Data centres drive Ethernet switch market in 2010

2010 promises to be an interesting year in the enterprise LAN switching market.

With the exception of Avaya Inc., next-generation data centre initiatives are driving the LAN switching market and its consolidation. And they are all intended to compete more intensely with Cisco Systems Inc., which owns 70 per cent of the Ethernet switching market but still has an insatiable appetite for growth.

“Big data centre vendors are driving LAN switching decisions, and purchases,” says Zeus Kerravala, an analyst with the Yankee Group. “Where innovation’s been needed is in the data center.”

“Innovation is being driven in the data center,” says Steve Schuchart of Current Analysis. The drive to automate the data centre is making the all-in-one buy from a single large vendor more attractive to customers, he says.

Indeed, the LAN switching market is no longer “Cisco and the Seven Dwarves” – the seven companies all vying for that 25 per cent to 30 per cent share Cisco doesn’t own. The LAN switching market is now steered by Cisco, IBM, Hewlett-Packard Co. and Dell Inc., and perhaps Brocade Communications Systems Inc. – data centre networking, server and storage stalwarts looking to take their customers to the next-generation infrastructure of unified fabrics, virtualization, and the like.

Data centre deployments of 10G Ethernet are helping to drive the market, according to Dell’Oro Group. The firm expects the global Ethernet switching market to grow modestly in 2010, to US$16.3 billion from US$15.6 billion in 2009. This is down considerably though from the $19.3 billion market in 2008, Dell’Oro notes.

And pricing pressure is expected to increase, according to a Nov. 19 Goldman Sachs survey of 100 IT executives on IT spending. With its 3Com buy, HP can now offer a core data center switch in addition to the enterprise switches it sells at roughly half the price of comparable Cisco products, the survey notes. And with Juniper Networks ramping up its IBM and Dell OEM channels, Cisco’s market share will be squeezed if profit margins are to be maintained, the survey suggests.

Another carrot for Juniper and its high-performance networking direction will be buying patterns. The Goldman Sachs survey found that most respondents base their purchase on price performance over architectural road map.

Where does all this jockeying among the top tier leave Extreme Networks, Enterasys, Force10 Networks Inc. and the rest of the pack? They’ve always claimed price/performance advances over Cisco but never gained any meaningful market share. And in terms of marriages, Enterasys united with Siemens Enterprise Communications to go squarely after the secure wired/wireless unified communications opportunity.

Force10 is merging with Turin Networks, a provider of wireless backhaul, Carrier Ethernet and converged access systems for service providers. Force10 seems to be gravitating more and more to the carrier cloud, but is still a high-performance data center play – though one that was left behind by the data center systems mainstays.

That leaves Extreme Networks virtually alone in LAN switching. The company has been extending its product line for data center-specific applications, such as virtualization and 10G Ethernet. But analysts say they will have little relevance beyond Extreme’s installed base.

“What problem is Extreme solving that nobody else is?” Kerravala asks. “There just isn’t a differentiator compelling enough.”

Extreme begs to differ. “Extreme Networks delivers a network that requires fewer resources to operate and acquire while offering unique capabilities to scale for future requirements and changing demands,” says chief marketing officer Paul Hooper. “We achieve this through the delivery of a consistent Ethernet portfolio, stretching from the edge of the network to the core, all powered by a single OS, ExtremeXOS. Extreme’s network platform also enables organizations to migrate their data centers from physical to virtual to cloud networks. The benefit is that enterprises can smoothly transition from separate to converged networks and carriers can adopt pure Ethernet-based services.”

Switching may not be a differentiator for Avaya either, after buying Nortel Networks’ enterprise unit. Due to the price sensitive and hotly competitive nature of the LAN switching business, Kerravala believes Avaya will look to part with its acquired Nortel data networking products.

Avaya says it will issue a Nortel/Avaya product road map 30 days after the deal’s close.

“The best place for Nortel data is in HP/3Com or Brocade, a company looking to expand its customer base,” he says.

The best place for everyone else is with a major OEM partner, according to CurrentAnalysis’ Schuchart. And if they haven’t had much success selling on price/performance, perhaps they should play the architectural road map card.

“For companies that don’t have a deal or are not wholly owned by a compute vendor, next year’s going to be tough sailing for them,” Schuchart says. “There’s also a fair amount of room out there for companies who have best-of-breed products, although in a data center moving towards virtualized automation, the standalone providers are going to have a harder time.”

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