Rich Get Richer in Ethernet Switch Marketplace

Consolidation has been the watchword in the Ethernet switch market. With growth rates slowing and competition increasing, vendors have been trying to gain size in order to weather the changes. Such an outlook is being made for good reason. Market research firm Delloro Group found that revenue for giants Cisco, HP, and Juniper increased $600 million in the last quarter, leaving few leftovers for the remaining suppliers.Because of the economic downturn, times have been tough for many IT suppliers. Yet revenue from Ethernet switches has been increasing: DellOro found that Ethernet switch revenue rose by 20% in the fourth quarter 2009. A loosening of the company purse strings and pent up demand from purchases that were put on hold are a few of the reasons for the increase. The market research firm expects sales to continue to rise in 2010, primarily because of increased demand for 10G Ethernet products. Businesses need these faster speeds to transfer large files, such as video transmissions.

As the market has been expanding, competition has been growing fierce. A few dozen vendors offer Ethernet switches, but the smaller vendors have been finding it more and more difficult to develop viable business plans. Consequently, there has been a wave of consolidation where small suppliers had been jumping into the arms of larger suppliers. However, the economic downturn curtailed some of that activity, and these companies have been tinkering with their business plans and product pricing in order to entice potential customers.

The market dynamics represent good new and bad news for small and medium businesses. The good news is that they will find vendors willing and able to deliver cost effective products that should meet their needs. The downside is some of these companies purchased products from vendors whose futures are in doubt. If the vendors go under, customers can be left with dead end equipment. From DellOros research, it seems like fewer and fewer companies are willing to take such a risk, which should continue to help the top suppliers as the market continues to evolve.