It's a strange dichotomy at work, when a market can produce both high demand and lower revenue. But that seems to be just what conditions are at work in the enterprise router market, at least, according to a new report from Infonetics Research (News - Alert). The company's second quarter 2014 Enterprise Router report spells out a set of disturbing points, and though the news isn't universally bad, there will still be some significant negative points to work through.
For the second quarter, the worldwide enterprise router market's revenue saw a one percent gain, totaling $867 million for the quarter. Any gain is commonly welcome, but there's a problem here in that normally, the enterprise router market sees strong gains in the second quarter, not gains that typically put it just above flat. Despite this sluggish growth in revenue gain, however, there are strong gains in terms of unit shipments which were up six percent over the same time last year. But enterprise router sales fell nine percent from the same quarter in 2013, showing quite a bit of loss between there and there.
However, there were some bright spots to the report. For instance, higher-performance routers were on the rise, with both high and mid-range shipments up over 10 percent for the year. The lower-end routers, meanwhile, likewise saw growth, but at slower rates. The Asia-Pacific market saw the best growth, while Europe, Middle East and Africa sales fell 11 percent and North American sales fell a hefty 19 percent as compared to last year.
The Enterprise Router report covered several different sub-classes of the market, ranging from the high-end router market to the mid-range, from the branch office to even the low-end and small office / home office (SOHO) router markets. But while there were differences in the various markets, the overall theme appeared to be one of disappointment overall. Infonetics Research's directing analyst for enterprise networks and video, Matthias Machowinski, offered up a bit of commentary on the overall picture saying, “For the second quarter in a row, enterprise router sales disappointed, and revenue is now trending downward. Demand for routers is still strong, as indicated by rising unit shipments, but discount pressure, preferences for local and lower-cost vendors in China, and lower public sector sales drove down revenue.”
The key here does seem to be issues of pricing, as a combination of increased shipments and decreased revenues suggests that the problem here is how much is being made on those shipments. But in a market where more routers are going out the door, it's reasonable that there should be some pricing pressure; after all, with a lot of routers heading out, there's likely several firms going after the market. More firms in a market means more competition, and differentiating from the competition requires a little relenting in terms of pricing overall. Competition is good for customers, though not always the greatest for the businesses involved, and from the sounds of it, some of those businesses may well exit the market, at least in the short term, as demand is high but profits are slim.
While only time will tell what the enterprise router market looks like in the immediate future, there's a safe bet that there will be plenty to see here. There's likely to be some new developments in terms of overall competition, and that should mean some big new moves coming as companies look to differentiate and potentially even exit the field.
Edited by Stefania Viscusi