Ethernet Expo Europe: Switch/Router Update
Stan Hubbard, Director, Communications & Research, MEF
As industry experts prepare to gather for Light Reading's annual Ethernet Expo: Europe in London, April 14-16, I thought it would be useful to review some of the key developments in the equipment sector that lies at the heart of the Ethernet revolution that we will be discussing at the show: carrier Ethernet switch/routers (CESRs). CESR platforms are increasingly being used by operators around the world to support high-performance business Ethernet services and residential triple-play services. We also are starting to see some CESR deployments for mobile backhaul infrastructure.
The CESR market, which hit a $2 billion annual run rate as we exited 2007, has undergone significant change and become increasingly competitive since we met a year ago in London. Over the past 12 months, we have seen two acquisitions – Nokia Networks snapping up Atrica Inc. and Ciena Corp. (NYSE: CIEN) grabbing World Wide Packets Inc. ; the emergence of new entrants – Juniper Networks Inc. (NYSE: JNPR) and ECI Telecom Ltd. ; the introduction of new platforms or major product upgrades by existing suppliers – Alcatel-Lucent (NYSE: ALU), Extreme Networks Inc. (Nasdaq: EXTR), and Huawei Technologies Co. Ltd. ; and a successful marketing push for PBB-TE – led by Nortel Networks Ltd. , but also involving Extreme, Nokia Siemens, and others.
The number of CESR suppliers has climbed from three at the start of 2004 – Cisco Systems Inc. (Nasdaq: CSCO), Atrica (now part of Nokia Siemens), and Riverstone Networks (now part of Alcatel-Lucent) – to 16 today, even with several consolidation moves during this period. The supplier number could climb to 18 by the end of the 2008, based on our discussions with equipment vendors in adjacent markets.
Below are snapshot highlights on several CESR players. I cover these and other vendors extensively in Heavy Reading's Carrier Ethernet Switch/Router Quarterly Market Tracker, the newest edition of which will be released in the first half of April.
Cisco. By far the dominant CESR supplier, Cisco increased its switch/router sales at an impressive double-digit rate during 2007. But this industry giant appears to have entered autopilot mode when it comes to marketing its CESR solutions and touting deployments: Cisco has not made any big CESR customer announcements in the past 15 months. Moreover, while the number of competing solutions from established and new CESR vendors increases, Cisco still has not introduced a major CESR platform to migrate customers from its aging Catalyst 6500 and 4500 switches or 7600 Ethernet service edge (ESE) routers. Based on carrier feedback, many business Ethernet and triple-play infrastructure deals won by competitors in the past 18 months, and the prospect of tougher competition, Cisco appears more vulnerable than ever to gradual share loss without a next-generation CESR story.
Alcatel-Lucent. The No. 2 supplier of CESR platforms, Alcatel-Lucent posted strong double-digit growth in 2007. It has racked up a string of wins related to business services, consumer triple-play/IPTV services, and mobile network/backhaul applications for CESR and ESE products over the past year. The company now boasts more than 200 CESR and ESE customers in 70+ countries. The revenue growth for Alcatel-Lucent's IP Division, led by president Basil Alwin, has been nothing short of extraordinary. Combined carrier Ethernet/IP sales skyrocketed from around $40 million in 2004 to $1 billion in 2007, including about $380 million for CESR platforms last year. More than any other vendor, Alcatel-Lucent has managed to announce customer win after customer win around the world. Many of these customers – including Belgacom SA (Euronext: BELG), Exponential-e Ltd. , KPN Telecom NV (NYSE: KPN), Virgin Media Business Ltd. , Telefónica SA (NYSE: TEF), and Telekom Austria AG (NYSE: TKA; Vienna: TKA) – will be speaking about their services at the Ethernet Expo. On top of this, Alcatel-Lucent is turning up the heat on Cisco with the significant bandwidth, scaleability, and service-enabling enhancements that it will be rolling out on the 7450 CESR and 7750 ESE platforms over the next several months.
Juniper. CEO Scott Kriens may have dismissed Ethernet as "an interface" rather than an architecture in early 2006, but he and his product marketing team now see that interface as a multi-billion-dollar market opportunity worth hunting for. After shipping for only a few quarters, sales of Juniper's new MX-series of Ethernet service routers set a blazing pace in 2007, closing the year at a $200 million run rate. While Juniper initially only played in the ESE arena with the MX960, the introduction of the lower-capacity MX480 and cost-optimized Layer 2 switching cards enabled the vendor to formally begin shipping product in the CESR market in the fourth quarter of 2007. And Juniper has now broadened its addressable CESR opportunity with the newly available, compact MX240 platform. The key to success from Juniper's point of view? It is all about the JUNOS operating system (and protecting gross margins). According to statements made by Kriens in January, "When a customer makes an MX decision, they are not really making a hardware decision. They are making a JUNOS operating system decision delivered by an optimized piece of hardware called the MX."
Ciena. In early March 2008, Ciena added new CESR and carrier Ethernet access platform (CEAP) products – as well as Ethernet operating software and enhanced service delivery capabilities – to its Ethernet solutions set with the acquisition of World Wide Packets. While financial analysts and investors were skeptical of the price tag relative to their initial estimates of WWP's revenue potential, this could prove to be a solid strategic move that fills an important gap (CESR) in Ciena's portfolio and puts it in a strong position to take advantage of growth in the Ethernet-over-fiber portion of the CEAP market. Generally available since June 2007, WWP's LE-3300 will become the flagship CESR product for Ciena. It is designed to support PBB-TE/PBT, PBB, and VPLS, and includes a rich set of OAM features. We suspect that many on Wall Street have focused only on the Ethernet access portion of WWP's portfolio – and eventual revenue from the big AT&T Inc. (NYSE: T) win – and may not be aware of the potential for Ciena to generate significant CESR sales. WWP had already shipped a large number of LE-3300s for deployment prior to the Ciena acquisition.
- Nortel. Nortel has captured attention and marketing kudos for its PBT/PBB-TE work over the past 18 months, including the establishment of the multi-vendor Carrier Ethernet Ecosystem in mid 2007. Industry feedback suggests that at least a dozen major operators worldwide are trialling or planning to trial PBB-TE solutions from Nortel and other suppliers. CEO Mike Zafirovski has said he believes PBB-TE and PBB will start to deliver significant revenue growth for Nortel in 2008 and can help the vendor obtain as much as 20 percent of the carrier Ethernet market in three to four years. Nortel is setting its sights very high, especially given the intensifying competition in the space. The company will need to deliver some major wins beyond BT Group plc (NYSE: BT; London: BTA) and the handful of other PBB-TE deals it has announced thus far to confront PBB-TE skeptics, including those who believe that MPLS can compete on price in most metro applications.
Join us in London to learn more about new developments in the CESR space, and in the carrier Ethernet services and network equipment markets in general. In addition to the chance to learn about the latest innovations from equipment vendors, Ethernet Expo attendees will have the opportunity to hear directly from 17 operators providing Ethernet-based services in Europe and around the world.
— Stan Hubbard, Senior Analyst, Heavy Reading; Chair, Ethernet Expo: Europe 2008
Interested in learning more on this topic? Then come to Ethernet Expo: Europe 2008, the premier event covering the hot topic of carrier Ethernet network technologies and services in Europe, the Middle East, and Africa (EMEA). To be staged in London, April 14-16, admission is free for attendees meeting our prequalification criteria. For more information, or to register, click here.