SDN and related industry trends may be behind declines in Ethernet switching, service provider routing and reduced carrier spending.
First quarter 2014 data from market research and analysis firms indicate that software-defined networking and commodity white box switching are prompting a pause in sales for leading name vendors, and perhaps prompting carrier AT&T to dampen overall spending while preparing an ambitious SDN-related project.
The Ethernet switch market in Q1 was off by $1 billion sequentially, the second worst first quarter on record for the market, according to Dell’Oro Group. Reasons for the drop off include a pause in data center switching sales caused by the emergence of Cisco’s Nexus 9000 line, the foundational underpinning of its Application Centric Infrastructure response to SDNs, according to Dell’Oro.
Another factor is the continued uptake of white box switching, a preference of cloud providers. Sales of white box switches outpaced the overall market in Q1 and Dell’Oro expects cloud provider equipment requirements – as well as China’s selection of switch vendors -- to impact the market for the remainder of 2014.
By proposing a decoupling of the control plane from the data plane, SDNs make low cost white box switching more palatable to those typically buying brand name gear.
Another factor in Q1’s sequential switching decline was campus requirements for more wireless options, Dell’Oro noted. But despite the drop off, 40G and 100G Ethernet both grew, contributing more than five percent of the total market revenue of over $5 billion, Dell’Oro said. Cisco, Dell, HP and Juniper all grew their 40 Gigabit Ethernet port shipments sequentially, the firm noted.
SDN “hesitation” also slowed carrier router and switch spending in the first quarter, according to Infonetics Research. The market grew only 2% from last year due carrier contemplation of “the enormity” of the coming SDN and Network Functions Virtualization transformation, the firm stated.
"We believe the current generation of high-capacity edge and core routers can be nursed along for a while as the detailed steps of the SDN-NFV transformation are defined by each service provider,” said Infonetics Co-founder and Principal Analyst Michael Howard.
AT&T last month cut its wireline capital spending, according to investment firm Jefferies, perhaps due to the upcoming rollout of its Domain 2.0 SDN and NFV initiative, as well as mobile infrastructure needs and the multibillion dollar acquisition of DirecTV.
The global carrier router and switch market was also down 13% from Q4, 2013, to $3.2 billion, according to Infonetics. Revenue for all product segments - IP edge and core routers, and carrier Ethernet switches - declined by double digits sequentially in Q1.
Conversely, Dell’Oro Group found optimism in the core router market specifically, noting that its 4% year-over-year growth in Q1 marked the fourth consecutive quarter of annual growth. Dell’Oro expects even more rapid growth for this segment through 2014 due to pent up demand from low investments in 2012; and demand for new higher capacity products.
The top four vendors – Cisco, Juniper, Huawei and Alcatel-Lucent – accounted for 97% of the market.
The top four vendors in carrier routing and switching overall in Q1 were Cisco, Juniper, Alcatel-Lucent and Huawei, according to Infonetics. The firm is projecting 5-year (2013-2018) CAGRs of 4.3% for edge routers, 2.9% for core routers, and 0.7% for carrier Ethernet switches.