Ethernet Switches Hit By Recession

Despite starting strong in 2008, the Ethernet switch market saw revenues fall as the year closed, according to Infonetics Research. Sequential and year-over-year revenue numbers fell in the fourth quarter. Some companies, including Alcatel-Lucent, Nortel and Extreme, fared well in the quarter, though Cisco accounted for much of the overall year-over-year market drop. There were some bright spots: The North American market saw growth in the quarter, and sales of higher-priced products increased.

Revenue was down 7 percent from the third quarter to the fourth quarter in 2008, and down 2 percent from the fourth quarter in 2007.

For the year, revenue in 2008 grew 5 percent over 2007, to $18.2 ($12.87) billion.

“The deterioration in worldwide economic activity is finally catching up with the Ethernet switch market,” Matthias Machowinski, an analyst at Infonetics, said in a prepared statement. “After besting our forecast one last time in the third quarter, the market is down sequentially in the fourth, and also down year-over-year for the first time in several quarters.”

Machowinski said that while the short-term outlook is poor, with companies cutting back on their purchases, there were some positive points in the fourth quarter.

The North American market was up both sequentially and year-over-year, which he said was surprising given that it was this region that is shouldering the bulk of the blame for the global recession. Revenue in North America for 2008 was up 2.6 percent over the previous year, and 1.4 percent quarter-over-quarter in the fourth quarter.

In addition, Ethernet switch manufacturers were able to “shift the sales mix to higher-priced products,” Machowinski said. “If this trend sustains, it should help with profit margins in what is expected to be a tough year ahead.”

Global revenue for 10G fixed Ethernet switches doubled in 2008, and the number of 1G fixed POE (power over Ethernet) ports sold jumped 56.4 percent during the year.

Some of the winners for the quarter were Adtran, Alcatel-Lucent, Nortel Networks and Extreme Networks, according to Infonetics. Cisco Systems accounted for the bulk of the year-over-year drop in the overall Ethernet switch market for 2008, though the vendor saw revenues increase 5 percent in the fourth quarter.

Revenue in the application switch market fell 4 percent, to $272 (£192) million, in the fourth quarter, and Infonetics expects the trend to continue, given that much of the market is tied to the financial services industry.

The only two exceptions to the down quarter in the application switch market were Citrix Systems and Radware, according to Infonetics.