Carriers Ramp Up Router And Switch SpendingInfonetics report shows that service providers invested in new equipment in the second quarter after holding off on spending earlier in the year. Huawei makes strong gains.
A newly released report indicates that the market for service provider routers and switches roared back to health during the second quarter of this year.
Global revenue for routers and switchers sold to telecommunications service providers during the quarter that ended June 30 reached $4 billion, up 27% over the previous quarter, according to Infonetics Research’s quarterly Service Provider Routers and Switches report, released in late August. The report is based on guidance from vendors about their sales to service providers.
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The dramatic upward swing is evidence that service providers are loosening their purse strings after holding off on technology investments for the first few months of the year, the report’s author, Michael Howard, co-founder and principal analyst at Infonetics, said in a statement summarizing the report.
"The second quarter is usually up for carrier routers and switches, but this one is exceptional given the sluggishness of the past few years,” said Howard. “Every major geographical region except Japan notched double-digit sequential growth and, more important, gained from the year-ago quarter.”
In a phone interview, Howard said the explosive growth posted during the quarter was unexpected, noting that the second quarter service provider router and switch revenue blew past Infonetics’ earlier prediction of $3.6 billion by 12%.
Not surprisingly, service providers’ renewed spending has solidified the market positions of the larger vendors that service them, with Alcatel-Lucent, Cisco, Huawei and Juniper accounting for about 90% of total router revenue during the most recent quarter, according to Infonetics. Of those, Huawei has taken the most advantage of the recovering market, capturing an additional 4% percent of the carrier router and switch market and pulling into the No. 2 spot behind market leader Cisco.
Howard said increased spending among service providers in Europe and the Middle East pleasantly surprised him given how depressed the market was a year ago.
“It’s probably an indicator that telecom is going to be solid this year in EMEA,” he told Network Computing.
[Global telecom carriers are intrigued by software-defined networks and taking initial steps to deploy SDNs, according to Infonetics. Read about the firm's survey in "Software-Defined Networks Gaining Traction Among Carriers."]
Telecom already is beyond solid in Asia Pacific, where the growth of companies like Huawei and ZTE helped make the Asia Pacific region the fastest growing market for carrier routers and switches, with revenue jumping 45% from the previous quarter.
“It was one of the biggest quarters ever in Asia,” Howard said. One driver of the robust quarter globally was a 30% rise in revenue generated by IP edge products such as edge routers and carrier Ethernet switches, an uptick that’s at least partly related to service providers migrating to 100 Gigabit Ethernet routers and optical transport.
The improving health of the service provider router and switch market jibes with earlier research from Infonetics predicting rising fortunes throughout the industry. The firm expects that over the next five years, service providers and enterprises will spend $1 trillion on telecom and data communications technologies. Ethernet and IP MPLS VPN service providers will rake in $374 billion, and the carrier Ethernet market will top $39 billion, according to Infonetics. The research firm also has said that shipments of 10-Gbit, 40-Gbit and 100-Gbit network ports--which shot up 62% in 2012--will double by 2017.
Although the recent report points to improving economic conditions, Howard said service providers have no choice but to invest in keeping their networks up-to-date. With rampant smartphone use fueling fast-growing transmission of video, and increased competition from smaller broadband providers, service providers can’t afford to wait to beef up their capabilities.
“They have to keep spending on their networks to stay competitive,” Howard said.
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