Cisco tops most categories, but sees increasing competition at high, low end.
Market leadership in most LAN switch categories can be summed up in one word – Cisco. But a closer look at the numbers reveals some new developments taking place at opposite ends of the switch spectrum.
While Cisco leads most switch categories, the company is seeing fierce competition from a host of new lower-end competitors. New vendors also are emerging in some advanced switching categories, such as Layer 4 to Layer 7 and 10G Ethernet.
Basic Ethernet equipment has become a commodity for the most part, as the market for Layer 2 gear has shrunk by more than $2 billion over the last three years, going from $10.7 billion in 2000 to about $7.4 billion in 2002, according to IDC. This trend is expected to continue through 2007. The average per-port price of $57 in 2003 is predicted to be about $20 in 2007.
For more intelligent Ethernet gear, the revenue picture is a little brighter, as the Layer 3 equipment market is expected to grow, on average, 13% between now and 2007, while Layer 4 to Layer 7 equipment sales will continue strong, with 28% growth over the same time period. High-speed Ethernet, and Gigabit and 10 Gigabit also are expected to grow at a rapid clip – 10% and 43%, respectively, over the next five years, IDC says.
The leader in worldwide LAN switch market revenue last year was Cisco – no surprise. But analysts say a look at the Ethernet port shipment numbers paints a different picture of the market.
“People always talk about Cisco being the dominant player,” pointing to the firm’s 70% market share in LAN switch revenue, says Rachna Ahlawat, principal analyst with Gartner. “But they’ve always been around 40% to 50% in terms of port shipments. The rest of the market is being captured by commodity players, and their share is increasing.”
What analysts consider the low-end, or commodity, segment, of the Ethernet LAN market is where some of the fiercest battles are going on. In terms of Layer 2 fixed-configured products, Cisco accounted for about one-third of the 131 million ports shipped in 2002, according to Gartner. Hot on Cisco’s heels was 3Com, with 13%, followed by small office/home office switch makers D-Link Systems and Netgear, with 11% and 9%, respectively.
“Because the equipment is becoming so standardized on the low end, it’s a new kind of competitor that’s gaining market share,” Ahlawat says. This trend is driven by small and midsize businesses that are looking for lower prices and willing to build networks out of heterogeneous gear.
In the high-end enterprise backbone market, which analysts define as Layer 3 modular LAN gear, Cisco’s hold on the arena in terms of revenue and shipments is stronger. The company had 74% of the $4.5 billion market in 2002, according to Synergy Research Group, and 64% of the 11 million ports shipped.
Cisco has long been considered among the leaders in switching, but it has pulled away from its competitors over the last two years, growing its share by more than 20% in modular Layer 3 shipments and sales since 2000. Two years ago, Enterasys Networks had 22% of the LAN Layer 3 core market, while Nortel had 12% and Extreme Networks had 10%. Now those companies are all in the single digits.
Ahlawat says Cisco’s success in the Layer 3 enterprise core is due to its entrenched presence in large corporations, which are more likely to buy from Cisco because they are looking for an end-to-end network infrastructure, rather than point products for the LAN core.
While Cisco dominates most of the Layer 2 to Layer 3 market, more parity can be found in markets for advanced switching gear. According to Synergy, Cisco was the overall leader in Layer 4 to Layer 7 switch revenue in 2002. But in fixed-configured Layer 4 to Layer 7 gear – known as Web switches or load-balancing boxes – Cisco was behind Nortel, which had 40% of the $202 million market. Cisco’s share was 28%, followed by F5 Networks, Radware and Foundry Networks, with 10% each.
Another market that gives an even more varied leadership picture is the emerging 10G Ethernet arena, where Synergy had Foundry as the leader with 50% of the $57 million in 10 Gigabit sales last year. Cisco was second with 41%, while Extreme, Nortel and Avaya followed with about 5% each.
Analysts say markets for these highly specialized products are still wide open because users of Web switching or 10 Gigabit are more likely to buy gear such as point products, instead of as part of a larger overall infrastructure rollout.
