Switching and Routing all the Way

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.

Though the average price per unit dropped, the growth in value
terms was sustained with the help of high-end gigabit routers that made fresh
inroads. As telecommunication companies continue to roll out their networks
across the country the market seems poised for impressive growth in the
medium-term.

Router Vendors Rank Company FY 06 FY 07 Growth (%) 1 Cisco 893 1,164 30 2 Juniper 80 152 90 3 Dax 43 53 23 4 Huawei 20 38 90 5 D-Link 9 10 11 Others* 14 20 43 Total 1,059 1,437 36
Source: DQ estimate CyberMedia Research
*Others include 3Com, Allied Telesyn, BA Systems, Enterasys, HP Procurve, Matrix, Multitech, and ZyXEL
Though Cisco is still the undisputed #1, Juniper bagging the Himachal SWAN project was an upset

The fact that nationwide networks are moving towards increased
interconnectivity, the LAN equipment segment is likely to witness a healthy
growth. With investments in telecom infrastructure rising, router deployments by
telecom service providers have been on the rise. State Wide Area Networks are
major users of low- and mid-range routers to help inter-connecting various
government offices.

WLAN Makes Headway

Cisco, with its Linksys Subsidiary, has been a champion of Wireless LAN for
several years. The company has been making all efforts for WLAN to gain
acceptance as a mainstream connectivity option for the enterprise. FY 07 year
saw traction in this segment. SMBs and the governments rural connectivity
program proved to be key drivers.

WLAN continued to be governed by the need for round-the-clock
connectivity for enterprises, irrespective of location. Cisco once again ruled
this segment with a distant challenge from D-Link. Ciscos major wins last
year were accounts like Reliance Communications, Idea, and Infosys. D-Link
managed to rope in IIT-Kanpur, Roorkee, BHU, and the Department of Post (AP) as
major customers during the last fiscal. Netgear retained third position with an
impressive growth of 88.9%. Dax played catch-up and introduced outdoor wireless
solutions that deliver up to 45 kms at throughput levels of 20 Mbps.

Increased sales of notebooks continued to drive WLANs adoption.
Small businesses started looking at this segment seriously in an effort to stay
ahead of competition. Explosion in the growth of cellular telephony added to the
uptake, as more and more handheld devices that are being sold in the market come
with the ability to connect to the internal wireless networks. Growth of
broadband connectivity was also instrumental in fueling sales. Penetration of
broadband was also visible in the home segment in metros and large cities. BSNL,
the largest broadband provider in the country, started offering wireless routers
to make homes Wi-Fi enabled thereby bringing some good news for manufacturers of
these low-cost devices.

Modem Today, Gone Tomorrow

The days of dial-up modems, particularly the external models, are numbered.
But thanks to DSL-based broadband connectivity offered by telcos such as BSNL
and Bharti Airtel, the ADSL modem got a major boost. This was primarily due to a
120% increase in broadband subscriber base. The modem market grew 30% in unit
terms, but less in terms of revenue due to a drop in prices. The number of
broadband subscribers (with a download speed of 256 kbps or more) stood at 2.06
mn at the end of OND 07.

While dial-up modems are gradually fading away, ADSL is gaining
market share with a wider penetration of broadband. ADSL2+ continued to be the
prevalent technology, due to high costs of the VDSL2 chipset. Atrie continued to
rule the modem market selling 262,000 units followed by Bharti Teletech with
over 404,384 units. Bharti Airtel added 283,114 broadband subscribers, which
proved beneficial to Bharti Teletech. MRO-Tek sold 35,000 units but registered a
negative growth as was the case with D-Link.

Cabling major, Sterlite took up ADSL2+ modem manufacturing in
its facility in Aurangabad. Sterlite got an order from BSNL for 3,000 units of
its SAM100 ADSL 2+ modem, designed for single-user residential applications. Dax
Networks whose market share has been on the decline, decided not to focus on
this segment.

Sudesh Prasad

sudeshp@cybermedia.co.in

With inputs from Voice&Data