Last week, market research firm Infonetics Research (Campbell, Calif., U.S.A.) released excerpts from its second quarter 2011 Ethernet Switches and Enterprise Routers market share reports. The report indicates that vendors are experiencing flat revenues as a result of the increased competition in the market, with Cisco (San Jose, Calif., U.S.A.) and HP (Palo, Alto, Calif., U.S.A.) in the forefront of the competition.
"Ethernet switch buyers are in the driver's seat right now, as vendors are fiercely competing for their business,” says Matthias Machowinski, directing analyst for enterprise networks and video at Infonetics Research. “While the battle is mostly playing out between Cisco and HP, other vendors are caught in the crossfire, with declining ASPs being one side effect. In the switch market, we expect this to result in stagnating revenue despite robust demand in 2011."
Specifically, vendors Cisco and HP had steady revenue market shares from 1Q11 to 2Q11, but Cisco's share is down more than 3 points from a year ago, while HP is up by over 2 points. According to the report, Juniper, Enterasys, and Extreme outpaced the overall Ethernet switch market with double-digit revenue growth and small gains in revenue share in the second quarter of 2011.
“Essentially you have a couple of dynamics. You have declining prices, which is a given in the networking industry that prices decline over time. Generally that tends to be offset somewhat as companies move to more expensive, faster, next-generation technology,” says Machowinski. “So it tends to be offsetting, but what’s going on right now is basically the increasing competition in the market is causing prices to decline faster than what we’ve observed in the past and so that’s essentially keeping revenue flat even though overall demand is growing. Obviously that’s good for customers but not quite so good for the vendors involved.”
According to the report, Ethernet switch sales rebounded in 2Q11 from 1Q11, up 6% to $4.4 billion worldwide, but continue their year-over-year slide (down 3% from 2Q10). Ethernet switch port shipments are up sequentially, by 8%, as well as year-over-year, by 11% in 2Q11, reflecting ASP declines due to heavy competition, according to the report.
“I think [the market] is going to keep going like this for some time, probably the next year or two. But, you can’t be engaging in these price battles forever because then everybody loses, not just the vendors, but also the customers if there are no stable vendors left,“ says Machowinski “I think we will see some equalizing in pricing between the various vendors. Cisco hasn’t been as challenged as they have been in the past and that’s allowed them to command a price premium. HP is willing to forgo some of the margins for increased market share so I think that’s what’s going to play out over the short-term, but long-term we will see a convergence. “
In the enterprise router marker, sales grew 6% sequentially in 2Q11, to $843 million worldwide; while unit shipments grew 11%. Vendors with sequential increases in global enterprise router revenue in 2Q11 include: Cisco, up 3%; HP, up 26%; Juniper, up 14%; and OneAccess, up 40%.