Switch Shipment Stutter. Routers Keep Ticking

Seasonal buying patterns slammed switching acquisitions and 10G port shipments, but did nothing to cool router shipments or Gig E ports. Those are the highlights from Infonetics Research's Enterprise Router and L2-L7 LAN Switches reports released earlier today.

"The enterprise network infrastructure markets took a breather in the first quarter, but that's due to seasonal buying patterns, not a slowdown," said Matthias Machowinski, directing analyst at Infonetics Research. "Often companies have end of fiscal year that will cause companies to clear budgets which may inflate the 4th quarter and then pickup then 2nd and 3rd quarter."

"Year-over-year, sales are markedly higher as organizations continue to upgrade their aging infrastructure. Overall, we expect to see healthy growth over the next few years for enterprise networking gear. The massive Ethernet switch market will post big gains in port shipments in 2006, but because of slashed 1G and 10G port prices, revenue will remain flat until pricing stabilizes sometime in 2007, after which we'll see a return to revenue growth."

Enterprise router manufacturers saw revenue roar back last quarter, reaching $1 billion worldwide in the first quarter and expected to grow to $4.8 billion in 2009. Cisco continues to own the high-end of that market reaching 77 percent of revenue, followed by Juniper, Huawai and Nortel.

Most of the sales though come from low-end and midrange routing largely driven by the hundreds or thousands of business that still need to connect sites together, make upgrades as they move to IP telephony, or upgrade branch routers with security, says Machowinski.Cisco owns 76 percent of the mid-range market with the bulk of sales coming the Integrated Service Router (ISR), which constituted $458 million worldwide. Within North America, Adtran came in number two, reaching four percent of revenue and eight percent of shipments. The company grew much faster than the market jumping from $4 million to $7 million in revenue within the US. Adtran does not sell overseas.

Meanwhile, revenue from the worldwide L2-L3 Ethernet switching market stumbled back by 12 percent while port shipments stumbled by three percent. This after a banner year in 2005 when the market exceeded the $15 billion mark, growing three percent in the fourth quarter alone. Cisco led the market with 27 percent of the ports shipped followed by Netgear (15 percent) and DLink (12 percent). Cisco also led in revenue with about 66 percent of the market. Procurve was second followed by Nortel both reaching low-single digits in revenue.

Application switching also dropped by eight percent after rising by 19 percent to $198 million in the further quarter of 2005. The revenue and unit shipments are forecasted to grow at an average annual pace of five percent through 2009 with unit shipments totaling 57,500 in 2009.

F5 and Cisco continue to lead in this space with F5 passing Cisco in the last quarter in revenue and ports. F5 now owns 31 percent of the market in worldwide revenue. Cisco is at 28 percent. The swap in market share was as result of a down quarter for Cisco, who saw application switch revenue drop by 16 percent. Nortel and Foundry followed up with double digits market share.

"It will be interesting to see if F5 continues in the number one spot," says Machowinski. "F5 has been steadily rising with constant growth for at least a year if not more."

Meanwhile Gigabit Ethernet continue to gain on 10/100 Mbit/s , but not nearly as fast as many might expect. Gigabit ports (a combination of any type of Gigabit port including Gbic port and 10/100/1000 Mbit/s Ethernet ports) constituted 21 percent of shipped ports and 60 percent of revenue. Gigabit port shipments are up from 18 percent a year ago, growing the total port market from 11 million ports in q1 of 2005 to 16 million ports in q1 of 2006.As for the very high-end, 10 Gbit/s Ethernet port shipments fell 13 percent from the fourth quarter in 2005 a victim of seasonal buying pattern and market immaturity. The technology still constitutes less than 1 percent of port shipments with the vast majority of the remaining 79 percent going to 10/100 Mbit/s Ethernet ports.

"Do you really need to have "Gig E" to the desktop?" says Machowinski, "Not many small organizations need it. Medium and large organization require Gig E, but that's because of future proofing. They want their switching investment to last on average six years."

Other highlights from the report include: Switch Highlights

1. Worldwide manufacturer revenue for layer 2-7 switches dropped 12% in 1Q06, but is forecast to grow 20% between 2005 and 2009, when it will top $19 billion

2. Over 73 million layer 2-3 Ethernet switch ports were shipped worldwide in 1Q06, 3% less than 4Q05, but 23% more than 1Q05

3. Fixed switches have grown steadily over the past 2 years, accounting for 54% of total layer 2-3 Ethernet switch revenue in 1Q06; chassis switches account for the balanceRouter Highlights

1. Worldwide enterprise router units will pass the 3 million mark in 2009

2. 48% of 1Q06 enterprise router revenue was from high-end routers, 45% from mid-range, and 7% from low-end

3. 40% of 1Q06 enterprise router revenue was from North America, 36% from Europe, Middle East, and Africa (EMEA), 17% from Asia Pacific, and 7% from Central America and Latin America (CALA)