Cisco’s dominance in Ethernet may be numbered

This article was authored by Allan Tan, and was originally posted on telecomasia.net

The worldwide Ethernet switch market (Layer 2/3) recorded $6.29 billion in revenue in the first quarter of 2018 (1Q18), a healthy increase of 10.9% year over year. Meanwhile, the worldwide
total enterprise and service provider (SP) router market recorded $3.31 billion in revenue in 1Q18, a 1.4% decrease on a year-over-year basis.

These growth rates are according to results published in the IDC Worldwide Quarterly Ethernet Switch Tracker and Worldwide Quarterly Router Tracker.

Asia Pacific (excluding Japan) reported the strongest growth with 1Q18 Ethernet sales up 21.0% year over year. China’s share rose 29.7% year over year to $769.8 million; Korea posted strong growth with 24.2% year over year. Japan, meanwhile, dropped 2.0% year over year.

The Ethernet switch market’s 10.9% growth in 1Q18 is a strong uptick from the 3.5% growth recorded year over year between 1Q16 and 1Q17. The quarter’s growth also outpaced the full year 2017 growth of 5.5%, which bodes well for the market’s future outlook.

“After modest gains in 2017, the Ethernet switch market started 2018 with a strong first quarter,” said Rohit Mehra, vice president, Network Infrastructure at IDC. “There are two macro trends that contributed to growth: The emergence of next-generation software-based network intelligence platforms that add to the intrinsic value of networking, and the push by large enterprises, hyperscalers, and service providers to leverage faster Ethernet switching speeds for cloud rollouts. Both trends bode well for this industry moving forward.”

By the numbers

40Gbps Ethernet revenues were down 4.0% despite port shipments increasing 7.8%, reflecting ongoing price erosion in the market and unfavorable price performance ratios relative to 25Gbpsand 100Gbpsproducts.

25Gbps revenue increased 176% year over year with port shipments growing 359% year over year in 1Q18. 100Gbpsrevenue increased 83.8% year over year to $742.5 million and port shipments grew 117.7% year over year in 1Q18.

10Gbps Ethernet switch (Layer 2/3) revenue increased 5.1%, coming in at $2.05 billion, while 10Gbps Ethernet port shipments rose 41.6%.

1Gbps Ethernet revenues were up 5.4% in the quarter, with port shipments up 15.8%, which reverses a trend from last year and shows the interest in refreshing campus and branch networks. Overall, across all speeds, port shipments in 1Q18 rose 12.0% year over year.

The worldwide enterprise and service provider router market contracted 1.4% on a year-over-year basis in 1Q18 with a decrease of 2.7% in the enterprise segment and a decrease of 0.9% in the larger service provider routing market.

The router market, traditionally the most volatile across the networking domain, has been impacted by the emergence of software-defined architectures that have taken hold across the WAN, with SD-WAN and network virtualization disrupting traditional routing architectures.

The combined enterprise and service provider router market saw varied regional performance in 1Q18. The APeJ region again significantly outperformed all other regions with its 13.3% year-over-year growth. Japan’s market contracted a significant 35.5% year over year while the U.S. market was down 11.4% year over year.

Vendor highlights

The growth in overall Ethernet switching sales has not stopped Cisco’s share from continued decline, 1Q18 share was 53.4% down from its 55.0% share in 1Q17 (also down from 58.9% in 1Q16). In the hotly contested 10GE segment, Cisco’s market share dropped to 48.1%, down from 50.9% in 1Q17. Cisco saw its combined service provider and enterprise router revenue decrease 10.2% on an annualized basis, while its market share came in at 39.8% in 1Q18, down from 43.7% in 1Q17.

Huawei’s performance is on an opposite direction to Cisco. Huawei’s Ethernet switch revenue grew 41.2% year over year in 1Q18 for a market share of 8.1%, up from 6.3% in 1Q17. The company’s share in the 10GE market continues to rise, up in 1Q18 to 10.7%, from 8.4% in 1Q17. Huawei’s enterprise and SP router revenue increased 25.9% year over year to finish with 25.1% share compared to 19.8% of the total router market in 1Q17.

Hewlett Packard Enterprise’s (HPE) Ethernet switch revenue grew 11.1% from 1Q17 to 1Q18 and its market share held steady at 6.0% during that time.

Arista Networks performed well in 1Q18, with its Ethernet switching revenue rising 39.9% year over year, earning a market share of 6.5%, up from 5.1% in 1Q17.

Juniper’s Ethernet switch revenue fell 4.8% year over year in 1Q18, bringing its market share to 3.7% compared to 4.3% in 1Q17. Juniper also saw a 21.8% decrease in combined service provider and enterprise router revenues, with market share falling to 12.3% compared to 15.5% in 1Q17.

“Cloud and software-defined architectures are shaking up the Ethernet switch and router markets,” said Petr Jirovsky, research manager, Worldwide Networking Trackers. “Continued price erosion and increasing divergence between buying preferences of cloud and communications service providers and enterprises creates a challenging environment for vendors, but also opportunity for end users.”

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