Report: Carriers Get Hip to IP
The firm anticipates a 9 percent dip in sales for the combined IP router and multiservice switch market in 2003, but it expects carriers to increase spending on this gear in 2004. It also predicts the combined IP router and multiservice switch market to reach $9.1 billion in 2006, an 88 percent increase from the $4.8 billion expected in 2003.
Demand for IP routers will drive this new wave of growth, says Infonetics' Kevin Mitchell, lead analyst of the report. In the second quarter of this year, according to the report, the worldwide service provider router market grew 4 percent from the previous quarter to $669 million. Most of this growth can be attributed to spending in the core router market.
While each market research firm slices and dices the market in different ways, all of them reported increased sales in the core router market during the second quarter (see Reports: Router Sales Grew in Q2). Dell'Oro Group said high-end router sales, a segment which includes core routers, grew 10 percent. Synergy Research Group Inc. said the market grew about 7 percent.
Regardless of whose numbers you cite, the trend is evident: Carriers are starting to spend money on building their IP/MPLS core networks. Such carriers as BellSouth Corp. (NYSE: BLS), Qwest Communications International Inc. (NYSE: Q), SBC Communications Inc. (NYSE: SBC), and Verizon Communications Inc. (NYSE: VZ) have already begun building out new IP networks as they work to migrate their legacy ATM networks to a converged IP/MPLS backbone.
In 2000, routers accounted for only 47 percent of the combined IP router/multiservice switch market. By 2001, it made up 54 percent of total sales. In the second quarter of 2003, routers accounted for 62 percent of sales.
Infonetics' Mitchell says carriers will continue to spend more of their capital expenditure budgets on IP routers, rather than on multiservice switching platforms, but he emphasizes that multiservice switching is far from dead. He says both product segments will likely continue to grow at consistent rates.
"ATM and Frame Relay aren’t going away," he says. "Carriers will be migrating to IP, but they’ll still need newer-generation multiservice switches to get there."
This means that traditional ATM and Frame Relay switches from vendors such as Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT) will likely fall by the wayside, while gear from companies such as WaveSmith, recently acquired by Ciena Corp. (Nasdaq: CIEN), and Vivace, acquired by Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), will replace them (see Ciena Nabs WaveSmith and Tellabs Snags Vivace for $135M). This newer generation of multiservice switches combines IP switching and routing with ATM and Frame Relay switching.
"The multiservice switch market won’t ever get back to the highs of 1999 or 2000," Mitchell says. "But the newer products will help sustain growth."
— Marguerite Reardon, Senior Editor, Light Reading