Second Half of 2012 Poised for CapEx Spend in Router and Switching Markets

Although there is instability in global economies, demand fundamentals remain intact and network traffic continues to rapidly increase, adding more performance pressure on service providers’ networks. ACG Research predicts the outlook for the second half of the year is for SPs to spend, invest, and upgrade networks and launch new projects.

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“Growth in network traffic is rapidly expanding. SPs have to make the investments and upgrades in their networks to meet capacity requirements. If SPs remain true to being flat or slightly up the spend in the second half of the year should be positive."

Gilbert, AZ (PRWEB) August 28, 2012

The European debt crisis as well as a reduction in service providers’ CapEx spend continues to affect the global router and switching markets. Vendors cited the turbulence in Greece, Spain, and Portugal and decreased demand from service providers as factors that contributed to their weak revenues in Q2. ACG Research still anticipates growth in the Worldwide Carrier Routing and Switching markets by the end of 2012. One factor that will affect growth is the surplus of CapEx, with some operators reporting having spent less than 50 percent of their CapEx thus far. “Growth in network traffic continues to rapidly expand and add more stress on SPs’ networks. Service providers have to make the investments and upgrades in their networks to meet capacity requirements; it’s that simple,” states Ray Mota, managing partner. “In the long term, this bodes well for vendors, and if SPs remain true to being flat or slightly up then the spend in the second half of the year should be positive.”

Q2 Total Worldwide Carrier Routing & Switching market posted revenue of $2.8B. The global market increased 2.7% quarter over quarter but decreased 5.1% year over year. Core Routing revenues were down 0.6% quarter over quarter and down 11.4% year over year. Edge Routing and Switching revenues were up 3.6% quarter over quarter but down 3.3% year over year.

Cisco posted a total worldwide decline of 2.1% quarter over quarter but an increase of 2.3 year over year. Cisco reports macroeconomic conditions contributed to the decrease in its Q2 revenues. Brocade posted a significant decrease, 23% quarter over quarter but a solid increase of 1.8% year over year. Juniper increased worldwide routing revenue 4.6% quarter over quarter but decreased 20.2% year over year; the company stated cautious purchasing prioritization by service providers, which is 64% of Juniper’s revenue, and some large enterprises as factors influencing their quarterly results. Alcatel-Lucent, which continues to institute more cost cutting measures, staff reductions and management restructuring, increased 6.6% quarter over quarter but decreased 2.2% year over year.

Quarterly Trends and Drivers Highlight

Service providers and enterprises are looking at networks that are flatter, that reduce complexity and OpEx, while delivering greater performance and scale.

Core network traffic is growing in excess of 50% per year, and new services such as content-rich digital media, cloud and mobile broadband place new requirements on the network for optimal distribution and delivery. Core routers, consequently, must scale rapidly and meet demanding network performance objectives with the lowest possible total cost of ownership.

A key driver contributing to service provider router and switching market growth is the increasing demand for mobile broadband and providers investing in wireless networks to meet that demand.


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