Optical/IP Networks

Edge Router Market in Chaos

The edge router market has been hit in the face with a frying pan, so to speak, according to a report published by Infonetics Research Inc. earlier this week.

To complicate the matter, everybody seems to want in, with several big names competing for a slice of the pancake.

But the news isn’t entirely bad. Michael Howard, principal analyst at Infonetics and co-author of the report, sees the sector rebounding toward the middle of this year, with revenue in the edge and core hardware equipment market growing from $3.9 billion in Q1 2001 to a total of $16.9 billion for the entire year.

“This part of the market has definitely been hit by carrier capital spending issues,” says Howard. “But we think there will be a rebound, and $16 billion is a pretty big hunk of change.”

In the report, Infonetics breaks down the edge router market into two sectors: IP service switches and IP aggregation routers. In the IP service switch category are companies like Unisphere Networks Inc. (Nasdaq: UNSP), Redback Networks Inc. (Nasdaq: RBAK), Nortel Networks Corp. (NYSE/Toronto: NT), Lucent Technologies Inc. (NYSE: LU), CoSine Communications Inc. (Nasdaq: COSN), and Cisco Systems Inc. (Nasdaq: CSCO) with its 7200 router and 6400 switch. On the IP edge aggregation side are companies like Cisco (7500 router, 7600 OSR, and 10000 switch products), Riverstone Networks (Nasdaq: RSTN), Juniper Networks Inc. (Nasdaq: JNPR) (M5, M10, and M20 routing platforms), and Foundry Networks Inc. (Nasdaq: FDRY) with its NetIron family.

A decline in revenue for these companies should not come as a surprise, considering that several of them -- including Cisco, Foundry, Redback, and CoSine -- had been reporting disappointing earnings and a slowdown in carrier spending.

According to Infonetics, Q4 2000 revenue for this group was about $339 million. In Q1 2001, it only increased 2 percent to $345 million. Historical data generated from Infonetics reveals that revenues in this sector have been declining fairly steadily over the past year. In the second quarter of 2000, revenue grew 33 percent from the first quarter. But revenue declined 11 percent in Q3 compared to Q2, and Q4 revenue in 2000 rebounded only 5 percent over Q3. In total, Infonetics is only expecting aggregation router revenue to grow 31 percent for all of 2001.

Edge Aggregation Router Quarter Over Quarter Growth

The news is worse for IP service routers, which provide IP services like virtual private networking. Revenue in this category actually declined about 20 percent quarter over quarter. In the first quarter of 2001, revenue totaled $220 million compared to $277 million the quarter before.

Every company Infonetics tracked lost market share, with the exception of Unisphere and Cisco. Cashing in on several overseas accounts from Deutsche Telekom AG (NYSE: DT) and Hanora Telecom (Korea’s largest broadband provider), Unisphere doubled its market share from a mere 7 percent to 14 percent (see Unisphere Posts 47% Revenue Growth ).

”Unisphere’s emphasis on overseas sales is what really put it over the top,” says Howard.

IP Service Switch Growth for Q1 2001

While Cisco’s revenue in the area declined, the company actually gained 5 percent market share, as other competitors lost. Redback was the hardest hit in this category, dropping from 29 percent market share in Q4 2000 to 21 percent in Q1 2001 -- an 8 percent loss. Nortel (Shasta), Lucent (SpringTide), and CoSine, three other big name players, together lost about 7 percent in market share. The smaller category of “other” companies also declined 1 percent this quarter.

But Howard is optimistic that the tide will turn for companies in the edge router market as a whole. He says he expects that the second quarter may also see some decline in revenues, but that the cycle will likely turn in the third and fourth quarters and into next year.

“More and more companies are entering the space with innovative products that offer more functionality, density, and capacity,” says Howard. “And from what we can tell from service providers, the demand is there for products that can help them roll out new services and generate revenue. The business drivers are in place, so there seems to be no reason the downturn should continue.”

- Marguerite Reardon, Senior Editor, Light Reading

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goniners 12/4/2012 | 8:22:36 PM
re: Edge Router Market in Chaos Maybe I;m missing something but the Q12001
revenue number ($3.9B) does'nt add up. The
total of the edge aggregation router market
($345M) and the edge IP services router market
($220M) is $565M not $3.9B??
lordcirrus 12/4/2012 | 8:22:35 PM
re: Edge Router Market in Chaos The article says edge AND core...

Are Juniper and Cisco the only players in the core right now?
Eagle 12/4/2012 | 8:22:18 PM
re: Edge Router Market in Chaos Core players are Cisco, Juniper, and Avici. Avici is finally going to announce some major wins.

As for the edge, anyone working in this area is in for a long wait, I mean real long. Almost all the carriers currently have so much capacity on the edge with existing equipment. This is the first place they are freezing purchases. And with Cisco & Juniper having so much inventory from the wait, price per port is dirt cheap.

As far as being a start up in this space...brush up your resume. No start-up in edge routing has a chance. Cisco, Juniper, and Unisphere have too many features along with falling prices. Given how tight the industry is, no reason to risk buying a start-up edge router and 3 months later they go belly up.
PBC 12/4/2012 | 8:22:04 PM
re: Edge Router Market in Chaos
Can I get some quick and dirty definitions to help me get focused?

IP service switches
-is this like a broadband service node or a subscriber management system?
-still would like an explanation of its main purpose in life

IP aggregation routers
-does this mean the same as "access routers"

Lastly, the term edge again, does this refer to the edge of the core as in where enterprise type interfaces get handed of to an ISP network?



sswan 12/4/2012 | 8:19:18 PM
re: Edge Router Market in Chaos Thanks for exposing the question. Here is my *suggestion*

IP Switch should be viewed as doing three things very well:
Provide Channelized DS0 interfaces for voice traffic (VoIP *is* a killer app).

Provide Concetrator functions for T1 and up bandwidth pipes

Provide a *transaction server* like capability to offer 'managed' services: anti-spoofing, managed bandwidth, VPN, etc.

Yes you *can* connect DSLAMs straight via ATM pvc's to core interfaces for backhaul transport ... but then all you are doing is selling 'pipes' ... a Provider who does that may have a Utility like growth profile of Revenue and Margins.

Secondly, competing against a Carrier deploying ahem! IP Switches a pure 'pipe' provider cannot compete either on price or on features.

Last two paragraphs are in response to there being "so much existing capacity" ...

Any comments?
Eagle 12/4/2012 | 8:19:15 PM
re: Edge Router Market in Chaos SSWAN, good stuff. I do have a few comments:

a. DS0 interfaces are limited by some of the edge boxes since it eats up entire T-1 as far as number of logical ports supported. At least that is the case with Amber Networks, maybe not the other 3 big boys. I agree, VoIP is THE killer app. Logical Ports is a huge issue when it comes to aggregation! Also, ML/PPP, has a big impact on this. There are some serious limitations when using Multi Link PPP.

b. Yes, everyone is coming out with more dense T1/DS-3/OC-3 aggregation cards. Price per port is really coming down! Sounds like Unisphere and Juniper have the lead here. I know some of the start-ups don't even support OC-3 (Amber).

c. Yes, this requires robust feature sets. This is where all the start-up edge routers are getting killed. Start-ups hang their hat on one or two unique features, and get tossed out of the lab due to missing all the rest of features supported by the guys like Cisco, Juniper, and Unisphere. Example, DSLAMS via ATM, will only work if you support robust ATM feature set, a bunch of the edge router start-ups (Amber Netowrks) DO NOT.

Regarding PBC questions:

IP Service switches are like the Cosine & Shasta boxes.

Term "edge" refers to what the ISP's use to aggregate all the DS-0's/DS-1's/DS-3's from the enterprise types and uplink to core routers like Juniper M140, Cisco 10,000, via GigE or OC-12 or OC-3.

Any comments?
rafaelg 12/4/2012 | 8:19:14 PM
re: Edge Router Market in Chaos It seems to me that with the excess bandwidth at the core, that the edge is what one needs to build in order to increase the core usage. This in term will provide more access. Am I missing something?

The IP "switch"...

Eagle 12/4/2012 | 8:19:13 PM
re: Edge Router Market in Chaos No, I agree. Problem is that most carriers already have plenty of access ports on the edge. No need to build out for massive growth on the edge when the economy is the way it is. They are playing wait and see game which enables them to conserve cash during the down time. And when it comes time to buy, they are going to go with a conservative, reliable company like Unisphere, Juniper, or Cisco. Not a start-up with limited features and interfaces like Amber Networks.
sswan 12/4/2012 | 8:18:52 PM
re: Edge Router Market in Chaos does reply mean the text only goes to 'eagle' ?
Eagle 12/4/2012 | 8:18:45 PM
re: Edge Router Market in Chaos No, it get posts to the entire message board. Everyone sees it.
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