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Healthy Q4 growth drives Ethernet switching

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The worldwide Ethernet switch market (Layer 2/3) produced revenues of $5,8-billion in the second quarter of 2015 (2Q15), an increase of 1% year over year and an increase of 7,6% quarter over quarter.
Meanwhile, the worldwide total enterprise and service provider router market continued to rebound from recent year-over-year declines, growing revenues 11,5% year over year in 2Q15 and also growing 11,5% sequentially. These growth rates are according to preliminary results published in the International Data Corporation (IDC) Worldwide Quarterly Ethernet Switch Tracker and Worldwide Quarterly Router Tracker.
From a geographic perspective, the 2Q15 Ethernet switch market performed best in North America, which grew 5,1% year over year and 13,7% quarter over quarter. Asia/Pacific including Japan (APJ) saw a small decline of -2,4% year over year despite a 12,3% sequential increase. Latin America, normally a strong growth market, declined -2,9% year over year and -5,1% quarter over quarter. The Europe, Middle East & Africa region (EMEA) was also relatively weak in 2Q15, declining -2,4% year over year and -3,2% quarter over quarter.
“Overall revenue and port shipment growth was weaker than expected in 2Q15. Even the relatively strong 10Gb segment saw weaker results than expected,” says ROhit Meha, vice-president: network infrastructure at IDC. “Given the increasing workloads traversing networks across the enterprise, datacenter, and with service providers, this weakness is likely the result of anticipation for and delayed decision-making around newer and emerging speeds, the intensifying competitive landscape, and of course, continued macroeconomic concerns.”
10Gb Ethernet switch (Layer 2/3) revenue decreased -3,9% year over year, coming in at just under $2,1-billion while 10Gb Ethernet switch port shipments grew a robust 16,4% year over year with nearly 7,3-million ports shipped in 2Q15, as average selling prices continued to fall. 40Gb Ethernet revenue came in at over $500-million for the third consecutive quarter in 2Q15, growing 59,7% year over year. 10Gb and 40Gb Ethernet are expected to continue to be the primary drivers of the overall Ethernet switch market in the near-term. 1Gb Ethernet switch revenue declined slightly (-1,5% year-over-year) as this segment continues to face price erosion.
The worldwide enterprise and service provider router market increased 11,5% year over year in 2Q15. Contrary to the previous quarter, both the enterprise and service provider segments saw strong growth. The enterprise segment increased 8,3% year over year and 7,7% quarter over quarter in 2Q15. The service provider segment performed especially well, growing 12,5% year over year and 12,7% quarter over quarter. This will be a market to watch closely over the coming quarters as software-defined architectures start to take hold across the WAN, enabling network managers and service providers alike to benefit from these emerging capabilities.
The combined enterprise and service provider router market also saw strong performances across the regions. Latin America led all regions with a 26,7% year-over-year growth rate and 25,1% sequential growth rate. APJ also saw a positive quarter, growing 8,9% on an annual basis in 2Q15. North America increased 11,3% year over year. EMEA saw routers as a bright spot in an overall dampened enterprise networking market with a year-over-year growth rate of 10,4%.
Cisco finished the quarter with 1,9% year-over-year growth in the Ethernet switching market and market share of 59,9%, up slightly from its 59,4% share in 2Q14. In the hotly contested 10GbE segment, Cisco held 57,5% of the market in 2Q15, down from 61,1% in the previous quarter, and from the 60,9% it held in 2Q14. Cisco’s service provider and enterprise router revenue increased 14,9% year-over-year.
HP’s Ethernet switch revenue decreased -2,6% year over year, but grew 22,9% quarter over quarter in 2Q15. HP’s market share in switching rose to 9,5% from 8,3% in the first quarter of 2015, but was down from the 9,9% share it held in 2Q14.
Juniper rebounded from a down first quarter in Ethernet switching with a year-over-year increase of 6,9% and sequential growth of 15,5% in 2Q15. Its router revenue declined year-over-year for the fourth consecutive quarter, falling by -4,5% on a year-over-year basis, despite increasing 18,8% sequentially.
“Falling switch port prices have a flattening effect on overall market growth, even as demand for switches, especially 10Gb and 40Gb Ethernet switch ports, increases,” says Petr Jirovsky, research manager in IDC’s Networking Trackers Group. “As newer standards at higher speeds such as 25Gb, 50Gb, and 100Gb Ethernet grow to critical mass over the next few years, one can expect this segment to stay dynamic and interesting for the foreseeable future.”