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Ethernet Switch Market Drops Almost $1B in Q1

The market for Layer 2 and 3 Ethernet switches fell by nearly $1 billion in the first quarter of 2014, from the fourth quarter of 2013, to just over $5 billion, according to a report from research firm Dell’Oro Group.

At the same time, sales of 40GbE and 100GbE switches rose sequentially in the first quarter as enterprises upgrade their networks to the faster switches from 1GbE and 10GbE models, according to Dell’Oro Group’s Ethernet Switch Quarterly Report.

There are several reasons for the overall decline, says Alan Weckel, vice president of Ethernet Switch market research at Dell’Oro. First, deployment of Ethernet switches on campus networks has declined as enterprises opt for more wireless connectivity.

Second, there was a “pause” in the datacenter switching market in the quarter, due to the transition to industry leader Cisco's new 9000 series switches, which Cisco introduced in November 2013. At the same time, Cisco unveiled its version of a software-defined network platform, Application-Centric Infrastructure (ACI). It touted ACI and the 9000 switches at its Cisco Live 2014 user conference last week in San Francisco.

Because the 9000 line is still so new, potential customers were still just evaluating the products and hadn’t committed to buying anything, Weckel says, adding that some of the new switches haven’t begun shipping yet.

“It gets announced, they get beta units, and it takes three to six months, sometimes longer, to play with it in their labs with a bit of production traffic before they are willing to buy a significant quantity,” he told us in a phone interview. “So during that time, they obviously don’t buy the old stuff either.”

Cisco declined to comment on the Dell’Oro report, but did say that sales of the 9000 series are promising.

“Cisco’s Nexus 9000 and our ACI solution has been in the market for less than two quarters and is off to a very solid start with 1,000 customers in the pipeline,” the company said in a prepared statement. “To date, Nexus 9000 grew to a user base of 175 customers, up from 20 customers last quarter.”

Weckel says another factor contributing to the first-quarter loss was that anticipated seasonal decline in networking equipment sales was “stronger than usual.” The first quarter tends to be a slow quarter because there is a surge of spending in the fourth quarter of the previous year as many IT departments want to spend their budgets before the year is out or lose it, he notes. The first quarter also is typically spent planning for networking projects, but not purchasing equipment.

The 40GbE market was stronger than the overall networking market, but it’s still early in the adoption of 40GbE, so a modest increase in unit sales shows up as a large number percentage-wise, according to Weckel.

“But also, all the newer platforms have 10 gig to the server with a 40 gig spine or core, and those are very attractive on a cost and deployment basis.”

While still No. 1 in market share in the Ethernet switch space, Cisco’s share declined to 62%, down from 66% in the first quarter of 2013, according to Dell’Oro. HP stayed in second place with an 11% share, unchanged from the year before. Juniper passed Dell to rank third in market share at 4%, up from 2%, and Dell slipped to fourth with a share of 2% from 3% in the year-ago quarter.