Network equipment market – big, slow and important in Q2 2017


The network equipment market is one of the largest in the ITC market; however there hasn’t been very much growth in recent years. I show a comparison of growth rates for service provider and enterprise network spending alongside those for telecom service (very dependent on service provider networking) and the total IT and communications market. You’ll want to learn more about this important part of the industry. Having gone through a growth spurt in 2008 (I show the rolling annual values by quarter here), service provider network spending has been in the doldrums since the Credit Crunch – not helped by the transition to NFV IP-based equipment from the older (more expensive) alternatives. In Q2 the service provider network market grew by 2.1% to $12.9b, although it declined by 0.2% to $116b in the year to the end of June.

The enterprise network market has also been performing badly since the Credit Crunch – it declined by 1.3% in the quarter to $12.9b and by 2.5% in the year to $51b. The growth of centralised computing (most noticeable in the strong growth in cloud services) is helping to keep the number of ports shipped level at 1.3b in the year, but networking is becoming commoditised and cheaper over time.

Huawei leads the overall market, due to its strong performance in supplying service providers and a good number 2 position in selling to enterprises – a market dominated by Cisco (where it held a 54.3% market share despite increase commoditisation and Huawei’s advances). Nokia (my asterisk is to remind me that it now includes Alcatel Lucent’s business) was in a strong position in the service provider area (second with a share of 18.6%) and fifth in the enterprise network market with a 4.2% share. HPE was in third place in the enterprise area and has fallen back from the days when it challenged Huawei for second position; however it has strong opportunities in providing NFV solutions to the telecom market, where it is already has an important systems management software business.

Overall networking is a large, but slow moving market. You can see that it lags behind the trends in the total ITC market in the top Figure above. The sluggishness of the telecom services market (the red line) and relatively low profit margins means that budgets for equipment are not great for PTTs to invest more in service provider networks for now. I expect more consolidation among network (and network chip) suppliers over the next few quarters.

This is just a small part of my published research into the network market. Please contact me if you need more information for your business plans.

 

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