1999 Ad

Electronic News, March 27, 2000 by Gemma Paulo

The networking equipment market is one of thework (LAN) and wide area network (WAN) equipment had their biggest year ever. The total networking equipment market ended the year at $37.2 billion in sales. Growth in 1999 was driven by increased service provider spending for WAN gear, growing demand for network connectivity from small and mid-sized businesses, and an increasing reliance on the Internet and the underlying network as a communications and business tool.

The networking equipment market ended 1999 with a bang. In fourth quarter 1999, Layer 3 switching, access concentrators, asynchronous transfer mode (ATM) WAN equipment and frame relay equipment drove 13 percent sequential growth as the market reached $10.6 billion.

In the fourth quarter of 1999, the top three networking markets in ranked order were LAN packet switches (predominantly comprised of Ethernet and Fast Ethernet switches), routers, and access concentrators, with respective shares of 25 percent, 18 percent and 9 percent. Layer 3 (L3) switches are driving LAN packet switch revenues. L3 port shipments grew 40 percent in the fourth quarter of 1999, reaching 1.47 million total ports and almost $1 billion in revenues. The L3 Gigabit market grew strongly in the fourth quarter, while still remaining a relatively small market. Cahners In-Stat Group expects this segment to continue its growth as more customers look to add the intelligence of L3 switches to the core of the networks, where Gigabit Ethernet sells almost exclusively today.

The router market grew 24 percent in the fourth quarter of 1999. By the end of 1999, the router market had grown 29 percent over 1998 to $8.1 billion in sales. The bulk of routers shipped in the final quarter of 1999 were in the low-end router segment, comprising SOHO routers and branch office routers.

The access concentrator market continues to fuel growth in the networking equipment market. Cahners In-Stat Group expects manufacturing sales to reach more than $1 billion by the end of the third quarter of this year. The service provider market continues to drive demand for access concentrators, totaling almost 90 percent of access concentrator sales. Deregulation has opened up the competitive landscape of markets worldwide, and with Y2K concerns behind them, service provider demand for access concentrators is expected to remain strong.

As for the next three quarters, Cahners In-Stat Group believes that the following factors will affect the performance of the networking hardware market. Although growth is expected to slow in the first quarter of 2000, the networking equipment market will pick up steam in the following two quarters, fueled by enterprise backbone purchases and continued service provider network build out.

The significant amount of acquisition activity among networking companies will spur increased consolidation among the lower half of the top vendors. Barriers to entry will become even higher due to increases in the capital required to get into the revenue-rich service-provider market.

Top networking vendors will fight for position in the fiber optic networking arena, so they are not left behind in the bandwidth wars.

Gemma Paulo is a research analyst with Cahners In-Stat Group in Scottsdale, Ariz. She can be reached at gpaulo@instat.com.