FY 07 proved to be a better year for networking products, primarily routers and switches, on account of tremendous growth in the BPO segment. Most of the IT companies expanded their operations by setting up new campuses, while the BPO vertical was in a consolidation mode.

In enterprise technology space, unified communications generated a lot of interest. There was a lot of talk about IP Telephony and collaboration. This was also reflected in the tie-up between Nortel and Microsoft, while Cisco continued to push for its TelePresence set of solutions. But the hype did not translate into revenues for most vendors. The base continues to be small. Cisco stays the networking leader with strong growth in routing and switching. The fiscal year also saw Nortel and Juniper joining hands in their bid to counter Ciscos dominance in switching and routing.

According to the Voice&Data Enterprise Communication Survey 2006, the average telecom spends of large enterprises increased 20% over last year. As a result, the telecom spend stands at 30% of the total ICT spend.

All Eyes on SMBs
For both Nortel and Cisco, that primarily addressed the large enterprise space, it was time to change their strategies. Both companies went full steam ahead to address the SMB segment that was earlier considered uninteresting and a non-revenue generating market. SMBs emerged as one of the fastest growing segments. Nortel started talking about customized, affordable products for this segment for the first time; the company also established a massive infrastructure in place to address this market, including the tech support center to remotely troubleshoot SMB networking woes. Cisco also showed similar interest in this segment, and D-Link chalked out an aggressive SMB strategy.

Intelligent Routers and Fast Switches
Switches and routers continue to be the most revenue-generating products for networking vendors. This is due to several factors including the expansion of IT and BPO companies, mushrooming data centers and disaster recovery (DR) sites by large Indian organizations and MNCs, increased spending by governments on e-Governance, and India becoming a manufacturing hub for telecom and auto industries. On top of that the banking and finance sector also contributed significantly.

Cisco continues to be the undisputed leader in both switching and routing space with market shares of 73% and 81%, respectively in FY 07. Nortel and D-Link also performed well in the switching space while Juniper remained the closest competitor to Cisco followed by Dax. A set of new and emerging players (categorized as others above) also grew impressively. This category includes vendors such as Allied Telesyn Accent Net Technologies, HP Procurve, LinkQuest Telecom, Matrix, Multitech, BA Systems, Raychem RPG, and ZyXEL Technologies

Routers have matured over the years and have become intelligent network devices. They now have the capability to integrate features such as content processing, VPNs, firewalls and perform load balancing functions. Wireless capabilities are also evolving, thus doing away with the need for separate wireless access points for small office networks. Customers, too, are beginning to realize that they can get a lower TCO by deploying these routers as compared to multiple devices. Due to the inherent architecture of these devices, it is easier to add new services, most of which just need a minor software or license upgrade. Switches, meanwhile, are packing more punch with greater processing speeds.

Tracking the Switches Market Rank Company FY 06 FY 07 Growth (%) 1 Cisco 1,139 1,447 27 2 D-Link 117 129 10 3 Nortel 101 126 25 4 3Com 66 79 20 5 Dax 19 24 26 6 Enterasys 15 17 13 Others* 130 158 21 Total 1,587 1,980 25
Source: DQ estimate CyberMedia Research
*Others include Accent Net Technologies, HP Procurve, LinkQuest Telecom, and Raychem RPG
Cisco still has no competition in sight. D-Link and Nortel need to pull up their socks significantly to mount any challenge to Cisco

High-end enterprise network users such as private banks, stockbrokers, manufacturers, distribution and retail organizations were amongst the few that invested in VPN-enabled routers. SMBs on the other hand expected lower cost of outsourcing, and bundled service packages offering not just standard support but also critical incidence management and variable pricing. It appears that all of these expectations could not be met to their satisfaction.

Adoption of WiMax/Wi-Fi, and SWAN broadband telecom infrastructure made a start last year. Convergence continued to drive the high speed router market, particularly the ones with built-in intelligence, resilience and security. Vendors also focused on making their routers robust enough to address multiple services, not to mention the capability to handle huge and sometimes sudden growth in traffic volumes.

Owing to increasing security threats in the recent past, buyers went in for routers with reliable attack protection and hacking protection solutions. Routers that separate the routing and forwarding functionality were in demand. Port density too started becoming a key evaluating factor. However, with the wide variety of applications, importance of revenue-per-port has also emerged as an important deciding factor. The per-port revenue relates to the variety of value-added services that can be offered.

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