Good Second Quarter for Ethernet Switches and Routers

Good Second Quarter for Ethernet Switches and Routers
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The worldwide Ethernet switch market recorded $5.97 billion in revenue in the second quarter of 2016, an increase of 3.0% year over year, according to a new IDC study. Meanwhile, the worldwide total enterprise and service provider router market finished at $3.67 billion in revenue in 2Q16, declining 2.0% on a year-over-year basis.

From a geographic perspective, the 2Q16 Ethernet Switch market recorded its strongest growth in Latin America, which increased a solid 8.5% year over year, rebounding from a 1Q16 that saw double-digit percentage declines. Chile was a standout performer, growing 31.9% on an annualized basis in 2Q16, and Brazil, South America's largest market, returned to growth at 8.4% year over year. Western Europe also grew in 2Q16, increasing 4.0% on an annualized basis. Ireland was the percentage growth leader in Western Europe, increasing 37.5% year over year. Similarly, Asia/Pacific (excluding Japan)(APeJ) increased 3.8% year over year in 2Q16. Standout countries in APeJ included the Philippines (up 14.7% year over year) and China (up 12.9%). North America increased 3.5% on an annualized basis. Japan experienced a noteworthy quarter, returning to growth after eight consecutive quarters of decline, increasing 1.2% on an annualized basis in 2Q16.

The remaining two regions experienced contractions. Central and Eastern Europe saw another decline in 2Q16, contracting 2.8% year over year. A bright spot for the region was the Czech Republic, which increased 49.2% on an annualized basis. The Middle East and Africa (MEA) declined 4.9% year over year in 2Q16. While most countries in this region experienced declines in 2Q16, Israel grew 2.0%.

10Gb Ethernet switch (Layer 2/3) increased 3.2% year over year in 2Q16, coming in at $2.16 billion, while 10Gb Ethernet switch port shipments grew a robust 24.7% year over year with over 9 million ports shipped in 2Q16 as average selling prices stabilized on a sequential basis. 40Gb Ethernet revenue finished at $750.3 million in 2Q16, growing 33.2% year over year, while shipments reached a record 1.9 million ports, for an increase of 97.5% year over year. 10Gb and 40Gb Ethernet have been the primary drivers of the Ethernet switch market so far in 2016 as 25/100 Gb Ethernet start to emerge and will see volumes pick up in 2H 2016. 1Gb Ethernet switch revenue - key to the enterprise campus networking segment - decreased 4.5% year over year, despite a 13.6% increase in port shipments in the same period.

The combined enterprise and service provider router market saw a varied regional performance in 2Q16. APeJ was by far the best performing region on a year-over-year basis in 2Q16, increasing 21.1%. Japan followed with 6.2% year-over-year growth. No other region experienced year-over-year growth in 2Q16: Western Europe declined 4.2%, North America contracted by 6.6%, MEA was down 10.8% and Central and Eastern Europe finished 17.7% below 2Q15. Latin America delivered the sharpest declines for two consecutive quarters, contracting 28.2% in 2Q16.

Cisco finished the quarter with a 2.6% year-over-year decline in the Ethernet switching market and market share of 56.8%, down from its 59.0% share in 1Q16 and 60.0% in 2Q15. In the hotly contested 10GbE segment, Cisco held 53.0% of the market in 2Q16, down from 55.7% in the previous quarter. Cisco saw its combined service provider and enterprise router revenue decrease 8.5%, while its market share came in at 44.8% in 2Q16, down from 48.8% in 1Q16.

HPE, as reported by IDC, recorded a 34.8% year-over-year decline from 2Q15 in the Ethernet switching market, largely as a result of this quarter's split of the H3C business from HPE. HPE held 6.0% market share in 2Q16. H3C recorded 3.6% market share in its first quarter of separate tracking, enough to be the fifth largest Ethernet switch vendor worldwide by revenue.

Huawei continued to perform well in both the Ethernet switch and the router markets. Huawei's Ethernet switch revenue grew 44.0% year over year in 2Q16, while its enterprise and SP router revenue increased 15.3% over the same period. Huawei commanded 18.9% of the total router market.

Arista also had an excellent quarter in 2Q16 and grew 35.4% year over year and now holds 3.9% of the market, up from 3.0% in 2Q15. Arista’s market share is significantly higher in the data center switch market though as evidenced by its 19.9% share in the 40Gb/100Gb market.

Juniper had a down quarter in Ethernet switching with a year-over-year decrease of 4.3% in 2Q16. Juniper saw a 1.5% decrease year over year in combined service provider and enterprise router revenues, with a market share of 15.7%.