Ethernet Switch Market in for Tough First Quarter: Report

A week after a similar report was issued, Dell'Oro Group says the Ethernet switch market could see revenue declines of 10 percent or more in the first quarter of 2009 as the economic recession continues. However, a bright spot could be the 10 Gigabit Ethernet segment, which is poised to grow thanks to trends in the data center, such as virtualization and consolidation, that are driving the need for faster network speed.

The outlook for the Ethernet switch market continues to be bleak-albeit with a few bright spots-thanks to the ongoing global economic recession.

A week after Infonetics Research said the Ethernet switch market staggered in the fourth quarter of 2008 after starting the year strong, research firm Dell'Oro Group issued a report March 2 that mirrored those findings.

The Dell'Oro report shows that not only did the market see revenue drop in the fourth quarter, but that it will drop another 10 percent or more in the first quarter of 2009. In addition, the market could lose more than $1 billion in its quarterly run rate over the course of the two quarters.

"Although this is the most significant first-quarter forecasted decline in Ethernet switch history, it is important to note that first quarter is typically seasonally weak," Alan Weckel, director at Dell'Oro, said in a statement. "Businesses are canceling or delaying projects and distributors are lowering inventory levels. In addition, deteriorating macroeconomic conditions have coincided with what is usually the market's weakest quarter of the year, exacerbating the decline in the first quarter of this year."

However, like the Infonetics report, there was some good news from Dell'Oro. According to the report, 10 Gigabit Ethernet will be the only segment of the market to see sequential port and revenue growth in 2009, as businesses migrate from 1GbE technology and vendors like Cisco Systems, Extreme Networks, Juniper and Brocade continue to roll out 10GbE products.

Fueling the push for 10GbE offerings are such trends as greater use of virtualization, the greater density in data centers-thanks to such technologies as 1U, 2U and blade servers and multicore processors-and continued data center consolidation. All contribute to the need for greater network speed and flexibility.

In its report issued Feb. 24, Infonetics found that revenue in the fourth quarter declined 7 percent from the third quarter and 2 percent over the fourth quarter in 2007 as businesses cut back on their purchases.

However, analysts at Infonetics also found that the North American market was up in the fourth quarter, both sequentially and year-over-year, and that the sales mix of Ethernet switches shifted toward higher-end products, which could help profit margins.