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Cisco losing more steam in Layer 4-7

Q3 numbers show stunning market share giveback over past 2 years

Third quarter Ethernet switching numbers are starting to trickle out and the only surprise might be how fast Cisco is fading in Layer 4-7. Cisco maintained its 72% share of the overall Ethernet switch market and even upped that by 2% from last year. But it's sliding in Layer 4-7.

Cisco's share of the $300 million market in Q3 declined to 14% from 20% in Q2, and 25% a year ago, according to investment firm Ticonderoga Securities, citing data from Dell'Oro Group. UBS, meanwhile, notes that since 2008, Cisco's given back over half its share in Layer 4-7 - from 33% share in 2008 to 14% now.

What WAAS that?

Granted, Layer 4-7 accounts for only 6% -- or $1.5 billion - of the overall Ethernet switching market. But Cisco losing so much steam in this market makes one wonder Cisco's really committed to it  -- or if it sees standalone WAAS and ACE appliances reduced (physically) to ASICs or software on a router or switch blade... and then virtualized. Looks like Cisco is maintaining its installed base while directly it prepares them for this transition, or indirectly steers them to another vendor.

Meanwhile, leader F5 increased its Layer 4-7 share in Q3 to 50% from 45% in Q2 and 40% a year ago.

Things are ship shape for Cisco in Layer 2-3, however. The company has a commanding 72% share of the $5 billion market in Q3, which grew 34% from a year ago.  Cisco's share was flat with Q2 but up 2% from a year ago, suggesting again that the company's lackluster outlook for its current fiscal Q2 has not been due to lost share in its core markets (we'll check again after fiscal Q2 and calendar Q4).

HP and Juniper also gained share sequentially and over the year. HP now stands at 10.5%, from 6.5% a year ago (thanks, 3Com); and Juniper is now just under 2% from 1.3% last year.

Share losers during the quarter, both on a sequential and year-over-year basis, were Brocade, Extreme, Avaya, Alcatel-Lucent and Huawei, according to UBS. HP and Juniper share gains seem to be coming from this group rather than from Cisco.

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