Switching sides

Having spent every Saturday afternoon of my childhood being dragged around Walthamstow Market, I can vouch for the fact that markets are, invariably, noisy places. The latter-day switching market may not feature quite so many cockneys hawking batteries and J Cloths, but, nonetheless, it has been one of the most voluble markets in the tech space this year.

Throughout 2010 the market had plenty to shout about, with Dell’Oro research revealing that global revenue grew 30 per cent in 2010. But, to misquote Dickens, the winter of hope turned to the spring of despair and the whoops of joy became plaintive wails as the market floundered in 2011’s opening quarter. IDC numbers found global switch revenue fell 9.1 per cent year on year during Q1.

Against this up-and-down backdrop, the battle between HP and Cisco has become noticeably louder, as the former attempts to wrest some control of the market away from the latter, a long-time runaway leader. HP turned up the volume in April with its Catalyst for Change trade-in programme, which aims to help partners displace $9bn (£5.8bn) of Cisco’s install base across Europe.

The scheme, the name of which is a reference to Cisco’s flagship Catalyst range of switches, offered 20 per cent discounts to customers trading in various bits of networking kit. HP labelled its arch rival’s technology “complex, proprietary and expensive”.

A break from the norm
Stephen Cartwright, competitive and market intelligence manager at HP Networking, claimed end users are tiring of the upfront capital expense and long-term total cost of ownership of Cisco.

“We have greater energy efficiency and higher-performance products. Within our switching infrastructure, from a technology standpoint, we are superior to Cisco,” he said.

“HP switching and routing has a significantly lower total cost of ownership. If you deploy an HP network, you can save up to 66 per cent.”

HP has been very vocal in recent months about the market share gains it claims to have made from Cisco. It recently indicated that, during 2011’s opening quarter, its share of the worldwide layer 2 and layer 3 Ethernet switching market leapt 2.5 points, while its biggest rival lost 5.8 points.

“We are very conscious and respectful of Cisco in the marketplace,” said Cartwright. “It has historically been, and continues to be, the dominant vendor. But, over the past few years we have gained share steadily and will continue [to do so] over the coming period of time. Customers are looking for an alternative to Cisco.”

Perhaps unsurprisingly, Cisco sees the customer landscape rather differently. Wenceslao Lada, Cisco’s vice president of Borderless Networks for the vendor’s Worldwide Partner Organisation, told ChannelWeb that, while his company has endured challenges this year, 2011 is proving to be a testing year for everyone in the switching market.

“2010 was a tremendous year for the switching market; 2011 has been constrained, mainly because of the public sector,” he said. “The public sector has cut a lot of expenses in a way that affected us to a higher degree.”

Looking at the impact of HP’s competitive initiatives, Lada suggested that they add up to more of a “marketing gimmick” than “a real feature or component” of the vendor’s go-to-market strategy.

“When we see their performance and their growth in the marketplace, we have not seen that [translate] into real wins,” he said.

“Some customers who pursued HP Networking in the past have come back to us and said: ‘this is not working as we were expecting’.”

Pressure cooker
The bunfight between HP and Cisco has, if Infonetics Research is to be believed, put price pressure on the market as a whole. A recent study from the analyst found that global Ethernet switch port shipments in 2011’s second quarter were up 11 per cent year on year. But sales figures for the market dropped three per cent annually to $4.4bn, pointing to a decline in average selling prices (ASPs).

Cisco and HP continue to make revenue market share advances, but the latter is gaining ground on the switching space’s long-time top dog. In the past 12 months there has been a swing of more than five points towards HP, according to Infonetics, with HP snaffling more than two per cent more while Cisco has shed upwards of three.

Matthias Machowinski, directing analyst for enterprise networks and video at Infonetics Research, said: “Ethernet switch buyers are in the driver’s seat right now, as vendors are fiercely competing for their business. While the battle is mostly playing out between Cisco and HP, other vendors are caught in the crossfire, with declining ASPs being one side effect. In the switch market, we expect this to result in stagnating revenue despite robust demand in 2011.”

Stephen Tsirtsonis, UK field sales representative at Netgear, claimed the pressure on businesses’ budgets could help his company gain ground on enterprise-focused rivals such as Cisco and HP. The industry maxim that no one ever gets fired for buying Cisco still, broadly, holds true, explained Tsirtsonis, but IT chiefs managing straitened budgets are being necessarily more open-minded.

“It is down to the way we position our products. We can take higher-end technologies and commoditise them - we are doing complicated stuff in an easy way,” he said.

“Budgets are so much tighter now, we are getting more people coming to us. You may never get fired for buying Cisco, but what if you need a high-speed network and you cannot afford Cisco?”

Tsirtsonis is another one to claim that his firm has not come up against noticeably more aggression from HP this year.

“I am not seeing a significant amount of push from [HP],” he said. “We are aimed at mid-sized enterprises, the 500-seat organisations, and we are pushing hard in that market. We see [HP], but not as a significant threat.”

Portfolio changes
Market onlookers have suggested to ChannelWeb that Cisco’s market losses over the past 18 months can, in part, be attributed to the wealth of changes that its portfolio has undergone. This began in March 2010, with a complete overhaul of its switching kitbag, including the release of the flagship Cisco Catalyst 3750-X and 3560-X switches.

In recent months the networking giant has been frank about its operational struggles over the past couple of years and has moved to trim the fat and excess cost from its business. The breadth of new portfolio being pushed through an operational framework that the vendor has admitted was creaking at the seams will surely have hurt Cisco’s market share.

Lada believes Cisco will be taking the fight to its main rival in the coming months and years, with the battle centred around two key areas: datacentre and campus networking.

“These days customers are expecting more and more performance; they do not want a multi-purpose platform, they want something much more specialised than that,” he said. “We are no longer counting on the customer buying a ‘good-enough’ network.”