Routers

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

Juniper Quarterly Earnings Benefit from NGN Investment

Juniper reported strong sales, with its infrastructure products up about 35% and its service-layer technology up 17%, beating Street estimates. The stock was lower in after-market trading, however. Some analysts expected even faster growth rates, and this will clearly put some pressure on Juniper for the coming quarters. Dell’Oro Group puts Juniper’s router market share at 15%, far less than Cisco’s 65% and double that of Alcatel-Lucent. However, many analysts believe that Alcatel-Lucent has targeted Juniper for market share gains, though Alcatel had a very weak quarter in contrast to Juniper’s. Juniper is benefiting from service provider NGN investment, which we believe will continue to be strong in 2008 and through at least the first half of 2009.

The key question for Juniper is the enterprise business (part of their Service Layer Technology) and there the issue is Ethernet switches. It is very unlikely that Juniper can maintain engagement in the enterprise space lacking these products, and so we believe that Juniper is indeed likely to field a family of enterprise switches either late this year or early in 2008. However good this might be for SLT, it will certainly put more pressure on Juniper’s management and strategy, particularly since Cisco is executing extremely well in the enterprise sector at this time.

Cisco ISR features target branch locations

September 27 2007: Cisco is expanding the feature inventory of its popular ISR line to include things like acceleration, VoIP, and security. The move is targeting the branch offices of multi-site businesses, and is intended to reduce the success of one-off vendors in these spaces, including Juniper. As a market leader, Cisco can link secondary features to router products and have the combined product set fulfill its revenue requirements even though integrated devices have a lower user cost. We believe this to be a direction that is also aimed at creating a more generic branch access appliance to counter rumored moves by IBM in that direction, possibly in partnership with another network vendor.

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