Carrier Ethernet Switch/Router Market Grows
Ethernet Exposed Stan Hubbard, Director, Communications & Research, MEF 9/29/2010
The CESR market began rebounding in the fourth quarter of 2009 and has demonstrated staying power in the face of macroeconomic uncertainty since then, but not all regions are firing on all cylinders. While sales were either up or stable year-over-year across all regions in the second quarter of 2010, North America is the only region that has experienced consistent quarter-over-quarter growth since the market bottomed in the third quarter of 2009. EMEA recorded stellar sequential growth in the fourth quarter of 2009, but had a small seasonal-related drop in the first quarter of 2010 and an atypical double-digit sequential decline in the second quarter of that year. Asia had solid growth in the fourth quarter of 2009, followed by single-digit declines in the first and second quarters of 2010. Latin America performed poorly in the fourth quarter of 2009 and the first quarter of 2010, but leaped 90 percent sequentially in the second quarter of 2010.
Overall, the CESR market appears to have demonstrated a fair amount of resiliency, given the macroeconomic headwinds suppliers face. The market’s staying power can be attributed to the compelling value that next-generation Carrier Ethernet/MPLS solutions offer compared to more expensive and less flexible legacy network technologies like Sonet/SDH and ATM. I now estimate that 670-plus telecom operators, cable companies, municipalities, or other entities have deployed or are in the process of deploying CESR and Carrier Ethernet access (CEAP) platforms that overlap into the CESR space. There is no question that many of these carriers are prioritizing spending on Carrier Ethernet vs. legacy solutions in order to drive up productivity and deliver more customized and scalable services for wholesale, business, and residential customers.
While residential triple-play infrastructure and Ethernet business service infrastructure account for the vast majority of CESR revenues each quarter, wireless backhaul applications have been steadily gaining ground. More and more, operators and their suppliers have been highlighting the deployment of CESR and Ethernet service edge (ESE) routers to support convergence of fixed and/or mobile traffic.
With Ethernet’s proven performance/price advantages vs. other technologies, continuing improvements in Carrier Ethernet’s reliability and protection mechanisms, the addition of service OAM capabilities on new Carrier Ethernet platforms, and the growing availability of features optimized for mobile backhaul, there is no reason to doubt Carrier Ethernet’s dominance of carrier networks for the foreseeable future. But that doesn’t mean everyone playing in the space will necessarily be a profitable winner.
Our research shows the average CESR sales opportunity per revenue-generating equipment vendor slipped again in the second quarter of 2010, as the market held steady sequentially but the number of suppliers increased by one – to 27! The second-quarter 2010 sales opportunity per vendor of $19 million is the second-lowest number on record.
In such an intensely competitive market, it is imperative for suppliers to keep pace on R&D investment and to pick their target customers, applications, and regional markets wisely. While the overall market is promising, individual vendors and their investors need to maintain realistic expectations about their longer-term potential for revenue and gross margin growth. Reliable partner channels are particularly important for smaller players, given ongoing pressures placed on sales and marketing budgets and given that the average sales opportunity per customer is only about $770,000 per quarter – nearly 40 percent less than it was three years ago.
I estimate that half of the established revenue-generating CESR vendors posted sequential growth in the second quarter of 2010. Vendors making progress include: Alcatel-Lucent, ZTE, Juniper, ECI, and others.
CESR market leader Cisco appeared to lose one and a half share points between the first and second quarters of 2010. The shares for No. 2 Alcatel-Lucent and No. 3 Huawei held steady. No. 4 ZTE gained several share points. Other vendors with notable share include: No. 5 Brocade, No. 6 Extreme, No. 7 Juniper, and No. 8 ECI.
Although the CESR Tracker currently does not include a forecast for Ethernet service edge router sales, we track developments in this adjacent market closely. We estimate the combined ESE sales of Cisco, Alcatel-Lucent, Juniper, Huawei, and Brocade have grown sequentially each quarter for the past four quarters. These five vendors accounted for an estimated $888 million in ESE revenue during the second quarter of 2010, up 3 percent sequentially from the first quarter of 2010. Alcatel-Lucent’s ESE revenue climbed the most in dollar terms (nearly $20 million) in second quarter of 2010.
Many of the leading suppliers of next-generation CESR and ESE platforms will be participating in Light Reading’s Ethernet Expo Americas 2010 that will be held in NYC during November 2 and 3. I hope you can join us at the show.
— Stan "EtherMan" Hubbard, Senior Analyst, Heavy Reading, and Chairman, Ethernet Expo Americas 2010
Interested in learning more on this topic? Then come to Ethernet Americas 2010, Light Reading's eleventh Ethernet event, designed to meet the information needs of service providers and enterprises that are working out what next-generation services and applications to deploy, and what infrastructures will help them do this in the most cost-effective and productive manner. To be staged in New York, Nov. 2 & 3, admission is free for attendees meeting our prequalification criteria. For more information, or to register, click here.