And that's exactly what's happening now in the carrier Ethernet switch/router (CESR) space.
Yes, carrier Ethernet continues to be worth watching because carriers are rapidly embracing it as the technology of choice for network access, metro transport, and traffic aggregation. If you can keep an eye on the carrier Ethernet space, you'll gain some great insight into how networks will be built in the future and which vendors are best positioned to capitalize on this whole shift toward converged networks and services.
While vendors have been adding more robust Ethernet features to every major type of Layer 0 to Layer 3 platform, if you really want to get a handle on the game-changing nature of carrier Ethernet, it pays to focus on the CESR products that sit at the heart of today’s network transformation.
Global sales of CESR equipment tripled from $194 million in 2004 to $637 million in 2005, as noted in the latest edition of Heavy Reading’s Carrier Ethernet Switch/Router Quarterly Market Tracker. The market rose 17 percent quarter-over-quarter to $227 million in the fourth quarter of 2005, once again driven by strong sales for market leader Cisco Systems Inc. (Nasdaq: CSCO) and the CESR runner-up, Alcatel (NYSE: ALA; Paris: CGEP:PA).
CESR market growth is being driven by a combination of overlapping factors, including:
- A gradual transition from separate Sonet/SDH, ATM, IP, and legacy Ethernet networks toward converged networks based on Ethernet/MPLS that support many services.
- Network upgrades from traditional Ethernet switches to higher-performance CESR platforms that enable operators to offer real-time enterprise services with QOS guarantees.
- New Ethernet switch/router builds related to the active triple-play/IPTV market.
- A high level of vendor investment and standards activity designed to strengthen quality of service, service management, service interoperability, service scalability, and other features of CESR products that will help them meet demanding carrier requirements.
Heavy Reading estimates about 200 telecom operators, cable companies, municipalities, or other entities have deployed or are in the process of deploying CESR platforms. Slightly more than 75 percent of these customers are using CESR products to support Ethernet enterprise services, while about 60 percent are using them to support triple-play/VOD/IPTV services.
On a regional basis, EMEA was the hottest market in 2005, while North America and Asia were fairly close to each other.
Heavy Reading projects that global CESR revenues will break the $1 billion mark in 2006, based on reports of surging carrier Ethernet RFPs and network-build activity, primarily related to enterprise Ethernet services and residential triple-play, IPTV, and video-on-demand services. We should also see a growing number of CESR deployments related to wireless backhaul applications, although this will represent only a small portion of the market.
About a dozen vendors currently generate revenue from CESR products, and several others plan to roll out CESR platforms in 2006. Companies to watch in this space include: Alcatel, ANDA Networks Inc. , Atrica Inc. , Ciena Corp. (NYSE: CIEN), Cisco, Ericsson AB (Nasdaq: ERIC), Extreme Networks Inc. (Nasdaq: EXTR), Foundry Networks Inc. (Nasdaq: FDRY), Lucent Technologies Inc. (NYSE: LU), MRV Communications Inc. (Nasdaq: MRVC), Nortel Networks Ltd. , Riverstone Networks Inc. (OTC: RSTN.PK) , Siemens AG (NYSE: SI; Frankfurt: SIE), and World Wide Packets Inc. .
In short, don't expect the carrier Ethernet to cool down anytime soon. All hail CESR!
— Stan Hubbard, Senior Analyst, Heavy Reading