Competition Erodes Cisco’s CESR Lead

2:30 PM -- Cisco Systems Inc. (Nasdaq: CSCO) once dominated in shaping the debate and direction of the carrier Ethernet market, but that story has changed with the explosion of competition over the past several years.

While Cisco has beefed up its Ethernet service edge (ESE) router portfolio with the ASR 9000 and recorded impressive ESE sales growth of ~19% between 1Q09 and 2Q09, the vendor has failed to roll out a next-gen flagship carrier Ethernet switch/router (CESR) to sit in front of its ESE products and aggregate and transport Ethernet traffic in metro networks. That has left Cisco very vulnerable in the CESR space at a time when operators are increasingly shifting away from Sonet/SDH networks to more flexible metro networks based on CESR and packet-optical transport platforms.

At the start of 2007, Cisco faced 10 CESR competitors and held an impressive 57% share in what was then a rapidly growing market. In 1Q07, the average sales opportunity per revenue-generating CESR vendor was $38.3 million, and the average CESR sales opportunity per customer was about $1.15 million, according to Heavy Reading’s historical analysis.

Fast-forward to today and the picture looks very different. Cisco now faces more than 20 CESR competitors, which are chipping away like crazy at the company’s market share. Heavy Reading estimates Cisco’s CESR revenue declined five straight quarters through 2Q09, and its market share plummeted to an all-time low of 39% in the second quarter. That’s 19 percentage points less than Cisco’s market share high of 58% in 3Q07.

Multiple challenges compound Cisco’s CESR problem. Heavy Reading estimates the average sales opportunity per revenue-generating CESR vendor was 44% less in 2Q09 than just two years ago. The average CESR sales opportunity per customer in 2Q09 was 36% less than in 1Q07. And CESR competitors like No. 2 Alcatel-Lucent (NYSE: ALU), No. 3 Huawei Technologies Co. Ltd. , and No. 4 ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) continue to make significant enhancements to their CESR portfolios, win new business in strategic Cisco accounts, and gobble up deals in the all-important emerging markets. Huawei alone registered dozens of new Carrier Ethernet wins in 1H09.

All of the latest CESR market highlights and detailed vendor analysis is available in the latest release of Heavy Reading’s “Carrier Ethernet Switch/Router Quarterly Market Tracker.” This popular, ~140-page, PowerPoint-based report now includes profiles on 21 carrier Ethernet equipment vendors: Alcatel-Lucent, ANDA, Brocade, Ciena, Cisco, ECI, Ericsson, Extreme, Hitachi Cable, Huawei, IBM, Juniper, Maipu, MRV, Nokia Siemens Networks, Nortel, Orckit-Corrigent, Tejas Networks, Telco Systems, Tellabs, and ZTE.

— Stan “EtherMan” Hubbard, Senior Analyst, Heavy Reading; Chairman, Ethernet Expo Americas 2009

Interested in learning more on this topic? Then come to Ethernet Expo Americas 2009, Light Reading’s ninth conference and exposition covering the hot topic of Carrier Ethernet network technologies and services in North America. To be staged in New York, November 3 & 4, admission is free for attendees meeting our prequalification criteria. For more information, or to register, click here.

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