Cisco's Share Slipping In Bread-And-Butter Switching, Routing Markets

Cisco Share Slips

As Cisco shifts resources toward security, cloud and the Internet of Things, the networking leader's market share in its bread-and-butter switching and routing is slipping due to heavy competition from the likes of Arista Networks, Hewlett Packard Enterprise and Huawei, according to data from Synergy Research Group.

"Cisco cannot afford to take its eye off the ball on switching and routing," said John Dinsdale, chief analyst at Synergy. "This really is Cisco's game to lose."

Although Cisco is still the dominant worldwide network leader, commanding 53 percent of the overall switching and routing market in the second quarter, looking at rolling annualized numbers – comparing the last four quarters in total with the previous four quarters – Cisco's market share has dropped in the enterprise switching and service provider routing segments. Using Synergy's data, CRN breaks down the market and vendor landscape.

$10 Billion Networking Market In Q2

For the second quarter of 2016, worldwide switching and router revenue was more than $10 billion and was $41 billion total for the last four quarters, representing 1 percent growth on a rolling annualized basis. The three market segments include enterprise switching, enterprise routing and service provider routing.

Enterprise switching is the largest of the three segments, representing nearly 60 percent. North America remains the biggest region, accounting for more than 40 percent of revenue, while the Asia-Pacific region is the fastest-growing, according to Synergy.

"The big picture is that total switching and router revenues are remaining relatively stable at some $10 billion per quarter," said Jeremy Duke, founder of Synergy.

Cisco Enterprise Switching

Cisco Q2 Enterprise Switching Share: 59 percent

Although San Jose, Calif.-based Cisco captured 59 percent of the enterprise switching market in the quarter, the company has lost 1 percent when comparing the last four quarters in total with the previous four quarters, according to Synergy.

Synergy's Duke said Cisco continues to feel the heat from the strong growth of Arista Networks and China-based Huawei in the enterprise switching market.

For its fourth fiscal quarter, Cisco's switching business grew 2 percent year over year to $3.79 billion, although for Cisco's third fiscal quarter, the company reported a 3 percent year-over-year drop in switching product sales to $3.45 billion. Cisco also reported a 4 percent decline in those sales in its second fiscal quarter as well.

Switching Competition: HPE-Aruba, Arista, Huawei

The market-share leaders behind Cisco are Hewlett Packard Enterprise, followed by Huawei and then Arista Networks.

HPE's networking business has skyrocketed a whopping 55 percent year over year to $1.74 billion during the first six months of its fiscal year thanks to its $3 billion acquisition of Aruba Networks in 2015.

"HPE continues to keep pace with the market. Also, it still has a strong position in China due to historic M&A activities," said Synergy's Dinsdale.

Santa Clara, Calif.-based Arista has also been on a tear in the networking space over the past several quarters. For its recent second fiscal quarter, which ended June 30, Arista reported a 37 percent increase in revenue year over year to $269 million.

Cisco Service Provider Routers

Cisco Q2 Service Provider Router Share: 40 percent

Cisco is still the leader in the service provider router space with 40 percent market share. Although Cisco's share in this space has declined 2 percent when looking at rolling annualized numbers – comparing the last four quarters in total with the previous four quarters.

The networking giant reported a 6 percent year-over-year drop in routing product sales to $1.87 billion for its fourth fiscal quarter. Cisco CFO Kelly Kramer said the fourth-quarter routing decline was "largely driven by the weakness we saw in the service provider space."

Cisco also reported a 5 percent decline in routing sales during its third fiscal quarter.

Service Provider Router Competition: Huawei, Juniper

Market-share leaders behind Cisco in the service provider routing space are Huawei and Juniper Networks.

The Asia-Pacific region continues to be the fastest-growing geography, with growth being driven in large part by service provider spending in China, which benefited Huawei in particular, said Dinsdale.

"Huawei totally dominates the local [service provider] router market in China," said Dinsdale. "But Huawei isn't just a one-country phenomenon and is also doing well in various APAC and EMEA country markets."

Cisco Enterprise Routing

Cisco Q2 Enterprise Routing Share: 68 percent

Cisco's most dominating networking market is in the enterprise routing space with 68 percent share, although the segment is relatively small compared to enterprise switching and service provider routing, said Dinsdale.

The company's market share here has been flat at 68 percent when comparing the last four quarters in total with the previous four quarters.

Enterprise Routing Competition: Juniper, HPE

Market-share leaders behind Cisco in the enterprise router space are Juniper, HPE, Huawei and Technicolor. Dinsdale said little separates these four vendors in this space – all owning single-digit share.

Last year, Cisco sold its Connected Devices business -- comprised of its service provider video customer premises equipment -- to French communications and media provider Technicolor for $600 million.

Cisco's Overall Networking Market Share

For the last four quarters in total, Cisco's market share was 55 percent, 1 percent down from the preceding four quarters at 56 percent.

In August, Cisco unveiled a major restricting plan in order to invest in priority areas such as security and IoT that included the elimination of up to 5,500 positions.

"Restructuring [enables] us to optimize our cost base in lower-growth areas of our portfolio and further invest in key priority areas such as security, IoT, collaboration, next-generation data center and cloud," said CEO Chuck Robbins during Cisco's fourth fiscal quarter earnings call.

However, Robbins said the plan would not de-emphasize the company's focus and investment in its core routing and switching business. "It's not that we're ignoring one in favor of another, we just want to make sure that our investments are commensurate with the growth opportunity," he said.