For every winner, someone must also be the loser. In the case of more efficient use of network resources, the short end of the stick is held by companies that make the Ethernet switching gear for those networks. As efficiency increases, the need for their products shrinks. Studies from Dell’Oro Group, IDC and Infonetics show that the market is down.
Dell’Oro found that the market for Layer 2 and 3 Ethernet switches fell by almost $1 billion to a little over $5 billion during the first quarter of this year. Despite the overall results, the 40 Gigabit and 100 Gigabit Ethernet sales grew and now represent more than 5 percent of the total.
IDC pegged the market at $5.2 during the quarter. Enterprise Tech says that IDC sees less of a decline from the fourth quarter than Dell’Oro found. The analysts found that sales actually increased four-tenths of a point for Layer-2 and 3 switches on a year-on-year basis.
Infonetics found that during the first quarter Ethernet switch sales “declined sharply” to the tune of 15 percent compared to the fourth quarter of 2013. The firm said that weak performance by market leader Cisco (a 7 percent year-over-year decline) was not offset by strong results from Juniper (a 52 percent gain) and Arista (a 90 percent gain).
The analysts concluded that the market is “essentially flat” compared to a year ago and that the most positive sectors are 10 Gigabit Ethernet (a 37 percent year-over-year increase), 40 Gigabit (three-fold growth) and 100 Gigabit (more than 30-fold growth).
Network Computing highlights the Dell’Oro results and looks at the reasons for the dip in the value of the wired Ethernet market. Greg Ferro identifies the main drivers as software-defined networks (SDNs), virtualization, the increasing use of wireless instead of wired Ethernet, low cost white box switches and other new efficiency-driving approaches.
CRN addresses Cisco’s changing role and its centrality to the poor overall sector numbers. The situation is summed up in a quote from Focus Technology Solutions’ CTO Bill Smeltzer. He begins by suggesting that Ethernet switching is moving to commodity status, which opens the gates to less expensive options to Cisco. That, he said, is a big deal:
"Cisco has worked hard to change some of that, in terms of their pricing structure, and they have even put out a few new switch lines recently that are less expensive switch lines," Smeltzer said. "But there is just this perception that Cisco is like Mercedes or Lexus or BMW. It's more money than anything else."
There seem to be two deeply related things going on in the Ethernet switch market. First, the new technologies drive down the overall need, at least until the next explosion of demand hits. Related to that, though, is the reality that (as in all fundamental transformations) the top dog is the most vulnerable. Cisco is a very dominant player, so its readjustment is bound to reverberate through the sector.