Continued growth in the data center network equipment market has opened a window of opportunity for vendors looking to cut into industry leader Cisco's share, and, for those with the right products, "the time to strike is now," one analyst says.
According to Infonetics Research, the data center network equipment market saw 9% sequential growth in 2011's fourth quarter, amounting to 15% year-on-year growth. Although that rate falls quite short of the meteoric 59% rise the market saw in 2010, Sam Barnett, the research firm's directing analyst for data center and cloud, expects double-digit percent revenue gains to continue through 2013.
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Given that the growth "should taper as buyers finish off their investment cycle and focus on other parts of their networks" by 2014, Barnett says vendors that have already begun chipping away at Cisco's long-held lead in the market will have a good chance during that period to do some serious damage.
"Cisco lost its way," Barnett says. "It simply invested in too many areas and neglected its core competencies -- routing and switching. They realize that now and are re-aligning to address it."
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While Cisco scrambles to hang onto its lead, others in the data center network equipment market are beginning to chomp at the bit. In the fourth quarter, HP continued to move in on Cisco in the data center Ethernet switch market, with 38% revenue growth (See: "Cisco losing router sales to HP?"), while F5 padded its lead in the application delivery controller (ADC) sector with its own 20% growth.
Barnett says Cisco's incumbency in customer data centers is the biggest barrier to entry for newcomers and points out that Cisco isn't sitting back. Word recently leaked out that Cisco is incubating a software-defined network startup and Barnett expects Cisco to make acquisitions this year to bolster its data center arsenal.
"I believe they will be more hesitant to jump on an acquisition these days unless it is truly a complement to their existing businesses and will allow them to leapfrog the competition," Barnett says.
Regardless, Cisco can hardly afford a setback as F5, HP and Riverbed are all "eyeing adjacent markets," Barnett says. With the current market environment and the expected flow of revenue in the next few years, the data center network equipment sector could be up for grabs.
"The market will continue to grow at least through 2015," Barnett says. "Cisco is watching its back. Even so, I still believe there is opportunity for others."
Colin Neagle covers Microsoft security and network management for Network World. Keep up with his blog: Rated Critical, follow him on Twitter: @ntwrkwrldneagle. Colin's email is cneagle@nww.com.
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