Vendors see network equipment sales plummet

The second quarter of 2001 saw sales drop across the board for most network equipment tailored to service providers, according to two market research firms.

Sales of routers, optical transport gear, WAN switches, LAN switches for Web hosting and packet telephony gateways all declined in the second quarter from the first quarter, according to Cahners In-Stat and Dell’Oro Group. The research firms again cited the dramatic reduction in service provider spending as the culprit. Service providers are also looking to squeeze as much out of their existing systems and only now are deploying equipment they purchased last year, the firms say.

The total router market in the second quarter declined nine per cent from the first quarter of 2001, and 16 per cent from the second quarter of 2000, to US$2.5 billion, according to Cahners. High-end and terabit routers declined 13 per cent and 14 per cent respectively, the firm stated.

Dell’Oro’s figures for high-end routers – those capable of OC-48 and OC-192 speeds – show a revenue decline of 28 per cent between the first and second quarters. Dell’Oro said the market for OC-48-capable devices declined by more than 50 per cent from the first quarter, from US$505 million to US$249 million.

Cisco and Juniper Networks, the distant leaders in this market, swapped share evenly: Cisco’s share declined to 70 per cent from 80 per cent in the first quarter, while Juniper gained 10 per cent, from 19 per cent in the first quarter to 29 per cent in the second quarter.

The market for OC-192-capable Internet core routers actually grew 16 per cent, from US$247.1 million in the first quarter to US$286 million in the second quarter, according to Dell’Oro. Cisco nearly quadrupled its revenue in this market during this time and tripled its market share. Juniper lost ground, as its revenue declined 40 per cent and its market share dropped from 77 per cent in the first quarter to 40 per cent in the second quarter.

Avici Systems, the third-leading vendor in OC-192 routers, saw its market share increase 25 per cent between the first and second quarters, from six per cent to 7.5 per cent.

Multiservice WAN switch revenue was US$1 billion, a decrease of 28 per cent from the first quarter of 2001, Cahners reported. In this market, service providers economized on capital spending by using existing equipment as much as possible and adding more, higher-density cards to this equipment to handle traffic growth, Cahners said.

In the optical market, sales of dense wavelength division multiplexing (DWDM) and SONET/SDH gear declined 16 per cent from the first to second quarters, according to Dell’Oro. Lucent assumed market leadership from Nortel, which saw its sales decline by more than 50 per cent.

Nortel also lost its market leadership in long-haul DWDM with a 64 per cent decline in revenue, and in SONET/SDH equipment, with a 50 per cent drop in sales, Dell’Oro said. Nortel maintained its leadership in metropolitan DWDM even though revenue declined 16 per cent.

The Layer 2/3/4 to 7 switch market shrank nine per cent as ports shipped dropped to 31.53 million from 34.83 million in the first quarter, according to Cahners. Revenues shrank 15 per cent to US$3.62 billion.

Gigabit Ethernet, Layer 3 and modular switches drove ports and revenue, Cahners reported.

Layer 4 to 7 Gigabit Ethernet switches outperformed the overall market for the quarter, Cahners stated. Moderate switch growth is expected to resume in the second half of 2001, where Fast Ethernet and Layer 3 products will drive unit shipments, and Layer 3/4 to 7 and gigabit Ethernet will drive revenue growth, the research firm predicts.

Packet telephony gateway revenue totaled US$243.2 million in the second quarter, representing a 10 per cent decline vs. the previous quarter, Cahners reported. Third-quarter port shipment growth is expected to be flat compared with the second quarter.

Packet telephony gateways are faring much better than some other segments in this tough environment, Cahners stated. As a means to reduce cost and expand services, sales of packet telephony gateways are expected to flourish when the industry slump abates.