Cisco had surprising calendar year 3Q08 market share loss in service provider routers

All this month Cisco has been touting the upcoming launch of its new ASR 9000 Carrier Ethernet router. However suprisingly, for calendar year 3Q08, Cisco suffered an unusual loss of market share in service provider routers. According to Shin Umeda - the Dell’Oro Group router analyst, "Our Service Provider Router Market report showed a significant slowdown in sales for the third quarter. Cisco continued to be the top ranked vendor, but the company’s revenue declined 10% sequentially, and their market share dropped from 57% to 51%. The next four vendors in the rankings, Juniper, Alcatel-Lucent, Huawei, and Redback each gained share." Umeda added, "We attribute Cisco’s share loss to a combination of revenue recognition timing and the completion of a major network build-out by a large customer. With regard to revenue recognition, we believe Cisco recognized an extraordinarily large amount of revenue in the month of June and a correspondingly lower amount in the month of July. Since Cisco’s fiscal quarter ended in July, the imbalance between June and July had little net effect on their reported financial results. However, because market shares are based on calendar quarters, the strong June results lifted 2Q08 sales, while the weaker July results depressed 3Q08 sales."

Dell'Oro Group Service Provider Router Market Revenue Share - 3Q08
Dell'Oro Group Service Provider Router Market Revenue Share - 2Q08
Dell'Oro Group Worldwide Service Provider Router Calendar Year Quarterly Market Revenue Share
Market Share Calendar Year Quarter 3Q08 2Q08 Quarterly Market Share Change
Alcatel-Lucent 10% 9% +1%
Cisco 51% 57% -6%
Huawei 7% 6% +1%
Juniper 25% 22% +3%
Others 4% 3% +1%
Redback 4% 3% +1%
Source: The Dell'Oro Group Dr. Ray Mota - Chief Strategist of the networking and telecom industry market research firm Synergy Research Group, provides insight into Cisco's market share loss in service provider routers:
Ray Mota
"Cisco had a tough quarter in the Service Provider space, it’s still too early to tell if it’s anomaly or a trend, the next two or three quarters will help clarify. "The ASR 9000 was a significant announcement for Cisco since it addresses a gap in Cisco's edge router portfolio, by delivering a much higher-capacity, integrated system. If they are able to execute on their stated features of the ASR 9000, it should make the SP Edge market an interesting competitive landscape."
Synergy Research Group Total Service Provider Edge Routers Revenue Amount($) Calendar Year Quarterly Company Market Share Report World Wide
Market Share Calendar Year Quarter 3Q08 2Q08 Quarterly Market Share Change
Alcatel-Lucent 16.51% 15.18% +1.33%
Cisco 55.84% 60.14% -4.30%
Extreme 1.20% 1.15% +0.05%
Force10 0.22% 0.33% -0.11%
Foundry 1.94% 1.84% +0.10%
Juniper 15.28% 13.90% +1.38%
Nortel 0.42% 0.45% -0.03%
Others 2.40% 2.40% -
Redback 4.08% 3.28% +0.80%
Tellabs 2.11% 1.34% +0.77%
Source: Synergy Research Group Regarding Cisco's calendar year 3Q08 market share loss in service provider routers, Kevin R. Petschow of Cisco Global Technology Strategy responded:
"Cisco has a robust pipeline of breakthrough, new routing products that will enable us to gain customers in all areas of the service provider market. "Internet-based traffic, fueled by incremental gains in video consumption, is creating the need for a new class of routing technology. "Cisco's flagship core (Carrier Routing System, CRS-1) and edge (ASR series, 1000 and 9000) portfolios are the only products in the marketplace engineered to address the massive surges in video traffic that are flooding IP networks, and unlike other contemporary routers, Cisco technologies are designed to meet the bandwidth challenges of the future."

Lindsay Newell - VP Marketing of the Alcatel-Lucent IP Division, gave credit to 3 points that helped Alcatel-Lucent gain 3Q08 market share in service provider routers: Point 1: High Performance

Lindsay Newell
"While other router vendors have recently announced long-term roadmaps, Alcatel-Lucent has actually been delivering the highest density, highest performance, most service-rich edge router in the industry, the 7750 SR. Other router vendors talk about high performance networks and the capacity of the connectors between slots but are still only delivering 40G/slot linecards, even in their core routers, while the Alcatel-Lucent 7450 ESS and 7750 SR both support 50G/slot (full duplex) linecards today and are ready for 100G in future. Alcatel-Lucent’s multiple award-winning FP2 silicon is the only 100G network processor commercially available in a router today."

Point 2: Video and IPTV "For video networks, while Cisco was announcing ad insertion as a future capability on the ASR9000, Alcatel-Lucent was providing live demonstrations of ad insertion for IPTV using the 7750 Service Router at Telco TV last week. Alcatel-Lucent’s Service Router portfolio is already delivering IPTV to more than 3 million subscribers in the US and Europe, with millions more watching Internet video over the same networks." Point 3: Market Share and Momentum "Alcatel-Lucent is now ranked #2 in IP/MPLS edge routing market share by many analyst firms and has secured more than 250 service provider wins and grown faster than the overall market in every one of the last five years. There is a simple reason for this – service providers aren’t just delivering high-performance, best-effort Internet access on their IP networks today and Alcatel-Lucent’s Service Router portfolio excels at multi-service scaling with high availability, easier provisioning and more efficient operations and management." Karen Livoli - director of product marketing for Juniper’s Edge and Aggregation Business Unit, praised strategy as being responsible for Juniper's 3Q08 market share gain in service provider routers:

Karen Livoli
"Juniper’s strategy continues to be focused on delivering high performance solutions that help customers extract maximum value from their networks. The market share results show that this strategy is working, and that our product cycles are stronger than ever. "Specifically, one of Juniper’s most powerful advantages is the proven JUNOS software--the single operating system running routing (core to edge to customer premise), switching and security platforms from Juniper Networks.

"By leveraging a consistent operating system in many different portions of the network, customers can reduce operational complexity and deploy services faster. And this also means customers who use Juniper gear in one part of their network can more easily deploy Juniper in new, additional parts of the network. "JUNOS and its consistency are a big part of the reason Juniper’s MX-series—Juniper’s first Ethernet-centric platforms—have enjoyed such success in the Ethernet market, shipping to over 300 customers in less than 2 years of availability. It also ensures customers of our other platforms, such as the M-series multiservice edge routers, can continue to leverage their existing investment for many years to come, by taking advantage of the pragmatic, non-disruptive upgrades Juniper continues to make to both hardware and software (see for example, our Intelligent Services Edge announcement)." Related story: Cisco's ASR 9000: All hat, no cattle?

Why do you think Cisco had a surprising calendar year 3Q08 market share loss in service provider routers?

Brad Reese
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