HPE, Huawei challenge Cisco's networking dominance

Cisco's networking market share slipping

The networking giant's longtime dominance in the ethernet switching and routing market is slipping due to stiffer competition from Hewlett Packard Enterprise on the switching front and Huawei in routing, according to revenue data from research firm IDC.

According to IDC's Worldwide Quarterly Ethernet Switch Tracker and Worldwide Quarterly Router Tracker for the first quarter of 2016, Cisco saw a four percent decline in revenue year over year in the ethernet switching market while its combined service provider and enterprise router revenue decreased 2.4 percent.

The overall worldwide ethernet switch market grew 1.4 percent year over year to US$5.48 billion in revenue in the first quarter of 2016 while the global enterprise and service provider router market saw revenue of US$3.47 billion in first-quarter 2016 - a 3.3 percent increase year over year.

Here are 10 key take-aways from IDC's reports.

Cisco's switching declines

The networking giant owned 60.7 percent of the ethernet switching market in 2015, compared with 61.8 percent share in 2013, according to IDC.

For the first quarter of 2016, Cisco's ethernet switching revenue declined four percent year over year to US$3.23 billion. The company accounted for 59 percent of the ethernet switching market, down from 59.2 percent a year ago.

In an interview with CRN USA, IDC analyst Rohit Mehra, vice president, network infrastructure, said some vulnerabilities that lie ahead for Cisco's networking business include a shift to software and the "as-a-service" deployment modality.

However, Mehra said the vendor is beginning to execute on filling in the gaps and driving network refreshes. "Its DNA [Digital Network Architecture] is a good proof point it is readying itself to being an enabler for the digital transformation of the enterprise," said Mehra.

HPE on the rise

The company's US$3 billion purchase of Aruba Networks last year was well worth the price tag, said IDC's Mehra. Hewlett Packard Enterprise's ethernet switching revenue rose 18.1 percent in the first quarter compared with the year-earlier period to US$531 million. The company now owns 9.7 percent of the market, up from 9.2 percent from a year ago – trailing only Cisco.

For its recent second-quarter earnings, HPE reported overall networking revenue of US$874 million, up a whopping 57 percent year over year.

Cisco-Huawei battling for router market Share

In the service provider and enterprise router market, China-based networking and telecommunications company Huawei is beginning to take a bite out of Cisco's share.

Cisco saw its combined service provider and enterprise router revenue decrease 2.4 percent in the first quarter, while Huawei's router revenue increased 34 percent year over year. Cisco's router market share slightly decreased to 48.8 percent, while Huawei's increased - now commanding 16.3 percent of the market.

"On the cloud provider front, we expect Cisco to be somewhat more challenged to maintain its leadership, addressing market trends around network disaggregation, DevOps and network virtualisation," said Mehra.

Overall, the worldwide router market grew 3.3 percent on a year-over-year basis for the quarter, with a 4.9 percent increase in the service provider segment and 1.6 percent decrease in enterprise routing.

Huawei gains switch share

Huawei's ethernet switch revenue increased 33.2 percent year over year in the first quarter to US$211 million. The vendor now owns nearly four percent of the switching market, compared with 2.8 percent a year ago.

For Cisco's recent third fiscal quarter, the company reported a three percent decline in switching – Cisco's largest revenue stream – to US$3.45 billion. The company also reported a four percent decline in switching during its second fiscal quarter as well.

Juniper's switching revenue down, router revenue up

Juniper Networks continues to make inroads in the service provider and enterprise router market, increasing 2.7 percent for the quarter compared with the same period a year earlier. It owns 14.5 percent of the router market, trailing only Cisco and Huawei.

However, Juniper's switching revenue decreased 7.3 percent in the quarter to US$173 million compared with a year ago. The vendor's switching market share now sits at three percent – behind Cisco, HPE, Arista Networks and Huawei.

Arista switching revenue jumps

Fast-growing Arista Networks pulled in US$212 million in ethernet switch revenue for the first quarter, up 33 percent compared with a year ago. Arista is currently in third place in the switching market with nearly four percent share, slightly outpacing Huawei.

For its recent first fiscal quarter, Arista reported overall networking revenue of US$242 million, up 35 percent year over year. The company currently has more than 3,700 customers.

Asia-Pacific region sees highest switching growth

The Asia-Pacific region (excluding Japan) saw the largest increase in the ethernet switch market for the quarter of 13.2 percent year over year.

The North America switch market grew 3.6 percent year over year, with the US being the primary growth driver with an increase of 4.2 percent.

The switch market in Latin America saw the biggest decline, at 10.5 percent year over year. Western Europe was down 6.3 percent; Central and Eastern Europe decreased 7.5 percent; and the Middle East and Africa fell 8.2 percent.

"Macroeconomic uncertainty hampered the EMEA region, while North America and Asia-Pacific continued with infrastructure refresh cycles," said Mehra.

North America's router market revenue drops

North America's router market revenue declined nearly five percent. The combined enterprise and service provider router market varied by region for the quarter, as the Asia-Pacific region (excluding Japan) increased 30.6 percent year over year. The Middle East and Africa followed with 12.2 percent growth compared with a year ago.

Western Europe declined 1.9 percent; Japan fell 3.5 percent; Central and Eastern Europe was down 7.9 percent; and Latin America reported the largest decline of 14.4 percent year over year.

Industry prepping for 25/50/100 gigabit ethernet

IDC's Mehra said refresh cycles helped boost the switching market during the quarter as companies are preparing networks for digital transformation. Although 10 GbE and 40 GbE are expected to be the primary revenue drivers of the overall switching market in 2016, companies are beginning to look at higher-density solutions, he said. 

"Price erosion played a role globally, especially in the 10/40 GbE segments, as the industry prepares for 25/50/100 GbE shipments to commence in volume," said Mehra. 

Cisco 10 GbE market share lowers

Revenue from the hotly contested 10 GbE switching segment accounted for US$2 billion of the market, growing 1.2 percent year over year.

Although Cisco is still dominating the 10 GbE market, its shares for the quarter decreased sequentially from 56.1 percent to 55.7 percent.

Globally, 10 GbE switch port shipments grew nearly 30 percent year over year, with more than 8.3 million ports shipped in the first quarter as average selling prices continue to fall.