadband traffic and mobile broadband traffic on 3G and LTE networks, which are driving infrastructure growth. Next-generation devices as well as pressure on service providers to provide content-rich applications is nudging many service providers to upgrade their access, aggregation, core networks, and mobile backhaul. In 2016, we expect the developments in technologies such as DOCSIS3.1, LTE, 5G and G.fast, which in turn will drive IP traffic growth and prompt service providers to invest more in routers to keep their competitive advantage.

TREND HIGHLIGHTS

Equipment vendors saw double- and in some cases triple-digit growth in 100G ports. In 2015 we saw a significant increase in adoption of 100 Gigabit Ethernet (100GbE), which was driven by the continuous increase in IP traffic as well as the availability of higher capacity line cards. We expect this momentum to continue into 2016 as newer core router platforms go from test to deployment stages, and next generation 100 Gbps Ethernet optical interfaces become available.

In 2015, NFV saw traction with proof of concepts becoming deployments. 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. AT&T has targeted virtualizing 75 percent of its business by 2021. Virtual CPEs, software-defined data centers, and VPN platforms are strong candidates for SDN/NFV transition. AT&T has identified wireless packet core as its first major function to virtualize. Dell Inc., which purchased EMC for a $67 billion, has entered the virtualization market to offer public/private software-defined datac enter cloud. Additionally, carriers realize cost savings as they do not have to buy, in some cases, additional hardware or vendor-specific hardware.

Data center interconnect has become a vital part of the service provider edge; currently, ACG sees six to eight percent of edge routers being dedicated to DCI. Traditionally, the router was used at the gateway function in the data center, but a large number are now for the data center for connectivity. The global demand for data centers has increased and data center equipment is seeing double-digit growth every quarter. Global data center traffic is expected to grow nearly three-fold, and by 2019 data center traffic will reach 104 zettabytes per year.

For more information about ACG’s router and switching services contact info@acgcc.com.

Meghna Zutshi
mzutshi@acgcc.com
www.acgcc.com

ACG HotSeat with Kelly Ahuja, Cisco, on CloudScale Networking

Kelly Ahuja, SVP, Service Provider Business, Products, and Solutions, Cisco, and Ray Mota, CEO of ACG Research, discuss Cisco’s recent announcement of software solutions for CloudScale networking. Cisco worked with web-scale and service providers to identify their network priorities; across the board, these providers want deployment capabilities that can scale rapidly, are easy to execute,and automated and optimize the network so that they can deliver services on demand. Listen as to how Cisco with its software-centric approach and leading-edge network platforms meets SPs current and future requirements to address not only cloud-scale networking but deliver exceptional operational efficiency. 

Contact sales@acgcc.com for more information about ACG's video services.

Ray Mota

rmota@acgcc.com
www.acgcc.com

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

Ixia’s Application Performance & Security Resiliency Value Proposition: An ACG HotSeat

Ray Mota, CEO of ACG Research and Bethany Mayer, CEO of Ixia, discuss the company’s new business strategy and how it is focused on two key value propositions: application performance and security resiliency. Ixia’s value proposition is targeted to three key segments: network equipment manufacturers, carriers and service providers, both telcos and cloud providers, and enterprises. 

Listen to Bethany discuss Ixia’s value proposition and how it is applied during predeployment or in the operational network across the entire infrastructure and in the devices in the infrastructure so that customers achieve the security that they want and expect in their applications and across their infrastructure.

Click for more information about ACG Research’s HotSeat Videos.

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

Ray Mota

rmota@acgcc.com
www.acgcc.com

Nokia-ALU: Long-Term Market Share Impact Will Definitely Shake Up the Market

Before we discuss Nokia-ALU and the impact this new company will have on the market, let me first clarify in case there is any doubt: this is an acquisition, not a merger. As for Alcatel Lucent, well, there are $5 billion reasons (Nokia’s cash) as to why this acquisition makes sense for the company. ALU has been cash strapped for years and had initiated its Shift Plan to reduce its costs and improve its margins.

What does this buyout mean for ALU? The company’s IPD (routing/IP technology group) will see a major impact and benefit albeit slowly. Recently, Juniper Networks stated that the company does $190 million in router revenue through Nokia, which will now transition to ALU.

Nokia fully intends to transition ALU into its company, having learned a lesson that Ericsson failed to learn with its Redback acquisition. Rather than assimilate the acquisition, Ericsson stayed too agnostic. Their failure has resulted in Ericsson selling more Cisco/Juniper routers than their own.

Nokia has learned from this failure and intends to transition 100 percent of the $190 million to ALU’s IPD group. Nokia will no longer promote Juniper and will offer refresh rates, but the goal is to move this revenue to ALU, which will result in a significant market share shift.

Another positive: Although Nokia has trended down many of its groups, the company has focused on mobility. There will be slight overlaps with ALU but together they will bring in more segments of mobility that they were not in before.

An impact? Definitely, but not immediately. When two companies of this size merge there are long-term adjustments. The market will not see anything in the short-term but by 2020 this acquisition will have a definite affect on the market and will cause major shifts in shares.

A word of caution, when Ericsson bought Redback neither company retained its IP talent. The result was a lack of visionaries in the IP segment. When ALU bought TiMetra, having learned from the Ericsson debacle, ALU kept its staff and successfully assimilated the new staff into its group. Whether this happens with Nokia, who knows? Merging the existing Nokia group with ALU’s IPD group, which has a 2.4 billion run rate, could end up being a big challenge because you now have a Swiss company and a French company, and it is anyone’s guess how personnel will shake out. Insiders, however, state that only 12 percent of ALU’s workforce is in France, and a there is a similar number out of Finland, which indicates that they will have less exposure and affect to hiring practices and HR related issues.

Again, time will tell.

For more information about ACG’s routing and switching services contact information@acgcc.com.

For more information about Ray Mota, click here.

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

Juniper Networks: Leveraging the Benefits of Virtualization and Automation

Mike Marcellin, senior vice president of strategy and marketing at Juniper Networks, and Ray Mota, CEO of ACG Research, discuss Juniper’s significant new NFV announcements: a carrier-grade virtualized version of its MX Series Edge Router, the vMX, as well as new Contrail Cloud and Junos DevOps capabilities that enable customers to leverage the benefits of virtualization and automation. Service providers' technology, operations, and business model transformations are also key discussion points, as well as customer use cases for Juniper’s new NFV solutions. 

Click here to listen.

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

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Cisco NCS 6000: Building Converged and Application Intelligent Networks

To address its increasing traffic growth on its fixed and wireless networks, Telstra recently announced it will utilize the Cisco NCS 6000 platform in its network. Driving this need—which is not limited to Telstra—is the growing demand for cloud services, video and media services. Service providers are looking for cost-efficient solutions that address this growth as well as solutions that scale for the Internet of Everything and M2M networks.

Why the Cisco NCS 6000? Although other products enable intelligence on the network, Cisco differentiates by offering a solution that gives providers a programmable and intelligent network. The NCS 6000 has 1 TB/s per slot line cards with 10 port 100GE line, offering high density that can decrease the per unit cost for data transported, which results in a smaller/lower carbon footprint. This unit decrease further supports Telstra’s “green goal” of reducing its carbon footprint. 

When looking to build a converged network, it makes sense that Telstra would turn to Cisco, its trusted partner. The company has been using Cisco’s products in the core and is also a strategic partner for new cloud services. The NCS 6000 will provide Telstra with a platform to build an intelligent network that dynamically enables new products and services within the network.  

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

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

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

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                                                                                                                

Worldwide Carrier Routing & Switching Market Decreases

The Worldwide Carrier Routing & Switching market decreased both quarter over quarter and year over year, 10.6% and 6.6% respectively, posting revenues of $2.6 billion in Q1. 

Although the US economy has improved slightly and there is an increase in global carriers’ CapEx, ACG Research anticipates that the service provider switching and router market will increase slightly in 2013. There are, however, some positive signs in the market; in EMEA, the Middle East and in some parts of Africa the growth is solid and expected to continue throughout 2013. 

Countries in Europe are still contending with floundering and unstable economies; organizations and governments have maintained persistence in their demands for changes in exchange for bailouts. For all vendors Europe and the public/government sectors continue to be challenging markets. Service providers in Europe have indicated that they need to spend on their networks or risk falling behind to competitors and ultimately becoming obsolete. Whether they will remains to be seen.

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

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

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