2012 Service Provider Routing and Switching Market Ends in Softness for Core and Flatness for Edge

From 2011 to 2012 Juniper Networks, which was hit the hardest of the top vendors, declined -14.3% in the global carrier routing and switching markets. Cisco increased 2.5% and Alcatel-Lucent increased 6.1%. 

The Worldwide Carrier Routing & Switching markets increased revenue 3.3% in Q4 but decreased 2.3% for the entire year. Additionally, overall profit margins, ASPs, were down -7.9% for 2012 due to softness in core routing. ACG Research anticipates global economic uncertainty, a challenging market and aggressive competition will continue to put pressure on vendors’ pricing and margins in 2013. “Service providers have been deferring spending in the core and, instead, investing in the edge,” states Ray Mota, managing partner. “Despite weaknesses and challenges in global economies, the long-term demand for high-performance and innovative networks continues to be strong. Mobility, Big Data, and software-defined networking will instigate a significant shift in networking and will be top-of-mind issues in 2013.”

Q4 Total Worldwide Carrier Routing & Switching market posted revenue of $2.8B. Core Routing revenues were down 15.8% q/q and 18.5% y/y. Edge Routing and Switching revenues were up 8.5% q/q and 3.9% y/y. 

Cisco posted a total worldwide decline of 3.8% q/q and a decrease of 4.2% y/y. In spite of the decreases Cisco continues to address shifting market priorities by refocusing on the core and edge networking market segments. Alcatel-Lucent, which posted a strong quarter, increased 17.2% q/q and up 8.6% y/y. ALU is benefiting from significant activity by MSOs as they focus on subscriber retention and expansion. Juniper remained flat at 0.2%, q/q and 1.0% y/y. In spite of this flatness, Juniper is seeing good traction with bookings of the MX, and the company reports that it has finally started shipping.

Although worldwide economic issues are plaguing regions, demand for mobile broadband and related services continues to increase and put pressure on providers’ networks. According to Cisco’s Visual Networking Index, global mobile data traffic increased 70 percent in 2012. Other services, such as cloud, virtualization, Big Data, machine to machine and software-defined networking, are also putting pressure on data centers and networks and redefining the way applications run on the network, exposing the underlying limitations of the networks. These demands are fueling operational complexities and costs that continue to be a challenge for service providers. 

QUARTERLY TREND AND DRIVER HIGHLIGHTS

• Software-defined networking is the most recent buzzword to hit the telecom industry. SDN provides distinct control plane that allows fundamental changes to be programmed across the network as “network applications.” Enterprise networks will continue to lead the SDN adoption even though the really big potential impact will be “the great carrier revival,” which will take place when carriers have the WAN infrastructure in place to support new services and to create a new telecom revolution. 

• Next-gen networks will be much more open, not closed, and include software and hardware components from multiple vendors working together. This development represents significant new business opportunities for those vendors that introduce products that interoperate and can generate new revenue opportunities.

• The service provider edge continues to be competitive because of diverse range of applications and solutions, requirement variations in the regions, and cross-technology solutions. Core has been in a soft cycle but we anticipate growth in 2013 as the delays in upgrades are addressed.

For more information about ACG Research's Q4 Router and Switching report contact sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

ACG Expands Cloud Services

Paul Parker-Johnson,  formerly of Juniper Networks, joins ACG Research's cloud computing division.  

ACG Research today is announcing the expansion of its research and consulting services in cloud computing and virtual service infrastructures with the development of new syndicated research and custom project capabilities. Concurrently, we are also announcing the addition of veteran industry innovator and cloud computing expert Paul Parker-Johnson who will lead the development and delivery of these expanded services.

"We have had steadily increasing engagements with our clients on the importance of cloud and virtualized service delivery infrastructures in their plans and have had many requests to grow our offerings in these strategically important areas" said Ray Mota, managing partner. "We are excited to be expanding our efforts in these areas and thrilled that Paul Parker-Johnson is bringing his great experience and deep expertise to our group to lead that work.  I have known PJ as an innovative and results-oriented client for many years and believe the depth of his implementation experience and the strength of his vision will be invaluable to our clients in these new services."

Parker-Johnson adds that "I have worked with Ray and the ACG team on a number of challenging projects over the past several years and have always respected the group’s depth and breadth of coverage in strategic networking disciplines. I am certain that our new services will bring powerful insights and strong value to our clients’ activities in cloud computing and virtual infrastructure initiatives. I am happy to be joining Ray and the rest of the talented ACG team."

His service will initially focus on Orchestration and Virtual Infrastructure platforms in cloud computing. ACG will offer both syndicated research and custom project formats. Work will expand to additional aspects of cloud and virtual infrastructure as offerings evolve.

For more information on these new activities and other ACG services visit www.acgresearch.net or contact ACG via email at sales@acgresearch.net. 

Paul Parker-Johnson

pparkerjohnson@acgresearch.net 

www.acgresearch.net

Next-Generation Inter-Data Center Cloud Infrastructure

Cloud services and increased machine-to-machine (M2M) connectivity have contributed to the explosion of inter-data center traffic. 

Cloud computing has redefined the way applications run on the network, exposing the underlying limitations of the networks. To keep up, content providers have changed the paradigm and built their own large capacity networks. However, operational complexities and cost continue to be a challenge as bandwidth and applications grow at a rapid pace on the network.

The market, therefore, needs a new solution specifically designed to address this growing problem. Next-generation cloud infrastructure platforms must meet massive capacity and scaling requirements. Content and service providers need converged solutions that include optical and LSR functionality (see http://www.acgresearch.net/knowledge-insights/reports-whitepapers/next-generation-lsr.aspx), especially in the metro regional networks in order to lower the cost per bit of transport and routing. Adding application awareness to a converged solution will also enable content and service providers to meet the performance and scale demands while increasing control and enabling service innovation, all with significantly improved economic efficiencies. 

Click here to download the Market Impact. 

For more information about ACG Research's Packet Optical Transport click here or contact  sales@acgresearch.net.

 

Eve Griliches

egriliches@acgresearch.net 
www.acgresearch 

Cisco’s Intucell Acquisition

Cisco just announced that it has acquired Intucell, maker of self-organizing network (SON) software for mobile networks. 

Intucell, a company based in Israel, makes software that lets mobile towers communicate with each other and respond to cell use overload issues by automatically adjusting the network resources to cover imbalances in real time. Cisco's purchase of Intucell is significant in that it focuses on mobility and leadership in the core.

Intucell has been targeting and building out the new and emerging market that addresses the self-optimizing network, where the technology is enabled to bring automation to the space of mobile network optimization, the RAN part of the network, as well as move the network toward the integration between the RAN and the core.This solution will enable Cisco to supply carriers with a software solution to address overloaded cell networks instead of just selling them increasingly commoditized hardware.

Click here to download the Market Impact.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Peaking Companies: Apple Has Ripened

Disclosure: I am an Apple user; I have a MacBook Pro, iPad2 and iPhone 4S.  I am quite happy with these products, but I am not a raving fan. Why? There are lots of little disappointments and annoying features that seem easy to fix. Now my attitude is positive/neutral, but I would consider other brands when I purchase my next new device.  

Disclaimer: This should not be considered advice for buying or selling any equities. Personally, my stock picking record is not good, so I have given it up and do not hold any individual equities in any companies about which I write. 

We have seen it before: big corporations get so big and consequently, they have difficulty with technology inflections, the need to increase their addressable markets, and adding more markets to continue their glory and meet the expectations of Wall Street.

Historically, I have observed that companies are slow to admit there is a problem and turnaround/comeback plans are audacious and high risk and usually unsuccessful. IBM peaked back in the 1970s before minicomputers ate their lunch. DEC rode the minicomputer wave, peaked in 1987 and was a shell of its former self in just five years. Dell and HP have similar stories. We have too many examples of companies soaring and becoming high fliers and then dropping and in some cases crashing rapidly. History is repeating itself; Apple is now in this category.

Apple has had an amazing run of growth, great products and huge profits. It seemed it could do no wrong, but that was then.  Now, it seems the company can do little right. iPad mini was not very impressive; AppleMaps was a disaster; the iPhone 5 was somewhat disappointing. Not only did the iPhone 5 force everyone to a different charger, but it also broke Bluetooth connections with many devices. The result is that are doing major damage to the brand, resulting in a reduction in demand for iOS devices.

Many Apple fans are abandoning their apple product and are considering other brands — unconceivable just a few years ago. This is natural as the essence of brand is human reaction/feelings, and our emotions are influenced by little things. If enough little things accumulate it triggers a cognitive switch, and we generalize those little negative feelings toward everything about that brand. (Banks, cable and telephone companies have this problem.)

Apple has reached its long-term peak (two to five-year frame), and it will not regain its glory. Since the company no longer has a one-of-a-kind product visionary, Apple needs to either replace the visionary or transition to a different business model. Because it was able to produce great new products or create all new categories every four to eight years, it could beat competitors to market, command higher prices and higher margins. In an incremental product enhancement model, profits are challenged with lower margins, and competitors Samsung and Google are formidable if you do not keep changing the rules of the game or the categories.

IMO, Apple’s major problem is that it lacks a product visionary. Steve Jobs was a genius, and it is hard to replace that. There are other models to foster insanely great innovations absent a superstar, but I do not see this yet in Apple. Tim Cook appears to be a reasonably good manager, and Jonathan Ives is a great designer, but neither are product visionaries. It is not easy, and maybe they need to change the culture, policies and attitudes towards innovation. They have already started to follow Google’s lead with the Blue Sky initiative (employees are allowed time to pursue projects); however, it won’t work without real buy-in and respect from top management. Until we see that, do not expect Apple to return to its former self any time soon. 

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

David Dines
ddines@acgresearch.net
www.acgresearch.net

Business Cases for Brocade: Software-Defined Networking Use Cases

Brocade has developed three SDN use cases built around an SDN controller and Brocade’s MLXe series routers that are compliant with the recommendations of the Open Networking Foundation.

ACG Research analyzed the TCO, network capital expense (CapEx), network operation expense (OpEx), and labor cost to process service orders of the three use cases. It found that SDN dramatically increases the speed of bringing order processing systems online and the speed of processing individual service orders. The time to set up the order processing system is reduced from one year under the PMO to four months using SDN. The time to process a single order is reduced by a factor of seven. Though direct costs of building and operating the network are reduced by using SDN the majority of the business benefit of SDN is derived from speeding up and reducing the cost of the service order process.

Click here to download the whitepaper.

For more information about ACG Research's business case analysis service and SDN services, click here.

For more information about Michael Kennedy, click here.

Michael Kennedy
mkennedy@acgresearch.net
www.acgresearch

Did you know …

In a recent interview I was asked about ACG Research and to explain our mission and what the company does.  In the course of the Q&A, I discussed the following aspects of our company:

1. Stands for Advanced Consulting Group   
2. Was launched in October 2009
3. Landed its first deal with AT&T
4. Focuses in the Service Provider space
5. Offers quantitative and qualitative market research, business case analysis and consulting services
6. Employs analysts that are subject matter experts in their coverage space
7. ACG's HotSeat videos are the most viewed in the industry
8. ACG makes is easy for you to do business with our team
9. ACG's Capacity Index service (measures how hot SPs’ networks are) and Financial Index service (measures the risk level of vendors) are the first services of their kind in the industry
10. ACG focuses on the Why before the What

For more about ACG Research go to our website (http://www.acgresearch.net/) or read our analysts’ insights on our blog (http://acgresearch.blogspot.com/). Check out our free Market Impacts, articles and whitepapers at http://www.acgresearch.net/. Or to speak to an analyst and find out more about the segment s/he covers and services related to the segment, contact sales@acgresearch.net. 

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

CES 2013: One Big Step for Mobility

CES 2013, which has truly established itself as a major mobile venue for North America, wrapped up with record attendance last week, with major innovations and announcements by vendors of all sizes and industry segments. The show has transformed itself from a pure television and consumer electronics forum, to a cross-industry event representing market segments ranging from Ultra HD TVs to a Rolls Royce electric car. Interestingly, it was only eight years ago at this show during Bill Gates’ Windows Media Center demo, which resulted in the historic blue screen of death. 

Bits and bytes

Also present at CES was FCC Chairman Julius Genachowski. Despite some heckling, he announced additional 195MHz of spectrum will be allocated in the 5GHz bad for WiFi 802.11ac, also known as Gigabit WiFi. This is the first time in more than 20 years the FCC has allocated such an amount of public use spectrum without a multibillion dollar auction process. How times have changed ….

Although Mobile World Congress continues to be the leading global mobile industry venue, CES has received noticeable attention from mobile infrastructure, devices, platform, and ecosystem vendors this year. All major device and platform vendors made key announcements, ranging from Huawei’s 6.1 inch Android smartphone to Panasonic’s 20 inch tablet. 

Mobile got star attention at CES 2013. Gone are the days of titans promoting Blu-ray disc format to mainstream vendors.  Instead there were displays of the latest processors and handheld devices running Android. Chinese vendors spent significant resources to showcase new innovations, with Huawei receiving very positive media attention (rare in the North America trade press). 

With the absence of US tech giants (Apple, Google, Microsoft, etc.), Samsung stole the show with its bold announcements and innovations. Traditionally known for its conservative methods, Samsung surprised the industry and openly discussed developing projects such as its San Jose, CA, Display Lab innovations (featuring flexible screens) and spoke about its partnership with ARM, showcasing first- generation Octa-core processors. 

CES 2013 captured the mobile industry’s attention and this is significant, especially where tweets, specialist bloggers, and trade media rarely have spent keystrokes to recognize the venue. Oddly, this year trade media financed their editorial staff to cover the news and events. Even mainstream pundits who had publicly denounced and written off the CES event this year, later embarrassingly admitted they were wrong. CES is now a mainstream mobile venue for North America.

For more information about ACG’s mobility services, contact sales@cgresearch.net.

How to Arm Your Teams for a Competitive Advantage

When providers look for better performance and value from their networks they cite high availability, security, quality of service, multicast capability and comprehensive management products and services, and most vendors’ staff is very adept at positioning and pitching their products and services to address these attributes. But in these economic times with the plethora of products and services hitting the market and companies demanding more value add from vendors as well as information to assess risk, companies have to be armed with concrete and independent data about the sustainability of not only their company but also about other vendors. Companies need financial information that they use to help their clients or potential customers review risks when selecting a vendor to meet their business needs and ascertain the level of risk related to the stability of the vendor despite the vendor’s technology innovations. 

There are many financial indicators that can help your company better position your products/services, and ACG Research has compiled 15 ratios and Z scores into its new Telecom Vendor Financial Indicator service. The 12 vendors tracked have performance scores that fall into four categories: sustainability, technology, operations and marketing. The index examines standard financial ratios, validated by Wall Street, related to profitability and liquidity. We then rate the sustainability of vendors.  

Why is understanding the sustainability of vendors important to both providers and vendors? These scores as well as the back-up data allow enterprises and service providers to understand the risk level they are taking when selecting a vendor. At the other end, vendors can use the tool to better position and make a solid case for selecting them over the competitor. For both sides, there is concrete information on which to make decisions, not just the sales pitch. It can differentiate your team and company as exceptional, not just standard, another advantage in this current climate. 

For more information about ACG Research’s Telecom Vendor Financial Indicator service or to have our analyst meet with your team to discuss market trends in the industry that this service supports contact sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Join ACG Research at the SDN Precon at ITEXPO Miami

Software-defined networking is considered by many to be one of the most important and potentially disruptive developments in networking since the rise of the Internet. To date, networks and connectivity have come first, and applications have followed. SDN turns this model on its head, approaching networking from an apps-first standpoint. In this SDN preconference at ITEXPO Miami, we (including ACG Research’s Eve Griliches, optical analyst) will:

• Define SDN
• Look at the technologies and components involved in SDN
• Review the use cases of SDN
• Identify the players involved in moving SDN forward
• Discuss what this all means for networking as we know it

For more information about this event, visit: http://www.sdnzone.com/conference/

For more information about Eve Griliches, click here.

For more information about ACG Research's Packet Optical Transport click here or contact sales@acgresearch.net.

Eve Griliches

egriliches@acgresearch.net 
www.acgresearch