Network Overview Q411
- A market worth $214 billion in the year to the end of September 2011
- Cisco has a 50% share of the $64 billion Enterprise/Consumer Networks
- Ericsson has a 16% share of the $150 billion Service Provider Networks
- LAN Switches are the biggest Enterprise/Consumer Network offering
- The Americas is the strongest region in terms of growth
- Profitability is better in the Enterprise/Consumer than in Service Provider area
- The introduction of 4G will be disruptive
- Suppliers in this area employ 570k staff
We reported some time ago that there was a network war going on. Since then there have been some significant changes in the supplier landscape with exits, acquisitions and redundancies announced throughout the world. In particular:
- Nortel – a staged withdrawal from the market altogether including its CDMA and LTE Access business to Ericcson (2.5k employees) and Enterprise solutions to Avaya (6k employees)
- Motorola – at the end of 2010 offloaded its wireless infrastructure business to Siemens Nokia Networks, including 6.9k employees and $871 million revenues, although it continues as Motorola Solutions
- Nokia Siemens Networks itself has subsequently announced a reduction of 17k of its workforce by 2013
- Siemens itself has become a far smaller player participating with Nokia in NSN and a share in Siemens Enterprise Communications along with private equity firm The Gores Group
- 3Com – sold to HP for $2.7 billion in November 2009, beating Huawei in the bidding
We thought it would be an excellent time to look at the market, see how it’s grown and how the various sub-sectors are developing.
As always the stats in this article are part of our quarterly market sizing activities which would be very please to talk to you about if you need to know more for your business planning.
Networks Are A Big, Dynamic Market
In the year to the end of September 2011 network markets were worth $214 billion worldwide, with Service Provider versions at $150 billion and Enterprise/Consumer ones at $64 billion. These are hefty numbers, although growth has been sluggish following the industry downturn in Q3 2008 (see Figure 1). Today we’re a long way off the $231 billion the annual market reached in the middle of 2008.
Cisco Dominates Enterprise/Consumer Network Spending, Ericsson, NSN And Huawei – The Service Provider Area
The market shares for each network market for the year to the end of September 2011 are shown in Figure 2. These show the dominant position Cisco has in the Enterprise/Consumer area (49.7 %) and the strong lead (15.7%) Ericsson has in Service Provider Networks. Huawei, Cisco and Alcatel Lucent all have revenues from both areas, albeit with a significantly greater market share from one or other. Of course there have been major changes in market shares due to acquisition activity (outlined above).
LAN Switches Dominate The Enterprise/Consumer Network Sub-Markets
We segment the Enterprise/Consumer Network market into 6 sub-segments, which we show in Figure 3. There are some interesting developments. In particular:
- LAN Switches are the largest area, generating $21 billion revenues for their suppliers in the year to the end of September 2011 – the largest of which are Cisco, Avaya and HP
- Enterprise Telephony encompasses IP PBX, Videoconferencing and components of Unified Communications – it created $17 billion in revenue for suppliers, the largest of which are Cisco, Alcatel Lucent and Avaya; it has faster growth than other sectors
- Routers created $14 billion revenues for their vendors, headed by Cisco, Juniper and HP
- Wireless LANs were worth $7 billion for a vendor list headed by Cisco, Motorola, Huawei; Netgear was in fourth position due to its strength in consumer products – one reason we decided to use ‘Enterprise/Consumer’ as a description of the non-Service Provider categories of product
- SAN (Storage Area Network) equipment was worth $4 billion in the last year; again Cisco headed the market, followed by Alcatel Lucent, Brocade and F5 Networks
- Firewalls are the smallest product area – worth around $1 billion in the last year
Overall the Enterprise/Consumer Network market was hit hard by the downturn in 2008 and has shown some recovery, although it has not subsequently been as successful either the server or storage systems markets.
Big Regional Differences In Network Market Growth
Looking at the growth of Enterprise/Consumer Networks by region we see some major differences once values have been converted to local currencies (Figure 4 in which we’ve added four quarters together in order to smooth the picture). In particular:
- The Americas had a shallower decline during the recession and an earlier recovery with stronger growth than the other 2 regions
- The EMEA market (measured in Euros) was the slowest to be affected by the recession and had the strongest growth in 2001
- The Asia Pacific market (measured in Yen) was most deeply affected by the recession and has been slow to recover; we believe it has only just reached 0% growth in Q3 2011
As such Enterprise/Consumer Networks differ from Service Provider ones in Asia Pacific, where Telecoms providers are building out infrastructure and spending comparatively more on networks than the more mature companies in the Americas or EMEA.
Enterprise/Consumer Networks Are Consistently More Profitable
Because we track net profit alongside revenues we can look at profitability (the division of the former by the latter). Looking at the findings (Figure 5), you’ll see that Enterprise/Consumer Networks are significantly more profitable than the Service Provider area. Profitability for all ICT markets has less peaks and troughs and is typically higher than in the network area – standing at 12% for instance in Q3 2011. It is important to note, however, that there has been no major infrastructure rollout during this period. The introduction of 4G infrastructure is likely to be disruptive. Spending by Telecoms companies will be split between new equipment and government licences. We expect the profitability of Service Provider suppliers to increase as a result.
Some Conclusions – Disruptions From 4G, Downturn And Acquisition Activity
The network war continues apace and we don’t believe we’ve seen the end of acquisitions in this area. There will be disruption in the Service Provider area from the roll out of 4G, which is proceeding far more slowly than with 3G. In the Enterprise/Consumer area there are positives for this sector from the continual move towards virtualisation and fabric-based computing – both of which increase the spending on networking products. However this area is also very prone to economic downturn: having not fully recovered from 2008, it is likely to be badly affected by the worsening economic signs – especially in EMEA.
This is a major new research area for us – please contact us if you have insights to improve our coverage.
Filed under: Cloud Computing, Enterprise/Consumer, Service Provider Tagged: | Avaya, Brocade, Cisco, Enterprise Telephony, Ericsson, Firewall, HP, Juniper, LAN Switche, Router, SAN, Wireless LANs
