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More traffic doesn't equal higher costs TOLL-1
Tuesday, 26 August 2014 16:25

Router salesRouter/switch $sales actually down. Anyone who says increased traffic is raising carrier costs is misinformed, as I and many other tech reporters have been saying for years. True, wireline traffic and customer counts continue to grow. Wireless traffic is up significantly in the last year. Yet the total dollars spent on service provider routers and switches actually declined in Q2 from last year. This is the largest category of equipment needed for increased broadband bandwidth. Other gear (DWDM, etc.) also came down in price. 

     Equipment costs have been falling as fast as traffic has been going up for at least the last decade. The net result has been the cost per month of a broadband customer has remained steady or slightly declined on any large network. That cost - less than $1/month - is about 2% or 3% of the price of the service.

Margins on broadband are very high. Wall Streeters Craig Moffett and John Hodulik reference 90% margins based on SEC filings by the cable companies. I attribute to broadband more of the network costs so I see only 70% or so margins. Either figure is far above typical corporate services margins of 25-50%. Broadband almost everywhere is highly profitable, which is why 80-90% of all phone lines in the world now support broadband.

      Michael Howard of Infonetics found a decline of 4% in the second quarter from the year-ago quarter. The major vendors of this equipment trust Infonetics with their confidential sales data. Howard has proven accurate interpreting the figures in the past and Infonetics figures generally are echoed by other reliable sources. 

      T.O.L.L. stands for Tired Old Lobbyist Lies. More to come. 

Here's the pr.  

Infonetics: Strong sequential growth for carrier routers and switches in 2Q14 masks long-term trend

Campbell, CALIFORNIA, August 26, 2014-Market research firm Infonetics Research released vendor market share and preliminary analysis from its 2nd quarter 2014 (2Q14) Service Provider Routers and Switches report. (Full report available by Aug. 29.)

ANALYST NOTE
"As we've been cautioning, service providers of all sizes are being more guarded with their router spending habits as massive network transformation goals involving software-defined networking (SDN) and network functions virtualization (NFV) translate into specific activities and milestones. But this does not mean router and switch spending will tank or even take a sizeable downturn," notes Michael Howard, principal analyst for carrier networks and co-founder of Infonetics Research.

Continues Howard: "Core router upgrades and replacements prompted by the move to 100GE and paired with many aging core routers drove the core router segment to 11% sequential growth in the second quarter of 2014, and with a lot of capacity 'in the ground,' we believe core routers will stay positive for the full year."

2Q14 CARRIER ROUTER AND SWITCH MARKET HIGHLIGHTS
.       Worldwide service provider router and switch revenue, including IP edge and core routers and carrier Ethernet switches (CES), is up 20% in 2Q14 over 1Q14, to $3.9 billion
.       Though the quarter's increase was solid, the long-term trend is reflected in the decline of 4% from the year-ago quarter (2Q13)
.       The IP edge router, IP core router, and CES segments all had double-digit revenue gains in 2Q14 from 1Q14
.       On a year-over-year basis, EMEA is the only region to achieve positive revenue growth (+3%) in the carrier router and switch market in 2Q14, while all regions-North America, EMEA, Asia Pacific, and CALA-are up quarter over quarter
.       The usual suspects continued to battle it out for the top 4 router and CES market share spots: Cisco stayed in the lead in 2Q14, with Alcatel-Lucent, Huawei, and Juniper (listed in alphabetical order) in a fight for the 2-4 positions
.       Infonetics expects global service provider router and switch revenue to grow at a 2.8% CAGR from 2013 to 2018

Last Updated on Tuesday, 26 August 2014 21:49