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IP router, switch revenues drop 10 percent, but Q4 outlook good

The global IP router and switching market may have suffered a near-term setback as revenues dropped 10 percent sequentially, but vendors are expected to see improvement in the upcoming fourth quarter, according to Infonetics Research.

Overall, the segment totaled $3.6 billion, up 7 percent year-over-year. Infonetics has forecast that the market will grow at a 7 percent compound annual growth rate (CAGR) from 2012 to 2017, when it will reach $20.2 billion.

Michael Howard, principal analyst for carrier networks and co-founder of Infonetics, said that the sequential dip in revenues was mainly due to seasonality and that the sector improved over Q2 2012.

"The third quarter is normally slow for the carrier router/switch market, so a 10 percent sequential drop isn't overwhelmingly bad, especially with the expectation of a good 4Q13 and an improving year-over-year outlook," he said. "All three main IP router/switch categories--edge routers, core routers, and carrier Ethernet switches (CES)--are up from a year ago."

While Huawei and ZTE both reported that their routing revenues in Asia Pacific declined during the quarter, Infonetics said it expects that they will both recover in Q4 2013. Likewise in Europe and EMEA, the segment did decline 10 percent, but the research firm expects that a number of the largest providers are "expected to carry out a decent budget flush in the 4th quarter."

From a vendor perspective, Cisco (Nasdaq: CSCO) continued to hold onto its first place lead with 38 percent market share followed by Alcatel-Lucent (NYSE: ALU) and Juniper Networks (NYSE: JNPR). One of the notable moves was Huawei, which dropped to the number 4 spot on Infonetics' Q3 2013 global router/Carrier Ethernet Switch revenue share Leaderboard.

All three of the top routing and switching vendors saw gains in the most recent quarter.

Cisco said in its fiscal Q1 2014 period that switching sales rose 3 percent to $3.75 billion as it saw an increase in the Americas and EMEA regions, while Alcatel-Lucent's IP routing division rose 7 percent year-over-year to $789.2 million. Due to successive record quarters of growth for its MX platform, Juniper reported that routing revenue was $609 million, up 5 percent sequentially.

China Telecom may cut 50% on fixed network investment

Wei Leping, director of China Telecom Science and Technology Committee gave a speech to discuss how to develop FTTH on 2013 China Optical Communications Development and Competitiveness Forum. He said, "China’s FTTH is developing rapidly but it lacks strategic planning.” By the end of 2012, China Telecom FTTH subscribers reached 20 million, and it surpassed Japan to become the world's largest FTTH operators. He also pointed out, “FTTH should be a long-term work than some short-term mission.

Contrast Verizon

In June this year, Wei Leping flied to the United States to do the research. Taking FTTH as an example, His analysis on FTTH development showed that Verizon’s planning towards FTTH is much clearer than Chinese carriers.

So far Verizon’s FTTH coverage up to 24.3 million and its FTTH mounting user reached 9 million. Lasting for 7-8 years, Verizon’s FTTH development went not fast. "Verizon already shifted its focus to fiber mounting rate and the cost.” In addition, FTTH distributed uneven in the U.S, Except several states, other regions have not enjoy the FTTH service yet.

50% down on broadband investment

Except lacking plans, the development of broadband faced another problem——the coming storm of LTE. China Telecom may cut 50% on broadband investment but the final version is still under discussion, according to the report.

Wei Leping also talked to staff in China Telecom,“We have to use the broadband money since there is big pressure in capital market.”However, he added, “China Mobile is going to increase the investment on broadband, which may make up the loss.”


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