STAMFORD, Conn. -- As enterprises remain cautious with their IT budgets, the Ethernet switch market continues to struggle. Worldwide Ethernet switch port shipments totaled 37.4 million units in the second quarter of 2003, a 2.6 percent decline from the second quarter of 2002, according to preliminary results by Gartner, Inc. (NYSE: IT and ITB). Worldwide Ethernet switch vendor revenue declined 15 percent from a year ago, to $2.3 billion.

"Despite new features such as enhanced security and Power over Ethernet, vendors that play in the enterprise market are facing challenges in selling upgrades to their installed bases," said Rachna Ahlawat, principal analyst for Gartner's Enterprise Networking and Communications Worldwide group. "The lack of adoption of Gigabit Ethernet to the desktop, despite significant price reductions, indicates that increased speed will not lead the market out of its doldrums in 2004."

Cisco Systems continued to dominate the market in the second quarter of 2003, claiming 70.6 percent of worldwide Ethernet switching revenue (see Table 1) and 37.7 percent of port shipments (see Table 2). Hewlett-Packard was the only top-tier vendor to post positive growth in both revenue and port shipments.

Table 1: Preliminary Worldwide Ethernet Switching Vendor Revenue Estimates for 2Q03 (Millions of Dollars)

The consumer and government segments were key growth areas in the second quarter of 2003. SOHO switch sales remained strong, evident by an increase in port shipments by D-Link and Netgear. Gartner analysts said highly competitive pricing appears to be driving demand of low-end switches.

Table 2: Preliminary Worldwide Ethernet Switching Vendor Port Shipments Estimates for 2Q03 (Thousands of Units)

"The second-quarter results make a second-half upturn less likely, and Ethernet switching vendors should carefully plan out their activities for the second half of 2003," Ahlawat said. "Vendors must also prepare themselves to respond to possible rapid changes in demand and strengthen their position in some of the verticals, such as education, government, and healthcare, where the demand for networking equipment has increased."

Additional information is available in the Gartner Dataquest Alert "Ethernet Switches Market Remains Weak in 2Q03." This Alert examines the state of the worldwide Ethernet switch industry. It also looks at what trends are developing and how the top-tier vendors are performing. This report can be purchased on Gartner's Web site at www.gartner.com/DisplayDocument?id=406866&ref=g_search.

These results are preliminary. Final statistics will be available soon in a detailed market statistics report broken out by business size, technology segment and a separate section on Gigabit and 10 Gigabit Ethernet. This report can purchased on Gartner's Web site at www.gartner.com.

This analysis is provided by Gartner's Worldwide Telecommunications and Networking group. This group provides an analysis for the full spectrum of telecom and networking issues. To keep up to date on the latest telecommunications issues, visit Gartner's Telecommunications Focus Area at www.gartner.com/telecom-mkt. To purchase reports or subscribe to Gartner programs, call 408-468-8000 or go to www.gartner.com.

Gartner Inc.