Internet Router Sales on the Rise

Though the U.S. economy may be slowing down, the demand for service provider IP routers isn’t suffering the same fate.

According to a new report from research firm Infonetics, the first quarter of 2008 saw a 35 percent year-over-year increase for IP core and edge router revenue worldwide.

That demand for routers among service providers signals that the networking business remains very healthy.

“From a consumer perspective, more and more people are turning to the network as a source of critical information and commerce,” Ravi Medikonda, head of wireline segment marketing at Juniper Networks, told “This continues to drive demand for
high-performance networking gear as service providers scale their networks to support this traffic growth.”

Infonetics reported that router and switch sales to service providers totaled $3.0 billion worldwide in 1Q08.

The strong first-quarter showing comes off a record year for the industry, with $11.2 billion in 2007 revenue for service provider routers and switches, a 23 percent increase over the 2006 tally.

For the overall market, Infonetics reported that Cisco was the No. 1 vendor, followed by Juniper Networks, both of whom gained 1 percent of global revenue market share during the first quarter.

Part of their success is due to the allure of new technology they offer.

Medikonda said Juniper is seeing service providers moving to increase their average revenue per user by delivering unique and innovative, differentiated services — efforts driven by advancements in networking products. For instance, the move toward
smarter networks
is one that Juniper and others have been talking about
for at least a year.

Compliance issues — prompted by regulations like Sarbanes-Oxley, the Health Insurance Portability and Accountability Act, Gramm-Leach-Bliley and the Payment Card Industry Data Security Standard — are also helping to drive revenue.

“The growing demand of security and threat-management services, which is driven by a number of new regulations … is creating demand for mandatory archiving and storage of huge data volumes, which in turn is creating a need for datacenter investments,” Medikonda said.

The report reinforces a growing consensus that the U.S.’s current economic malaise . isn’t stopping overall industry growth. In Cisco’s most recent investor conference call, CEO John Chambers delivered a
measured but optimistic outlook

Juniper is seeing a similar forecast as well. During Juniper’s Q1 investor conference call, company executives indicated that Juniper’s service provider business continued to reflect healthy demand.

“While there will always be individual networks and projects in one phase of growth or digestion, we saw no evidence in Q1 of a weakening demand environment in the U.S. or any direct impact on planned or in process network infrastructure build-outs around the world,” Medikonda said.

Part of that reason may be due to what Medikonda sees as networking equipment vendors’ ultimate ability to benefit even during an economic slump.

“In a downturn, enterprises tend to outsource more of their data and telecom services to offset personnel shortages and focus on their core business, which in turn creates new opportunities for the carriers offering managed services,” he said.

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