HP, Cisco battle prompts drop in Ethernet switch revenues

Despite growing demand for Ethernet switches, vendors are cutting their prices, primarily because of competition between Cisco (Nasdaq: CSCO) and HP (NYSE: HPQ), according to new research.

The second quarter saw the market rebound from the 1Q11, with Ethernet switch sales of $4.4 billion worldwide, an increase of 6 percent, said Infonetics Research. Nevertheless, on a year-to-year basis, revenues were down some 3 percent.

Not surprisingly, Cisco's share of the market continues to slip. The market leader saw steady revenue from 1Q11 to 2Q11, but lost 3 points from a year ago. HP, meanwhile, increased its share of the market by 2 percent. Juniper Networks (NYSE: JNPR), Enterasys, and Extreme outpaced the overall Ethernet switch market with double-digit revenue growth and small gains in revenue share this quarter

Cisco lost share in the Ethernet switching market to HP and Juniper Networks in the first quarter of the year as well, a quarter that saw the entire segment sag some 8.8 percent from a year ago.

Infonetics said that the third quarter should see buyers getting good deals on Ethernet switches.

"Ethernet switch buyers are in the driver's seat right now, as vendors are fiercely competing for their business," said Matthias Machowinski, directing analyst for enterprise networks and video at Infonetics Research. "While the battle is mostly playing out between Cisco and HP, other vendors are caught in the crossfire, with declining ASPs being one side effect. In the switch market, we expect this to result in stagnating revenue despite robust demand in 2011."

Infonetics said Ethernet switch port shipments in virtually every major region are up both sequentially (8 percent) and year-over-year (11 percent) in the second quarter, reflecting average selling price declines due to heavy competition, but also indicating widespread demand. The biggest gain was in the 10G segment, which bumped 19 percent quarter-over-quarter and 58 percent year-over-year.

The report from Infonetics also said enterprise router sales were up sequentially (6 percent) in 2Q11, to $843 million worldwide, while unit shipments grew 11 percent. The retail vertical drove sales in North America.

OneAccess saw the highest sequential increases in global enterprise router revenue in 2Q11 (40 percent), followed by HP (26 percent), Juniper (14 percent) and Cisco (3 percent).

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