Enterprise Router Units Up in 05, but Revenue Slips

A recent report suggests that competitive pricing has pushed down router prices, even as demand has increased.

Enterprise router customers voted with their dollars in 2005, send-ing the worldwide market up 14 percent in unit shipments, but down 3 percent in total revenue.

Those findings, reported on Feb. 16 by Infonetics Research Inc. in its latest Enterprise Router report, suggest that competitive pricing pressure has pushed down prices across the board, even while demand for newer secure routers has increased.

"Huawei in Asia Pacific, 3Com—there are a bunch of companies [whose] objective is to meet or beat Cisco on the performance side and undercut the price by a pretty good margin," said Matthias Machowinski, directing analyst and author of the Infonetics report.

"Basically thats the strategy theyve come up with to take some share from Cisco. Its working a little bit. Ciscos dollar-per-unit number is down a bit," he added.

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The total market in 2005 reached $3.3 billion, down from $3.4 billion in 2004. Cisco took the lions share of both revenue and unit shipments, with 81 percent of the revenue and 71 percent of the units shipped.

Huawei came in second at three percent of revenue and six percent of units shipped. Nortel, despite its internal turmoil, held steady in third place with 1 percent of revenue and 1 percent of units shipped.

Nortel has managed to maintain that standing for six of the last eight quarters, Machowinski said.

A number of factors are driving growth in unit shipments, including a six-year upgrade cycle after the Y2K buildup, convergence of voice and data as well as security onto router platforms, the increasing need to connect geographically dispersed organizations and the convergence of different traffic types onto IP networks.

"The bank that was running frame relay to connect branches has a plan to move to IP networks. Another thing is that a lot of networks arent ready for [voice over IP]. Thats also driving sales of networking gear. Cisco has a strong story there with its Integrated Services Routers," Machowinski said.

Convergence of security functions onto the router and off single-function appliances is also driving growth. Revenue worldwide for se-cure routers grew 121 percent between 2004 and 2005, topping out at $803 million versus $363 million in 2004.

Unit shipments almost tripled, according to Machowinski, who is based in Woburn, Mass.

Although Infonetics does not yet have a forecast for the first quarter of this year, revenues were up in the fourth quarter over the third quarter of last year.

Worldwide revenue for enterprise routers rose 6 percent between the third and fourth quarter to reach $910 million.

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