Routers

Emerging economies create emerging vendors

Emerging economies’ telecom deals may be creating a new wave of key players, absent some of the usual names. The recent action in China and India show that where an emerging economy invests in telecom infrastructure, the deals are weighted toward access, metro and fiber, and less to the high-flying switching/routing. Package bids that involve a range of products are also more common. This favors players like Alcatel-Lucent, whose broad portfolio of access products and metro solutions got it attention in India, but also price-leader players like Huawei and ZTE. We believe it is likely that there will be pressure put on Cisco, Juniper, Tellabs, Ciena and other more narrowly focused players to partner or even merge to counter the trend.

ALU must differentiate itself from Huawei

Huawei may have a reputation for being just a price leader, but that’s enough to propel significant growth outside China and pull it into the DSL port shipment lead over Alcatel-Lucent. We believe that Huawei is not so much a competitor as a fall-back when there is no real “competition”, meaning where vendors fail to generate any meaningful differentiation. Price then decides, and Huawei wins.

The success recently may be due in small part to economic conditions, but we believe the largest part is due to equipment vendors ceding key strategic issues in service creation and management to partners. That being done, the equipment is just plumbing and the partner solutions can be applied over Huawei. We believe ALU sees this, and that it was a motivation behind its purchase of subscriber management specialist firm Motive.

Router sales up…an IP economic indicator

Infonetics reports that router sales in the first quarter rose sharply, further validating the notion that the IP infrastructure market is more immune to economic problems than the enterprise. Both Juniper and Cisco gained market share, apparently in part at the expense of Alcatel-Lucent, whose IPTV position had previously been gaining it traction. We have long believed that IPTV would not be the silver bullet for ALU; too few regions meet the very special economic demographic requirements to make the strategy optimal.

Juniper move signals original processor work?

David Yen, a kingpin in Sun’s revitalized microprocessor program, is leaving Sun for Juniper, where he will be an executive VP of Emerging Technologies, a move that certainly means that Juniper will be doing more original work with microprocessors and/or network processors. There has been a lot of new energy at Juniper in recent months, suggesting that the company is about to make some aggressive moves in the market to sustain its growth and take advantage of loss of market momentum by its mobile-exposed competitors.

Juniper “gets” the network/computer vision

Juniper held its analyst day on Thursday (March 6, 2008), and the company was more polished and articulate than on previous occasions. The message that the “online revolution” has created a demand for a new vision of network/computer coupling is strong and was supported strongly by a T-Systems speaker, but not seized as effectively by Juniper as we’d have liked. Juniper also failed to leverage clear references by T-Systems to IPsphere and TMF standards work, and in the former Juniper has credibility. However, the message was there, and it’s clear that Juniper gets it, but the company needs to articulate it more clearly. In the area of the new Ethernet EX products, Juniper articulated a strong channel program that has credibility as the go-to-market strategy for the EX, lifting our fear that it believed its software partners, IBM, Microsoft and Oracle, were going to sell it. All in all, it was a positive step for Juniper.

Juniper separates router control plane processing

Juniper today announced a significant shift in the traditional architecture of routers, one that allows an external server (the JCS 1200) to provide control plane processing for forwarding-plane networks created on Juniper’s line of routers. Traditional router architecture has used either an integrated processor for both data forwarding and control processing, or a separate board within the router for the control plane handling. The new architecture allows an enormous increase in the processing resources available to handle “control plane” activity, which includes the processing of management requests, topology updates, and other IP control packets. Since Juniper has previously announced an “Open Junos” architecture where developers can add logic to the Junos control plane software, this would appear to open the door to embed significant service and feature intelligence in network devices. This in turn could empower service providers to differentiate their services through these embedded features, or to sell access to them as a new revenue source.

Cisco earnings show order slowdown

Cisco reported decent numbers for the current quarter but acknowledged the slowdown in orders that we predicted for the first half of this year. The company relies on enterprises for a large chunk of revenues, and that sector is very troubled by the credit crash and consumer concerns. We believe that spending for 2008 will recover in the second half. The slowdown will have its greatest impact on network vendors with a lot of enterprise exposure, but it will also make it difficult for Juniper to get quick traction with its new EX enterprise Ethernet line.

Cisco loses chief development officer

Charlie Giancarlo, former CDO of Cisco, resigned today. Charlie was the expected successor to John Chambers, but recent political moves within Cisco suggested that succession, if it happened at all, would be long delayed. Giancarlo was a strategist, a thinker, and not a salesman or a showman, and Chambers is clearly both of the latter. Cisco’s reorganization seems to show that there will not be a designated heir to Chambers in the near term

Carrier Ethernet creates equipment market shifts

Research is confirming what many have noticed anecdotally: Cisco, Juniper and Nortel are gaining in the carrier router-switch market and Alcatel-Lucent is declining. The shift is likely driven in large part by the shifts toward Carrier Ethernet deployment from traditional routing, a shift that Nortel stands to gain the most from because of PBT. Nortel showed the largest gains, too. Juniper just announced an Ethernet product, and it showed gains as well. Cisco has an Ethernet line and had a strong showing. While Alcatel-Lucent has Ethernet products, it has been submerging them in its IPTV positioning. We believe this shift will not stop at the end of the year, and that it will put the greatest pressure on Alcatel-Lucent. But it will also pressure Juniper since that company has no PBT capability in its Ethernet product. PBT’s features and perceived future value are the real drivers of the change, make no mistake.

Stopping the revenue-per-bit plunge

October 25 2007 regarding the future of routers and routing.
Internet pioneer Lawrence Roberts thinks that the cost of routing threatens the Internet’s future. The view is somewhat self-serving given that Roberts is a founder of an alternative-to-routing company, and it also discounts some current market realities, but it raises an interesting question given some other market trends. There is no question that operator revenue per bit is falling rapidly; one operator told us by 50% per year. Given this kind of decline in bit revenue, it is inevitable that operators either seek to increase margins by selling “fat bits” (bits associated with a higher-margin service) or reduce cost per bit. The Internet doesn’t provide a means of supporting fat-bit revenue generation because it lacks settlement, and so only cost reduction is possible. However, most IP deployment today is by network operators with service designs that include but are not exclusive to the Internet. These operators, which include IPTV providers, would have the option to deploy higher-cost capital equipment to generate their bits. If all of this is true (and it seems to us that it is), then router vendors should be promoting non-Internet missions in order to justify their higher costs, and if those missions are not promoted then routing as we know it will inevitably commoditize