That's the grim reality painted in the latest Optical Oracle, Light Reading’s paid research service.
This month’s edition of the Optical Oracle concludes that there isn’t enough room for all the players trying to grab market share from Cisco Systems Inc. (Nasdaq: CSCO) and Juniper Networks Inc. (Nasdaq: JNPR), the two main players in the market. According to the report, Cisco, with its current 72 percent of the market, and Juniper, which has approximately the remaining 28 percent, are probably the only two companies that will still be making competitive core routers when the meltdown is over.
The report says the other companies proposing next-generation IP core routers don’t necessarily have bad products, but the equipment is costly, and there is a good chance that the ranks will be quickly thinned -- whether it be through shutdowns or acquisitions. The vendors covered in the report, in addition to Cisco and Juniper, are:
- Alcatel SA (NYSE: ALA; Paris: CGEP:PA),
Avici Systems Inc. (Nasdaq: AVCI; Frankfurt: BVC7),
Caspian Networks ,
Charlotte’s Networks Ltd.,
Foundry Networks Inc. (Nasdaq: FDRY),
Lucent Technologies Inc. (NYSE: LU),
Marconi PLC (Nasdaq/London: MONI),
Pluris Inc., and
Procket Networks Inc.
Of course, this consolidation process has already begun. Only yesterday, Juniper announced that it will be acquiring Unisphere from its parent, Siemens AG (NYSE: SI; Frankfurt: SIE) (see Juniper Nabs Unisphere for $740M).
The main problem today is that the equipment vendors’ customers, the service providers, continue to struggle with huge debt loads, and many have already tumbled into bankruptcy (see Optical Oracle: More Carrier Cutbacks ). Another problem is that supply and demand of bandwidth are still out of balance, which has resulted in the prices for bandwidth plummeting. The main challenge is therefore to create equipment that can deliver more capacity at a lower price as well as create new revenue, the report says.
Traditionally, service providers have had to upgrade their networks with newer and better equipment every two or three years. In the current market, few want to keep up that pace of upgrades. That means cutting-edge startup equipment is not likely to be welcomed unless it introduces revolutionary cost savings. This is where major players like Cisco and Juniper have an advantage over the many startups trying to make it in this space.
Another thing that will separate the winners from the losers in this race is density, the report says, pointing out that just because a company claims to have the densest router doesn’t mean it actually does. The report, which examines the densities of the leading next-generation router products, concludes that they're not always all they're cracked up to be. In addition to density, the winning routers need to fill the provider’s requirements, fit into standard-sized racks, and meet weight and power consumption requirements. Having software stability is also a must, if the equipment vendor wants its core router to survive.
Feeding the core from the edge might actually be a safer bet than standing square in the center. Bulkey says that near-term, the edge router market is a better place to be. Building an edge router “require[s] less pure hardware muscle and more software finesse,” Bulkey writes in the report.
The report also provides analysis of public companies playing in the general IP market, including edge routing and switching players. These companies are:
- Avici Systems,
Extreme Networks Inc. (Nasdaq: EXTR),
Redback Networks Inc. (Nasdaq: RBAK),
Riverstone Networks Inc. (Nasdaq: RSTN), and
Unisphere Networks Inc.
— Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com The current Optical Oracle, "The Core IP Report," profiles 10 public companies and seven private companies, including detailed product and financial analysis for each. For more information or to subscribe, go to www.opticaloracle.com. Editor's Note: Light Reading is not affiliated with Oracle Corporation.