Spending on all network hardware declined by 2.1% to $36b in Q1 2016; service provider offerings did better (-0.4% to $24.6b) than enterprise offerings ones (down 5.6%% to $11.4b. On an annual basis to the end of March enterprise network sales were down 2.1% to $51b, while service provider ones remained level at $113b. Annual market shares for the whole and subsidiary markets are shown in the Figure. While this is a large – but disappointing – market in terms of growth it is going through some major technological and supplier changes, which we’ll analyse in this paper.Cisco has extended its lead in the enterprise network market even more than before, holding a 57.1% share for the year to the end of March; despite its acquisitions HPE, in second place, was still neck-and-neck with Huawei (6.3%); Broacde (3.7%), Alcatel Lucent (3.1%), Netgear 2.4%) and Juniper (2.2%) took positions 4 to 7. In he service provider network market Huawei continued to lead with a 25.5% share, followed by Nokia (13.9%) and Ericsson (12.7%). Alcatel Lucent’s 6.2% for the year could be counted as part of Nokia’s share since acquisition – but the combination of the 2 would still have placed Nokia in seconf position (albeit a lot closer to Huawei’s position than before). NEC held fifth place, while Cisco (the run away leader in eneterprise networks) held only a 3.5% share of service provider networks. When you add both of these markets together Cisco (20.2%) held a slight lead over Huawei (19.3%); adding Alcatel Lucent and Nokia’s business together would have given them a 14.9% share – impressive, but still behind the 2 leaders.
On the vendor front Cisco announced the acquisitions of Jasper Technologies, CliQr and investments in Italy ($100m for ‘digital acceleration) and Germany ($500m for ‘digitization’). Huawei demonstrated the first ever 5G E2E network slicing demo with Deutsche Telekom and partnered with Telefonica to develop smart home offerings in Latin America; it also launched its DC-Centric Network solution and joined with the Linux Foundation to develop an Open Source Orchestra project for SDN and NFV solutions. Nokia completed the acquisition of Alcatel Lucent, reporting combined revenues for the first time in Q1. HP launched an Open Infrastructure portfolio for the Service Provider market. The high level of M&A activity in this market is partially the result of market stagnation – the net effect is the establishment of regional mega-vendors (Cisco in the US, Nokia and Ericsson in Europe and Huawei in Asia Pacific). I would not be surprised if there were more major acquisitions in the next year.
The Figure shows a comparison of growth rates of the service provider and enterprise network sub-markets with the total spending on ITC hardware and Telecom service. The 2 network markets have been similar in the quarters since the end of 2004, although the service provider space has been more dramatic due to its smaller number of suppliers. Network hardware sales have fared slightly worse than all ITC hardware over the period, while telecom service revenues have been much flatter over time and trending downwards since 2012 – which is at the heart of the problem for the service provider network suppliers, since you can’t expect poorly performing telcos to make huge investments in these products. Technologically networking is becoming more ‘software defined’ in the enterprise space (with the proviso that Cisco’s ACI approach necessitates the use of its Nexus hardware). The enterprise suppliers are working hard too change their strategies regularly to try to keep one step ahead of commoditisation. In the service provider areas there’s lots of NFV activity as suppliers seek to help Telco customers improve efficiency with lower costs through a different kind of virtualisation.
As cloud computing grows, so is the need for networking – LAN and WAN for internal and service provider offerings for external data communications. However recent sales information and large amounts of M&A activity suggest that networking will not grow much – if at all – in the near future.