Network equipment sales set to climb

Brighter days are ahead in the telecom equipment sector if we can only make it through this year, according to two market research firms.

After dipping this year compared to last, the market for routers and switches is expected to grow significantly between 2002 and 2006, according to separate studies by the firms. According to Probe Research Inc., the worldwide market for edge routers will grow 187 per cent between 2002 and 2006, from US$2.7 billion to $7.8 billion, while that for multiservice edge switches will grow 112 per cent, from $3 billion to $6.4 billion.

In the European theatre, service provider spending for routers and switches will grow 197 per cent, from $1.5 billion in 2002 to $4.5 billion in 2006, according to Infonetics Research Inc. Service providers will double spending on optical equipment during that time, from $3.1 billion to $6.3 billion, Infonetics predicts.

As in the U.S., the metro market continues to be the bright spot in Europe. Metro expenditures show strong growth in 2003, and hold a steady growth pattern from 2004 to 2006, as service providers build metro networks to deliver new types of services – storage, tiered quality of service, security, voice over IP, and wireless data among them – and manage increasing traffic and broadband aggregation, Infonetics states.

All respondents to the Infonetics survey who offer broadband services offer additional services over those connection, with security – VPNs and firewalls – and storage backup being the most popular now and in 2003, the research firm says.

Things will get worse before they get better however. Probe Research anticipates a 13 per cent and 16.7 per cent drop in revenue for edge routers and multiservice switches, respectively, from 2001 to 2002. As a result of continued slowing in carrier capital expenditures, edge routers will slip from $3.1 billion in 2001 to $2.7 billion this year, while multiservice switch revenue will slide from $3.6 billion to $3 billion.

The culprit, as usual, is slowing Internet traffic growth, according to Probe. IP traffic is still expected to increase considerably, but not at the rates experienced during the early days of the Internet’s growth, the research firm states.

Probe claims that traffic is becoming more “localized,” which is impacting the core routing/switching markets and contributing to the slowdown in the U.S. backbone traffic growth rates.

Other factors leading to the decreases in worldwide router/switch revenue this year and next, according to Probe, are:

— High capital expenditures in the years leading up to 2001, resulting in overcapacity in current networks and an overabundance of new networks.

— The dot-com crash, the subsequent service provider failures and the shock dealt to those vendors heavily indebted to their customers.

— Harder-to-obtain financing from many venture capitalists who will now fund only those companies that can demonstrably deliver on what they promise.

— A large market for used equipment being resold by dedicated agents, on ISP mailing lists, and on eBay and Yahoo! auction sites.