Route more smooth for networking gear in 2004

The market for service provider routers and switches took its lumps during 2003, but by the end of the year was showing signs of strength that bode well for the coming year, according to a new study.

During the fourth quarter of 2003, worldwide revenue from routers and switches sold to telephone companies and Internet service providers totaled $1.4 billion, up 13 percent from the same period a year earlier and up 13 percent as well from the third quarter of 2003, Infonetics Research said Friday. Third-quarter revenue also had picked up from earlier periods.

That growth over two consecutive quarters took some of the sting out of an overall decline for 2003. For the full year, global revenue for such gear totaled $4.8 billion, a fall of 9 percent from the previous year, which had itself been marked by weak sales, Infonetics said.

During 2003, sales of legacy switches continued to slide, giving way to service provider spending on gear built around technologies such as Internet Protocol and multiprotocol label switching. Router revenue edged up 2 percent, while revenue for multiservice switches fell 23 percent.

The market is expected to grow at a 16 percent compound annual growth rate through 2007, reaching revenue of $8.6 billion. Market growth year over year is expected to begin again this year.

"In 2004 the market will stabilize and begin to grow again as (service providers) prepare for data network convergence and look for cost reductions and greater port density in multiservice switches," said Kevin Mitchell, an analyst at Infonetics.

But the coming year won't see a huge influx of money into the market. Instead, gear makers expect to grow their own revenue by taking market share from competitors and through expansion into geographic markets such as China and into technology markets such as wireless, Mitchell said.

In 2003, Cisco Systems' share of the total market revenue increased to 48 percent from 44 percent in the preceding year. Nortel Networks came in second, increasing its share marginally from 14 percent to 15 percent, followed by Juniper Networks with 12 percent share. Lucent Technologies held on to fourth place, but its share declined to 8 percent from 10 percent in the previous year. Alcatel dropped to fifth place, with its share falling from 10 percent to 6 percent.