Asia/Pacific Service Provider Router Market Declines in 2002

Transcription

1 Market Analysis Asia/Pacific Service Provider Router Market Declines in 2002 Abstract: Total manufacturer revenue in the service provider router market in Asia/Pacific declined 33.2 percent from 2001 to Revenue is expected to drop slightly this year before regaining momentum in By John Calvert, Hyun-Sook Lee, Brian Low, Sumit Malik and Andy Woo Strategic Market Statements Core routers account for about 44 percent of SPR revenue, but this percentage is declining slightly as demand for edge products increases. Cisco remains the dominant vendor in Asia/Pacific, but Juniper, with its Unisphere acquisition and aggressive pricing, has been making significant inroads into some of the markets. China accounted for the bulk of revenue in 2002 with just over one-quarter of the regional revenue. South Korea ranked No. 2 with just over 20 percent. Publication Date: 13 March 2003

2 2 Asia/Pacific Service Provider Router Market Declines in 2002 Introduction The service provider router (SPR) market in Asia/Pacific generated $169.4 million in manufacturer revenue in 2002 adeclineofmorethan30 percent from the previous year. The unit decline was slight as lower-cost models began to make up a greater percentage of the units shipped, and price competition increased. Revenue is expected to decline slightly this year before regaining momentum in The compound annual growth rate (CAGR) for 2002 through 2006 is forecast to be 4.4 percent. Core routers account for about 44 percent of SPR revenue, but this percentage is declining slightly as demand for edge products increases. Broadband aggregation is a subset of the edge router market and accounted for slightly less than 20 percent of the total SPR market. This shift toward the edge router is a result of the huge increase in broadband subscribersacrossmanyofthecountriesinasia/pacificandthedesireof the leading providers to implement higher-value broadband services. Despite the worldwide economic slowdown, the construction of IP networks across the region has been bolstering vendor revenue, so declines have been less severe than in other parts of the world. China accounted for the bulk of revenue in 2002 with just over one-quarter oftheregionalrevenue.southkorearankedno.2withjustover20 percent. Cisco remains the dominant vendor in the region, but Juniper, with its Unisphere acquisition and aggressive pricing, has been making significant inroads into some of the markets. Asia/Pacific vendors have yet to make significant headway into this, the highest end of the router market, but vendors from China and South Korea have plans for the future. Market Overview The SPR market in Asia/Pacific, in terms of vendor revenue, fell 33.2 percent from $253.6 million in 2001 to $169.4 million in Revenue is expected to decline slightly this year (negative 2.2 percent) and the CAGR for 2002 through 2006 is forecast to be 4.4 percent (see Table 1) Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

3 3 Table 1 Asia/Pacific (Excluding Japan) Service Provider Router Market (Millions of Dollars) CAGR (%) Australia Share (%) Growth (%) China Share (%) Growth (%) India Share (%) Growth (%) South Korea Share (%) Growth (%) Taiwan Share (%) Growth (%) Rest of Asia/Pacific Share (%) Growth (%) Total Source: Gartner Dataquest (March 2003) The majority of this decline was accounted for by operators cutting capital expenditure (CAPEX), but Asia/Pacific has been less affected by the global economic slowdown than other regions and now accounts for about 9 percent of worldwide revenue. This percentage has been increasing and will continue to increase as the more-developed countries in the region build out their IP networks and broadband services and the lesserdeveloped countries expand nascent infrastructures and leapfrog older technologies. The more-developed countries, where there is much more hunger for bandwidth, have been upgrading their backbones from OC-48 to OC-192. For the less-developed countries, OC-3 to OC-48 is more the norm. Nevertheless, there is increasing demand for vendors to supply equipment for the provision of IP/Multiprotocol Label Switching (MPLS) services such as tiered access, IP virtual private networks (VPNs) and metro Ethernet applications. China and South Korea are behind much of this interest. Deregulation has also been slower in much of Asia/Pacific, so there is less spare capacity in the core that can be found in other regions of the world. Core routers still account for more than 40 percent of the SPR market. Edge routers account for the remainder. Gartner Dataquest regards broadband aggregation as a subset of edge routers, and this amounted to about 20 percent of revenue Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

4 4 Asia/Pacific Service Provider Router Market Declines in 2002 Downward pricing pressure has been strong in 2002, with the leading vendors desperate to gain share and presence in countries with huge future potential China being the prime example. In the more-developed countries, the boxes are usually more fully featured, and carriers are willing to pay a premium. Public tenders in markets, such as Taiwan, are another factor in keeping down prices. The price differentials between countries can be huge up to 40 percent on certain deals. The only Asia/Pacific vendors playing in this space are Huawei, which has a range of SPR products, and ZTE. Their prices are as much as 50 percent less than those of their U.S. competitors, but narrow feature sets and reliability issues have thus far limited their installations to a few small test sites in China. This is not to say that the situation will not change in the future, as their technology becomes more advanced and the companies make the most of their personal contacts in one of the most lucrative markets in the world. Leading Vendors Cisco Cisco still dominates the SPR market in Asia/Pacific with 61.2 percent of the revenue and 54.8 percent of the units shipped (see Table 2). Table 2 Asia/Pacific Market Share by Vendor in 2002 Units Market Share (%) Revenue (M$) Market Share (%) Cisco Juniper Redback Nortel Others Total 1, Note: Some columns do not add to totals shown because of rounding. Source: Gartner Dataquest (March 2003) As elsewhere in the world, Cisco's biggest advantage is its huge installed base. Asia/Pacific carriers place a premium on reputation and a proven track record. Add to this a list of some of the top network integrators in each of the countries in the region, and it is not surprising that Cisco has maintained an unparalleled market position for many years. In these times of industry consolidation and financial pressure, Cisco, with its financial stability and reputation, will continue to command a premium in the market and maintain its market share. If there is a downside, there has in the past been some channel disharmony in the larger, more-developed countries as integrators competed with each other. This issue has been addressed for some time now, and it has become less of an issue as all vendors consolidate their channels in the more stringent economic conditions Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

5 Juniper Juniper's share of the Asia/Pacific SPR market was 22.8 percent of revenue and 22.3 percent of units. The average price of Juniper's units has been falling rapidly though, as it has been cutting prices to gain share from Cisco. Juniper, with the acquisition of Unisphere, is the broadband aggregation router market leader with just under 50 percent of the market. Juniper's partnerships with Ericsson and Siemens began to bear fruit in the second half of the year, and together, they now account for over 20 percent of vendor revenue. Juniper has long been renowned for its performance and reliability, but in the past it has had support and service shortcomings, which have been addressed to a large extent in most of the major markets in the region. It also had the problem of a lack of presence in the increasingly important edge router market, but this has now been rectified with its acquisition in the second quarter of 2002 of Unisphere, the leading player in that market. In April 2002 the introduction of the T640 Internet routing node further enhanced the vendor's ability to compete with Cisco in the core of the network, as the new product surpassed the Cisco offerings in terms of capacity and density. Redback Redback accounted for 10.8 percent of the Asia/Pacific SPR revenue and 13.9 percent of units shipped. However, its revenue is being put under pressure because of rock-bottom pricing in countries such as South Korea. Earlier in the year, the company experienced a slowdown as operators waited for the launch of the subscriber management system (SMS) SL. After the launch, revenue returned, but not at the same level as before. Redback's SMS clients include Chunghwa Telecom of Taiwan and Singapore Power. Redback also has a number of clients for its SmartEdge family of products. For example, Shanghai Telecom (a China Telecom subsidiary) is using it to provide MPLS-based VPN services in China. Redback's largest market in the region is South Korea, followed by Taiwan and China. The company's alliance with Nokia will be an important attribute for the company as it looks for more business in China Nokia has built up a considerable network of partners and relationships over the years. Asia/Pacific has become a more important market for vendors as CAPEX cutbacks become more severe and prolonged in other regions. This is especially true for Redback, which has seen Asia/Pacific's contribution to global revenue increase significantly Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

6 6 Asia/Pacific Service Provider Router Market Declines in 2002 Leading Markets Table 3 Vendor Market Share in Australia in 2002 Australia The Australian service provisioning router market registered a turnover of $26.4 million in 2002, a decline of 28.6 percent from 2001 (see Table 3). Units Market Share (%) Revenue ($M) Market Share (%) Cisco Juniper Nortel Others Total Note: Some columns do not add to totals shown because of rounding. Source: Gartner Dataquest (March 2003) However, as demand for broadband services increase, so too will the demand for products to enhance the Internet infrastructure. Coupled with the uptake of IP-VPN and migration to IP version 6 (IPv6), the market potential for service provisioning routers in Australia has yet to be realized. However, there will be some inhibitors, including concerns over slowdown of the world economy (although Australia has been relatively insulated), a business modeling for SPR deployment, applications and technological concerns. A CAGR of 2.3 percent for 2002 through 2006 gives room for some optimism as government policy over broadband deployment becomes clearer, concerns over cost are allayed, scalability of SPR platforms gains wider acceptance among service providers, and usage of Internet, IP-VPN and Ipv6 increases. In Australia, as with other countries in Asia/Pacific and Japan, Cisco dominates the local market. It accounts for more than 70 percent of the total SPR market. Its carrier-class Edge Service Routers are designed to meet the requirements of service providers deploying high-density, dedicated-access IP services and has been in demand by all the main carriers in Australia. Juniper accounted for 25 percent of the total SPR market and has been replacing installed bases and going head-to-head with Cisco on new contracts from Teltra and Optus. China The SPR equipment market in China totaled $43 million in 2002, a drop of 39.2 percent from the previous year (see Table 4). Revenue is expected to resume growth in 2003 with a 3.2 percent increase to $44.4 million. The 2002 through 2006 CAGR is forecast to be 6 percent and will be one of the most important markets for vendors Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

7 7 Table 4 Vendor Market share in China in 2002 Units Market Share (%) Revenue ($M) Market Share (%) Cisco Juniper Redback Huawei ZTE Others Total Source: Gartner Dataquest (March 2003) The Chinese have had a long line of initiatives to develop the communications of China, but it has not been immune to the CAPEX cuts that have plagued the industry in In the same year came the division of China Telecom and China Netcom that put many expansion projects on hold. Now that the split has been successfully completed, both companies have major plans to offer advanced services in each other's back yards. The government also has plans to develop the Western area of the country, and as a result there will be significant projects in the Western provinces, in addition to the ongoing developments in the Northern and Southern regions. Broadband access has been growing rapidly in China, and it has fueled demand for edge routers (especially broadband aggregation routers), but this growth has been slowing because there has been overinvestment in infrastructure in many municipalities and provinces. However, growth will resume toward the end of Foreign venders still dominate the SPR market in China. Cisco Systems is ranked No. 1 with 51 percent of the vendor revenue. Cisco's strength includes its strong distribution network, quality products and a strong brand image. After Cisco, the next key player in the market is Juniper, which after its acquisition of Unisphere, commands 26 percent of the market. Redback still holds 12 percent of the market, and this has been recently growing as it begins to sign contracts with China Telecom subsidiaries such as Shanghai PTA for its SmartEdge series of routers. The local Chinese vendors, Huawei and ZTE, combined, command 7.5 percent of the local SPR market, but active support from the government, allied to major R&D efforts, low manufacturing costs and aggressive marketing strategies, should see this percentage increase over the coming years. It is still difficult to see how they can compete with Cisco and Juniper for the largest contracts, at least in the near future. The local vendors are much more of a threat to foreign vendors in the enterprise router market where functionality and reliability are much less of an issue. Of the contracts awarded in the last 12 to 18 months, Cisco continued to sign some of the largest contracts. It was chosen by Shanghai PTA to supply its Cisco Series routers for Phase II of its metropolitan-area 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

8 8 Asia/Pacific Service Provider Router Market Declines in 2002 Table 5 Vendor Market share in India in 2002 network (MAN). Completion of Phase II will make it the largest MAN in China. Cisco also signed two major router contracts with China Telecom to expand a system that links 10 northern provinces. These contracts are especially important in that they are likely to be the first in a series of network expansions by China, as it tries to compete with China Netcom in the north of China after the split up of the original China Telecom earlier in the year. Most of China Telecom's assets are now in the Southern provinces and it has major plans in the north, especially in the MAN. China Telecom has plans for a major backbone and IP network in the north, and China Netcom continues to develop its high-speed ring in the south. Cisco is also supplying China Unicom's core network backbone and is upgrading the operator's code division multiple access (CDMA) network in 15 cities and provinces. Cisco will remain the leading vendor in China for the near future, but its recent lawsuit against Huawei in the United States may cause friction within local administrations. Juniper has also been signing lucrative new contracts in China. It is the leading SPR supplier to China Mobile, and it has contracts with Guangdong PTA for its M-series routers and China Netcom and numerous China Telecom subsidiaries for its ERX series routers. At the end of 2002, Juniper also announced a contract with China Telecom to build its IP/MPLS network using Juniper T320 and M20 routers. The deployment of T-series routers in China Telecom's network complements the activation of the ERX- and M-series routers in the Wuhan, Shanghai and Sichuan provinces earlier in India The router equipment market in India totaled $16.6 million in 2002 (see Table 5). This represents a small increase of 3.9 percent from 2001, the best performance by far of any of the countries covered. This result was partly because of the unusually poor performance the previous year when customers in the Internet service provider (ISP), Internet data centers (IDC) and telecom space primarily, with some large enterprises using the products in their core for aggregation were impacted by the slowdown in sales. The slowdown in sales was the result of the dot-com bust, delays in private telecom network rollouts and the trickle-down effect of the U.S. economic slowdown. Most of the deployments were very small deals in the range of two to four routers per customer, coming primarily from Internet data centers, large nationwide ISPs or a small number of banks deploying one or two routers at the core in their central site. Units Market Share (%) Revenue ($M) Market Share (%) Cisco Juniper Total Source: Gartner Dataquest (March 2003) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

9 In 2002, the market moved ahead with most private telecom operators investing in building their national long-distance (NLD) and international long-distance (ILD) infrastructure; ISPs are restructuring and realigning their business models, and consolidation is expected to gain further momentum. The private telecom players have major plans on the drawing board and we can expect to see some big orders during the next couple of years, as they roll out the networks. Another key development that could impact the market is a reported move by the incumbent telco, Baharat Sanchar Nigam Ltd. (BSNL), which has expressed an interest in inviting bids from private entities to build and operate a broadband network on BSNL's existing copper infrastructure. This is a significant step toward local-loop unbundling, and as more services are introduced, it could be a growth driver for deploying more multigigabit routers in the country. On the demand side, there is increased proclivity of enterprises to outsource their networking requirements to professional, managed service providers, thus focusing on their core competencies and reducing overhead costs of running and maintaining complex equipment. Cisco dominates the market with 79 percent market share in vendor revenue. Cisco's strengths include its strong distribution network, quality products and a strong brand image. It has a distribution network comprising strong, national network integrators such as Wipro Infotech and Datacraft and a large number of distributors and resellers. In addition to Cisco, the other key player in the market is Juniper, which, after its acquisition of Unisphere, commands the remaining 21 percent market share. Juniper has its distribution and network integration tie-ups through Siemens, Ericsson and Nortel. At the end of 2002, BSNL announced that it had selected Juniper Networks M-series routers for India's first nationwide IP/MPLS network. Juniper Networks M20 and M40e routers were selected. The network is designed to supply advanced IP services to corporate customers across India, including those in Mumbai, Delhi, Bangalore and Chennai. South Korea The total SPR market in South Korea for 2002 amounted to $35.9 million in vendor revenue (see Table 6). Its market share in the region was 21.2 per cent. The revenue from 2001 to 2002 declined 34.7 percent, mainly because of the maturity of the market and huge infrastructure expenditure in the previous years Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

10 10 Asia/Pacific Service Provider Router Market Declines in 2002 Table 6 Vendor Market share in South Korea in 2002 Units Market Share (%) Revenue ($M) Market Share (%) Cisco Redback Juniper Others Total Note: Some columns do not add to totals shown because of rounding. Source: Gartner Dataquest (March 2003) Some of the largest investment in recent years were made in the Internet exchanges of KT Corp. and Dacom, which have been awarding large contracts to Cisco, Juniper and Redback. Hanaro and KT Corp have also made large investments, as the country has become the most highly penetrated broadband market in the world. Investments slowed in 2002, and this trend will continue to the end of 2004 when new bandwidth and IP service requirements must be put in place to support very high bandwidth services that are currently being launched by KT Corp and Hanaro, with the support of government policy. Of the local South Korean vendors, Raonet is the only one developing a small multigigabit router for MPLS, which is called the R10. These vendors represent a tiny portion of the market, and in 2001, their revenue almost solely from Dacom, amounted to less than US$1 million. The systems being implemented are 10 R5s for the access network of the Korean Broadband Network. Revenue for 2002 was just over US$2 million as a result of orders from Dacom. Dasan Network is developing an 80Gb router with Samsung, LG and Etri but is concentrating more on the switch market. Cisco still dominates the South Korean marketplace with 55 percent of the market. Redback comes in second with 23.7 percent, and Juniper is third with 18 percent. Taiwan The Taiwanese SPR market totaled only US$21.9 million in 2002, a 45.8 percent drop from 2001 (see Table 7). This decline was because of massive investments in previous years, economic slowdown and a maturing broadband market (mostly ADSL). Investment in SPRs has been especially disappointing from the three new operators that entered the market in early Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

11 11 Table 7 Vendor Market share in Taiwan in 2002 Units Market Share (%) Revenue (M$) Market Share (%) Cisco Redback Juniper Others Total Note: Some columns do not add to totals shown because of rounding. Source: Gartner Dataquest (March 2003) The government introduced three new fixed-line licenses to introduce competition against CHT. The three new licensees were New Century Infocom, Eastern Broadband Telecom and Taiwan Fixed Network. The licenses cover local and domestic long-distance services and international voice, data, and leased-line services (including Internet and broadband applications). These new operators began to invest in a wide range of telecom equipment to compete with CHT, but economic conditions and pre-emptive actions by CHT have led to some reduction in their rollout plans. The new operators are concentrating on offering corporate services in the main business centers. Redback has a strong foothold in the Taiwan market (16 percent) after signing deals with the incumbent PTT, Chunghwa Telecom. Cisco, with 65.1 percent market share, still dominates the market, and Juniper, with 14.6 percent market share, is a major player. Slight growth is expected to resume in 2004, with an increase in vendor revenue of 0.8 percent from The 2002 through 2006 CAGR is forecast to be negative 1.8 per cent. CHT dominates the SPR investments in Taiwan, and this situation will not change through the forecast period. Definitions Service Provider Routers These are routers capable of providing multigigabit bandwidth in support of high-speed WAN interfaces. These devices are typically designed for installation in the Internet and support only the IP suite. Supported media types include asynchronous transfer mode (ATM) (OC-3, OC-12 and OC- 48), IP over synchronous optical network (SONET) and high-speed serial interface (HSSI). Future generations are expected to support wavelength division multiplexing (WDM) interfaces. Furthermore, these devices address the needs of fault tolerance, such as the provision of dual-power supplies, hot swappable cards and redundant buses Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

12 12 Asia/Pacific Service Provider Router Market Declines in 2002 Service Provider Core Routers These are routers with at least 40 Gbps of switching capacity and 40 Mbps of forwarding capacity. They are designed to handle multiple OC-48s and OC-192s for operation in the service provider's IP core backbone. They handle a subset of edge router routing protocols such as WFQ, BGP-4, IS-IS, WRED and MPLS. Some examples are Cisco 12000, Avici TSR and SSR, Charlotte's Web Aranea-1, Hyperchip PBR 1280, and Juniper M160 and T640. Service Provider Edge Routers These are routers with less than 40 Gbps of switching capacity, which can handle thousands of channelized TDM interfaces to DS-0s. They handle broadband aggregation, leased-line aggregation, advanced IP services and VPNs.TheysupportthefollowingSPRprotocols:WFQ,BGP,IS-IS, WRED, ACLs, MPLS VPN and IPsec. They have subscriber management, bandwidth management, IP switching and VPN provisioning capabilities. Some examples include the Cisco 7500, 7600, 7300 and 6400; the Juniper M5, M10, M20 and M40e; and the Redback Smart Edge Router. Broadband Aggregation/IP Services Routers This is a subset of service provider edge routers. They are aggregation and termination systems that accept a high concentration of data traffic from multiple digital subscriber line access multiplexers (DSLAMs), cable modem termination system (CMTS), wireless headends, dial access concentrators and routers. In addition to aggregation and termination, these systems offer subscriber management services, including the following: differentiated class of service (COS), different priority levels for different classes of network users, dynamic selection and delivery of network services, quality of service (QOS) for data, voice and video applications, usage-based billing, security and random authentication, troubleshooting and remote diagnostics, network management, managed firewalls, and secure VPNs. Examples of broadband aggregation systems include CoSine IPSX, Nortel/Shasta BSN, Redback SMS, Unisphere ERX and Cisco Regions Asia/Pacific The Asia/Pacific region includes Australia, China, Hong Kong, India, Indonesia, Malaysia, Singapore, South Korea, Taiwan and Thailand. However, the following markets include Japan within the Asia/Pacific region: call-routing systems, interactive voice response systems, premises switching equipment and enterprise-messaging systems Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

13 13 Rest of Asia/Pacific The Rest of Asia/Pacific region includes American Samoa, Ashmore and Cartier Islands, Baker Island, Bangladesh, Bhutan, Bouvet Island, Brunei, Cambodia, Christmas Island, Cocos (Keeling) Islands, Cook Islands, Coral Sea Islands, Federated States ofmicronesia, Fiji, French Polynesia, Guam, Howland Island, Jarvis Island, Johnston Atoll, Kingman Reef, Kiribati, Laos, Macau, Maldives, Marshall Islands, Midway Islands, Mongolia, Myanmar (Burma), Nauru, Nepal, New Caledonia, New Zealand, Niue, Norfolk Island, Northern Mariana Islands, North Korea, Pakistan, Palau, Palmyra Atoll, Papua New Guinea, Paracel Islands, Philippines, Pitcairn Islands, Solomon Islands, Spratly Islands, Sri Lanka, Tokelau, Tonga, Tuvalu, Vanuatu, Vietnam, Wake Island, Wallis and Futuna, and Western Samoa. Key Issue When, and how, will growth return to telecom infrastructure markets? 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 13 March 2003

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