IDC: Core network infrastructure market growth is slow but stable

According to IDC's Global Ethernet Switch and Router Quarterly Tracking Report, the global Ethernet switch market (Layer 2/3) revenue reached $6.29 billion in the third quarter of 2016, a year-on-year increase of 2%. At the same time, the global enterprise and service provider (SP) router market revenue in the quarter was $3.56 billion, a year-on-year increase of 2.6%.

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From a geographic perspective, the Ethernet switch market grew strongest in the Middle East and Africa (MEA) region in the third quarter of 2016, up 11.2% year-over-year, rebounding from a slight decline in the previous quarter. The United Arab Emirates (UAE) performed well, growing 23.5% year-over-year. Similarly, Asia Pacific (excluding Japan) grew 9.8% year-over-year. Vietnam also performed well, growing 57.3% year-over-year. Meanwhile, China performed well, growing 21.5% year-over-year, largely driving the overall strong growth in the quarter. Latin America also performed well, growing 9.2% year-over-year, as did Peru (up 21.1% year-over-year) and Argentina (up 17% year-over-year). Japan achieved the highest growth rate in the period (2.6%).

All other regions contracted in the quarter. North America was down 1.1% year-over-year in the quarter, with Canada down 5.7%. Western Europe was down 1.9% year-over-year, but Sweden and Portugal stood out, up 33.3% and 32.4% year-over-year, respectively. Central and Eastern Europe (CEE) saw the most significant decline, with revenue down 5.8% year-over-year, significantly impacted by a 25.7% year-over-year decline in the Czech Republic.

"Recent macroeconomic developments and the maturing of IT architectures have led to different decisions among IT decision makers in different regions regarding Ethernet switch investments," said Rohit Mehra, vice president of Network Infrastructure at IDC. "The enhanced 40GbE and 100GbE specifically for data center deployments has helped stabilize the enterprise campus market during the period of decline."

10Gb Ethernet switches (Layer 2/3) declined 1.3% year-over-year in the quarter to $2.22 billion in revenue, while 10Gb Ethernet switch port shipments increased 10.6% year-over-year to 9.76 million ports. 20Gb Ethernet revenues reached $756.4 million in the quarter, up 20.5% year-over-year, and port shipments were close to 1.9 million, up 68.5% year-over-year. 10Gb and 40Gb Ethernet, along with 100Gb Ethernet (revenue growth of 330.1% and shipment growth of 447.5%), were the primary drivers of the overall Ethernet switch market in the third quarter of 2016. 1Gb Ethernet switch revenues decreased 4.3% year-over-year, while port shipments increased 10.9%, indicating a mature campus market segment.

The global enterprise and service provider router market grew 2.6% year over year in the quarter, with the larger service provider segment and enterprise routing segment growing 0.8% and 8.2% year over year, respectively. This will be a market to watch in the coming quarters as software-defined architectures begin to gain a foothold in the WAN, and SD-WAN has the potential to disrupt traditional routing architectures as well as the WAN transport market.

The enterprise and service provider router market had mixed performance across regions in the third quarter of 2016, with Asia Pacific once again driving the market forward. Asia Pacific excluding Japan was the standout region, growing 23.9% year over year in the quarter, followed by Japan, which grew 15.3% year over year. No other region achieved year-over-year growth in the quarter: Latin America declined 2.6%, North America decreased 3.5%, Western Europe decreased 5.7%, the Middle East and Africa decreased 6.3%, and Central and Eastern Europe decreased 9.6%.

Manufacturer Highlights

Cisco's Ethernet switch market share decreased by 5.4% year-on-year in the quarter, with a market share of 57%, higher than 56.8% in the previous quarter, but lower than 61.5% in the third quarter of 2015. In the highly competitive 10GbE market, Cisco's share was 53.5% this quarter, higher than 53% in the previous quarter. Cisco's combined revenue from service provider and enterprise routers decreased by 4.8% year-on-year, and its market share was 44.2% in the quarter, lower than 44.8% in the previous quarter.

Huawei performed well in the Ethernet switch and router markets in the quarter, with Ethernet switching revenue increasing by 91.6% year-on-year and a market share of 7.2%. Huawei's enterprise and service provider router revenue increased by 23.8% year-on-year, with a market share of 16.6%.

HPE's Ethernet switch revenue decreased by 4.3% quarter-on-quarter in the quarter, and its market share was 5.5%, down from 6% in the previous quarter. (Note: HPE and H3C are counted separately starting from the second quarter of 2016)

Juniper's Ethernet switching business grew 7.1% year over year in the third quarter of 2016, and its service provider and enterprise router revenue grew 5.9% year over year, giving it a market share of 17.4%.

Arista Networks also had a good performance in the third quarter of 2016, with Ethernet switch revenue increasing 31.5% year over year.

"Software-defined network architectures and the transformation of networks for the digital economy are major factors impacting the core network infrastructure market segment," said Petr Jirovsky, research manager for IDC's Worldwide Networking Trackers. "This, coupled with the emergence of new Ethernet port speeds in data centers and enterprise campus networks, will fuel continued interest in the market."