Devices

Devices market looking up

As more companies go global and the need for networking increases, routers and switches are going to see growing demand, says Shipra Arora

When the final numbers for 2003 are tallied, they are expected to bring some relief for the Indian LAN market comprising desktop and server NICs, hubs, routers and switches. According to IDC, the market size for 2003 is estimated at approximately $264 million, a 23 percent jump over the previous year when it stood at around $216 million. This, compared to the meagre 7 percent growth in 2002 over 2001 (when it was about $203 million) shows clear improvement in the sluggish market. Even more cheering is the forecast that this growth will spill over to the next couple of years. IDC says the momentum is likely to sustain itself at the 23-25 percent growth mark in 2004, while 2005 might even see a spurt in growth rates, provided wireless and broadband equipment deployment happens as expected. (This will especially impact the switches and routers market.)

On an average, the research agency expects the market to grow at a CAGR of 25 percent over the next five years. With NICs and hubs showing negative growth trends, leading the rise in the fortunes of the LAN market are routers and switches.

Overview

• Current situation: One of the key trends during 2003 has been the strong emergence of India on the LAN market scene in the Asia-Pacific (APAC) region, which was hit by slackness during the first quarter of the year. According to IDC, the Indian LAN market in Q1 CY 2003 grew around 25 percent over Q4 2002. During the same period, the APAC region recorded the lowest spending in the LAN market since Q1 2000. In fact, apart from Australia, Singapore and Malaysia, India was the only growth market in sequential terms in Q1 2003. The end of the financial year in Q1 2003 for India helped boost spending in this market, says IDC. According to Naresh Singh, senior analyst, ICC group, IDC India, the market here is still in the stage of deploying new networks, whereas in the other markets significant deployment has already taken place, so they are now largely upgrade markets.
  
  
• Moving forward: In terms of segments, while hubs and NICs have been declining, switches and routers have driven much of the 25 percent CAGR in the LAN equipment market. According to IDC, last year the routers market in India grew at a decent 21 percent, followed by switches at 5 percent. On the other hand, both NICs and hubs declined by 34 percent and 29 percent respectively. It is estimated that while routers will continue to sustain almost similar growth momentum, the pick will be the switching segment. This was quite evident during Q1 of the current calendar year; according to IDC, the Indian LAN switch market grew by almost 42 percent over Q4 CY 2002. This while the segment declined by almost 16-17 percent in Q4 2002 over the previous quarter. Even during Q2 2003, the traditional second quarter decline did not impact the segment as much as expected. Taking long-term IDC estimates into account, both routers and switches are expected to grow at a CAGR of 27 percent up to 2007.
• Factors driving growth: There was a dip in IT spending in India in 2001-2002 over the previous year, which affected the setting-up of networks. However, FY 2002-2003 saw a positive growth in IT spending over 2001-2002; this is expected to carry on in the coming fiscal, according to IDC. “A positive trend in spending is going to be one of the main growth drivers for the LAN market in India. 2002 was a correction year, and it is only from 2003 onwards that we have started seeing actual growth in this market,” says Singh. This, coupled with the emergence of new markets within the LAN market—like network storage, network security, wireless and momentum on the enterprise voice front—is going to fuel the 25 percent CAGR.

Switching

The revival in terms of deployment of switches is said to have begun towards the end of 2003, and will continue next year. This is because the manufacturing vertical has become stronger. During 2001 and 2002, banking, financial services and insurance (BFSI) became the number one vertical for the switch market, and manufacturing was experiencing a downturn, says Singh. However, this started changing recently with increasing deployment on the manufacturing side and will impact the overall deployment of switches in the Indian market.

Going forward, the growth drivers for this segment will be manufacturing and BPO on the enterprise side. Towards the end of 2004, telecom infrastructure companies deploying switches will give a further boost to the market. Says Prabhod Vyas, director, sales, D-Link, “The segment which interests all the players in the switch segment is BFSI, which is expected to increase IT infrastructure expenditure by 18-20 percent. The other segments to watch out for would be manufacturing and healthcare.”

Market trends: While there has been a price fall across the entire segment, it is the lower end of the market that has seen some drastic cuts. This has made a significant impact on the switching vendors for whom the low-end market has been a major focus area. IDC anticipates a further price fall in the low-end switching market. As a result, the distinction that started emerging between the commodity and value markets in recent years in the switching space is going to become even more prominent in the coming years. It is this distinction that explains the growing interest of companies like Cisco in the low-end market—and why Cisco recently acquired Linksys. S V Ramana, the company’s vice-president for Systems Engineering, points to a fundamental shift in the Indian market in favour of switching at the cost of hubs.

Technology trends: In terms of technology on the switching front, Ethernet switches are increasingly giving way to Fast Ethernet switches. With Ethernet switches on a downslide with a negative growth rate, and Gigabit Ethernet switches yet to emerge fully, Fast Ethernet currently rules the roost. 10G Ethernet switching is somewhat far off and some time away from significant deployment in the Indian market. “10G Ethernet switching is becoming a standard for the backbones of organisations beyond 500 nodes. But frankly, unless there is 1G on the desktop one would not see major deployments of 10G switching. Gigabit links between switches located in different departments as well as for server links are almost a default choice. Desktops are and will be at 100 Mbps Fast Ethernet for the next couple of years,” opines Anand Mehta, marketing manager, D-Link.

IDC expects 10G deployments to start happening next year, but these will not be very significant deployments in terms of numbers. They will not be enterprise deployments but will go into the service provider environment.

On the other hand, Layer 2 continues to dominate the switching market in India with the bulk of sales still coming from this segment. This is because the Layer 3 requirement is largely restricted to the large enterprise and service provider environments. IDC estimates a fair amount of market for Layer 2 in the mid-term future. It is only by 2005 that Layer 3 will start emerging on the Indian scene.

Some of the other technology trends in the switching space are greater adoption of Optical Ethernet technology and increasing integration of advanced features for scalability, management and multimedia support into the switches. The new service-enabled features and switch architecture will replace the traditional low bandwidth PSTN-based RAS infrastructure in ISP offices, and enable ISP infrastructure to provide value-added services like video-on-demand, IP telephony, and gaming and high-speed Internet applications.

Routers

In the overall networking devices market, routers have been one of the very few product segments experiencing good growth. Last year, the segment clocked a growth of 21 percent, the highest among all segments. The reason for this high growth, according to Ramana, is the push this market has been receiving from key verticals like government, BFSI and telecom. Cisco believes the trend will continue, with more and more state governments getting into the e-governance mode. Other segments that are expected to drive growth are export-oriented units such as BPO and IT services companies.

With the Indian router market expected to grow at a healthy 27 percent CAGR over the next five years, competition is also expected to intensify. This in turn, points out Singh, will significantly impact prices in the routing business:

One of the key trends will be the impact on the router market as Layer 3 switches increase their market share. According to Singh, while there will be an impact of Layer 3 switch uptake on the router market, it is not likely to happen next year but will take another two to three years. “Service/carrier providers who have legacy telecom infrastructure-based PSTN, PSDN, x.25 and frame relay, etc, in developing countries still need routers. But due to the intelligence and high-speed silicon-based switching and routing in Layer 3 switches, they will replace software-based multitechnology routers. It is already taking place in new Ethernet and metro-based high-speed networks,” explains Raj Jadhav, general manager, pre-sales/tech support, D-Link. Indeed, taking trends into account, major router vendors are diverting their R&D potential towards shaping and enhancing switching architectures.

Technology trends: Routers have today evolved into multitasking devices rather than just devices that determine the next network point to which a packet should be forwarded. This is because most networking equipment users found that adding more boxes to their networks only increased management and maintenance costs. With growing use of data by enterprises, users want routers to handle large amounts of data traffic; they also need flexibility to support content processing, VPNs, firewalls, load balancing, V-LANs and a lot of other functionalities. Leading vendors have sensed this need, and are offering routers that facilitate convergence of voice and data, along with other functionalities. Enhanced intelligent security with end-point awareness, device and network health management, and automated dynamically-adjusting traffic management will be some of the key features required by customers. Ramana sums it up: “Only feature-rich routers that can use internal enhanced intelligence to offload network-centric functions from conventional desktops/servers will survive.”

NICs and hubs

One question facing both the NIC and hub market segments is whether they are on their way out and will have any role to play in the networks of the future.

With the prices of unmanaged and low-end switches falling sharply, there will be a major impact on the hubs market. According to IDC, this market will go down sharply, and by 2007 it will almost disappear. “The hub is the basic multiport repeater in Ethernet; when network users move towards multiservices like content delivery and audio-video applications, the hub will have no role,” says Jadhav. However, there will always be some customers who continue to go in for hubs.

Similarly, the presence of NICs is threatened with their integration into the motherboard itself. This will have some negative impact on the Indian NIC market. But according to Singh, at least on the server side, NICs will continue to remain prominent. “With servers and desktops constituting 25 percent of total IT expenditure, the NIC market was expected to show positive signs but that was not to be since their overall sales dropped by 25 percent. Though both the desktop and server segments continue to grow progressively, NIC cards are being looked upon with a lot of scepticism thanks to the growing popularity of built-in NICs,” explains Vyas. There is no doubt that the segment is on its way out.

Conclusion

As compared to other economies in the Asia-Pacific region, India is still on the rising curve of business in all segments, be it switches, routers or hubs. With multifunctional, feature-rich LAN/WAN routers and MPLS-based multitasking switches in place, this segment is destined to grow. Fuelling this growth is the internetworking of corporates to save on communication costs. Last but not the least, NICs and hubs might see replacements in terms of newer technologies.

shipra@expresscomputeronline.com