Ethernet, wireless LAN markets shrank in Q1

A seasonal slowdown in enterprise spending was the most likely cause of sales drops for both Ethernet switches and wireless LAN equipment in the first calendar quarter of this year, according to market research company Dell’Oro Group Inc.

Revenue from sales of IEEE 802.11 wireless LANs dipped to US$352 million in the first quarter, from US$363 million in the fourth quarter of 2001, according to Seamus Crehan, an analyst at Dell’Oro, in Redwood City, Calif. Over the same period, Ethernet switch sales declined about 2 per cent, he said.

Both markets probably were hit by a typical first-quarter decline in enterprise investment in network equipment, Crehan said. Wireless LAN revenue was up sharply from a year earlier, when it came in at US$235 million. Meanwhile, first-quarter Ethernet switch sales, reflecting the generally weak economy, were down substantially when compared with the first-quarter 2001 total of US$3.1 billion.

The wireless LAN market should show strong growth for the year as a whole, as it did in the consumer segment in the first quarter, he said.

“It is still very healthy. I think what we’ve seen is a dichotomy in the market where consumer was still very strong…but enterprise was down,” Crehan said.

Another possible factor in the enterprise decline was sales leader Cisco Systems Inc.’s introduction of a new line of wireless LAN products in April, which some companies may have been waiting for, he said.

Wireless LANs that use the IEEE 802.11a standard, a faster alternative to the widely used 802.11b technology that came on the market late last year, accounted for just US$9.5 million of the total revenue in the first quarter. Dell’Oro expects to see that segment grow in 2002, but in the overall market 802.11a still will have a relatively small impact this year, Crehan said.

“802.11b still has an awful lot of legs, and the prices are still coming down,” he said. “I don’t think there’s going to be a mass migration (from 802.11b to 802.11a),” he added.

Cisco led in wireless LAN market share with 15.7 per cent, followed by low-price equipment makers Linksys Group Inc. with 14.3 per cent and Buffalo Technology Inc. with 12.7 per cent.

The Ethernet switch market dipped 2 per cent from the fourth quarter to this year’s first quarter, with overall revenue remaining at about US$2.7 billion, according to Crehan. Cisco, the revenue leader in this market as well, gained share to 67 per cent from 63 per cent in the previous quarter.

Cisco came on strong in one fast-growing product category: fixed-configuration switches with Layer 3 routing capabilities, Crehan said. As prices decline, demand for Layer 3 functionality is expanding from the large chassis-based switches typically found in the core of a large network to smaller switches in departments and medium-sized companies, he said.