Carrier Ethernet Surges in 2005
The numbers were released last week in Heavy Reading's "Carrier Ethernet Switch/Router Quarterly Market Tracker, 4Q05." Heavy Reading measured the overall carrier Ethernet market at $637 million in 2005, tripling the previous year's figure. (See CESR Market Tripled in '05.)
A similar study from Infonetics Research Inc. put the carrier Ethernet market at $2 billion a year, but that survey uses a wider definition of "carrier Ethernet" gear, Heavy Reading analysts say. (See Carrier Gear Nears $10B.) The idea in both reports is to separate carrier Ethernet -- designed for service providers, with features such as QOS, resiliency, or monitoring -- from the ordinary Ethernet equipment suitable for local-area networks.
In the Heavy Reading numbers, the culprit skewing the market share ranks is Alcatel (NYSE: ALA; Paris: CGEP:PA), which came from nowhere to gobble up 20 percent of the carrier Ethernet switch and router market in 2005. That ate into the market share figures of Atrica Inc. and Riverstone Networks Inc. (OTC: RSTN.PK) , both of which had been frontrunners a year ago.
That's not necessarily bad news for the smaller fish. Atrica has continued to grow steadily, recording an estimated $10 million in revenues for the fourth quarter of 2005, according to the report. But the market grew much faster, causing Atrica's market share to shrink -- to 4.4 percent last quarter from 10.9 percent a year earlier.
"That's an interesting dynamic," says Heavy Reading analyst Stan Hubbard. "You can grow revenue and lose share, but still feel pretty good about your business."
Riverstone, by contrast, has sprung a leak, with revenues declining for the last half of 2005. That brought Riverstone's market share down to 6.9 percent, the report reckons, compared with 22.2 percent at the end of 2004.
Not surprisingly, the carrier Ethernet market leader was Cisco Systems Inc. (Nasdaq: CSCO), with 48 percent share in the fourth quarter.
Most of the carrier Ethernet growth has been in Europe, where triple-play broadband buildouts are most prevalent, according to the report. "We're getting close to a point where just about half the sales [of carrier Ethernet gear] are from residential triple play" as opposed to enterprise services, Hubbard says.
Along those lines, he notes, Siemens AG (NYSE: SI; Frankfurt: SIE) is bringing triple-play offerings to the market, making it a company to watch this year. A few others are preparing 2006 product launches, which will deepen the pool of competitors.
"The longer-term goal is obviously to run both the triple play and the enterprise services over a single infrastructure. That is a trend we started seeing pick up for 2005," Hubbard says. Companies working in that direction include PCCW Ltd. (NYSE: PCW; Hong Kong: 0008) and Telefónica de España . A more prominant example is the 21CN project at BT Group plc (NYSE: BT; London: BTA).
— Craig Matsumoto, Senior Editor, Light Reading