Ethernet switch vendors stumble out of the starting block

- Canalys reports worldwide enterprise Ethernet layer 2/3/4 switch market results for Q1 2011

Palo Alto, Singapore and Reading (UK) – Wednesday, 1 June 2011


Canalys today stated that Q1 2011 was a difficult quarter for Ethernet switch vendors, with revenue down 8.8% year-on-year due to aggressive port pricing competition and weakening public sector demand in North America and Europe. Despite a 2.5% annual increase in ports, total end-user revenue decreased 12.3% over the last quarter to reach $4.6 billion. 
 
‘If current trends continue, vendors and channel partners will have to sell more volume than expected to reach revenue targets,’ said Canalys Director of Enterprise Services Matthew Ball. ‘This competition could trigger a wave of merger and acquisition activity among smaller switch vendors as they try to gain economies of scale.’

On a regional basis, North America declined the most at 13.3%, hit by declining federal government spending. The situation is unlikely to improve with recently announced austerity measures in the United States. Europe, the Middle East and Africa (EMEA) decreased 6.7% year-on-year, with Western European markets hit by public sector cuts and ongoing national debt issues, and the Middle East and North Africa affected by the Arab Spring. Asia Pacific and Latin America also declined, but by smaller amounts: 3.7% and 1.4% respectively. The Japanese earthquake’s after-effects are expected to register in the second quarter.

The continuing growth in 10G port shipments marked the first quarter’s lone bright spot, with a 69.9% year-on-year increase. Though 1G ports grew 12.4%, 100M ports were down 5.7% in the first quarter.

‘We expect the battle for data center networks to intensify, as leading vendors aim their fabric strategies at creating simplified architectures,’ said Ball. ‘The battle for campus and branch office environments, however, should not be ignored.’

A key factor for price pressure stemmed from aggressive competition between market leader Cisco and challengers HP Networking and Juniper Networks. Cisco’s share fell to 68.2% from 69.2% last quarter and 73.1% a year ago. At 14.1%, HP Networking, which acquired 3Com in 2010, gained market share, thanks to its strong performances in EMEA and Asia Pacific. Meanwhile, Juniper Networks continued its EX series momentum.

‘Cisco is facing intense pressure on both its core switch and overall enterprise networking businesses,’ said Ball. ‘It is up against aggressive competition from Juniper Networks in routing, Riverbed Technologies in WAN optimization, F5 Networks in application delivery controllers, and Brocade in storage networking.’

 

Worldwide enterprise switch market Layers 2/3/4 only

 

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