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Router, Ethernet switch markets surge upward

The router and switch markets are benefiting from a new round of corporate spending. One user suggests that enterprise application upgrades are spurring the need for faster networking gear.

Analysts report that the markets for both Ethernet switch and router technologies surged upward significantly during the first financial quarter of 2004.

Revenues for the Ethernet switch market increased 16% to $3.2 billion during the first quarter, while worldwide router sales grew 5% to $1.8 billion, according to new research from the Redwood City, Calif.-based analyst Dell'Oro Group.

Synergy Research Group, a Scottsdale, Ariz.-based analyst firm that also looks at sales of networking technologies, reported that the Gigabit Ethernet market had a particularly strong quarter. Joshua Johnson, an analyst with the firm, attributed the increase in Gigabit Ethernet sales to lowered prices and a slow, but steadily growing economy.

"Total Gigabit Ethernet in all segments, fixed and modular, L2 and L3, unmanaged and managed, was up 53% sequentially in terms of port shipments for the first quarter," Johnson said.

Dell'Oro also found that Gigabit Ethernet had a strong quarter, reporting that products featuring the high-speed transmission technology exceeded Fast Ethernet revenues for the first time. The company said that most of this growth was driven by the introduction of high-density Gigabit-over-copper switches and line cards targeted for server and desktop connectivity.

The company reported that Cisco Systems Inc. led the Ethernet switch market in the first quarter, and ranked Nortel Networks Ltd. and Hewlett-Packard Co. in second and third place, respectively.

Dell'Oro reported that low-end and midrange routers, typically used for businesses' remote sites or branch offices, experienced the strongest sales growth at 9%.

"This was the best quarter-over-quarter growth in more than three years, and may be an early indication that businesses are finally loosening their purse strings to expand and upgrade their router-based networks," said Shin Umeda, Principal Analyst with Dell'Oro Group.

Jeff Markham, metro market manager for Robert Half Technology, a research firm in San Francisco, Calif., said that the increase in Ethernet switch and router sales is running coinciding with the upsurge in the economy.

While CIOs remain cautious about spending, certain IT projects that are seen to increase profitability or lower costs are getting the green light, he said. Those projects for the most part fall into the areas of customer relationship management and business intelligence.

Markham said his company, which employs more than 7000 people, recently completed a major implementation of a new customer management system.

"It caused us to upgrade our whole infrastructure including our routers, our servers and our Ethernet stuff," Markham said.

Dell'Oro found that sales of high-end routers, which are typically deployed by telecommunications service providers to manage Internet traffic, experienced a 7% growth in sales.

Dell'Oro ranked Cisco and Juniper Networks Inc. in first and second place, respectively, in terms of router sales for the quarter. Cisco's sales jumped 6% over the previous quarter, while Juniper's sales rose by 8%, but that still wasn't enough to trump Cisco in terms of total revenues.

Redback Networks Inc. had a notable quarter in that their sales of routers jumped by 12% over the fourth quarter of 2003, Dell'Oro said.

Synergy's Johnson said that most of the Ethernet sales occurred in the Asia Pacific region, where shipments jumped by more than 300%.

He said sales of Ethernet equipment were slightly down overall within the U.S., although Gigabit Ethernet sales grew.

"Economies outside the U.S. did really well, and that freed them up to look at more growth at the edge of their networks," Johnson said. "There was some fairly strong price competition in addition to the new models that the vendors put out which really made their older ones looks expensive comparably."

Tom Bishop, the CTO of the Austin, TX-based Vieo Inc., a management appliance vendor, said the increase in Ethernet sales is the result of an improving economy and the need to remain competitive.

An increasing number of servers today are being shipped with Gigabit Ethernet interfaces, and more companies are beginning to adopt the technology. In order to remain competitive, he said, companies that were once content with 10/100 Mbps infrastructures are realizing a need to upgrade.

Jeff Markham, metro market manager for Robert Half Technology, a research firm in San Francisco, Calif., said that the increase in Ethernet switch and router sales is running coinciding with the upsurge in the economy.

While CIOs remain cautious about spending, certain IT projects that are seen to increase profitability or lower costs are getting the green light, he said. Those projects for the most part fall into the areas of customer relationship management and business intelligence.

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