The growth in the enterprise switch industry was witnessed across all the verticals. It came both from large enterprises and SMBs going in for networked business environment. The market grew to Rs 1,587 crore, riding on low value but high volumes purchases by the SMBs and high value but low volumes purchases by the large enterprises and the service providers. The industry registered a growth of 21.9% over the 2004-05 fiscal.

The software and manufacturing verticals were the leading consumers of LAN switches. Their uptake was also helped, as banks and large manufacturing organizations showed renewed interest in datacenters, disaster recovery, and business continuity.

The SMBs went in for unmanaged layer 2 and 3 switches, while the deployments with large and mid sized enterprises were layer 4-7 managed switches.

Ethernet remained driven by its lower cost and ease of administration. Both metro ethernet and ADSL drove the business last fiscal. Telecom service providers, rolling out ADSL networks, continued buying the large 10 G and IG over Ethernet switches for their broadband deployments. The real push in terms of volumes in the enterprise switching business will come with greater rollout of metro ethernet networks.

Large enterprises and service providers drove the demand for managed gigabit switches.

They are planning to roll out bandwidth intensive enterprise applications such as data warehousing, with the growing importance of video traffic on the Internet and on enterprise networks. On the consumer end and at the service provider level, however, the market remained subdued with the IP TV/triple play plans of players such as MTNL, Reliance, and VSNL being non-starters. In any case, the deployments were in select cities to begin with.

Some of the other drivers of growth were applications such as streaming video, voice over IP, high-end multimedia, medical imaging, and other bandwidth-intensive applications. All these applications threw up demand for gigabit and fast ethernet switches in low volumes but high value.

The importance of gigabit ethernet continued to increase in the backbone networks and at the server level. It was still early days for gigabit switches at the node level, however, the fast ethernet switches became entrenched with the end users. The 10/100 Mbps ports were routinely bundled with the end nodes.

Despite their high cost, managed gigabit ethernet switches became economically compelling for the corporate networks and managed layer 4-7 switches saw a lot of uptake in the market. Though their volumes were lower than the unmanaged layer 2 and 3 switches, their contribution to the revenues was sizeable.

These switches were adopted by a large number of SMBs who migrated upwards in the value chain, and began using LAN switches.

The market has been abuzz with gigabit for some years now. But in the last year, they became more relevant with the rising trend of storing data on networked drives and SANs, and with the continuous increase of high bandwidth applications in the organizations. Though their adoption was still picking up in the 2005-06 fiscal, with data traffic growing in geometric proportions, even the 100 gigabit ethernet would be economically viable soon, especially for large networks. This availability of new technologies by enterprises held promise for vendors who were being squeezed for margins in their volumes business of unmanaged layer 2 and 3 switches.

Besides managed or unmanaged, there were also products in the market that incorporated switching, routing, security, and bandwidth aggregation. These too sold at a considerable premium, as against the vanilla switch variety, whose average selling price continued to decrease.

The market saw a clear segmentation in terms of two types of customers.

Those looking for managed layer 4-7 switches, and those graduating from hubs, still did not have very complex requirements.

At the higher end of the market, with the continuous increase of manpower in the software companies, demand for switching increased. These companies are already entrenched into the culture of working in a networked environment, and all the new employees have to be connected with high-speed switches to the network's resources.

A major driver of ethernet switching last year was enterprises, integrating the various transports and bringing convergence in the transport layer. This also enabled the organizations to integrate the services and applications. The next wave of deployment is likely to occur with the dawn of integrated application, whereby an application itself would be able to decide how best to use the resources available.

One of the biggest deployments last year was in the education sector, through the World Bank assisted Technical Education Quality Improvement Programme (TEQUIP). The program aims at uplifting the technological readiness of the educational institutions. TEQUIP II is slated for launch soon. It will lead to another large round of deployments with a budget of around Rs 1,350 crore.

The switching business was the bread and butter for many of the large vendors, and even those that seemed to be lagging behind, were able to generate good amount of business simply on the basis of on-gong business with old customers.

The players
The Industry witnessed a growth of 21.9%, despite few vendors witnessing negative growth. Cisco was the undisputed leader. Its revenue came mainly from layer 4-7 switches. However, in line with the rest of the industry, its volumes too were with the unmanaged layer 2 and 3 switches. It grew 25%, and more or less held on to its market with 72%.

D-Link also grew along the market rate. It received help in its revenues through its alliance with Foundry and managed to sell high-end switches. The company grew at 23.2%, much faster than 9% in 2004-05. It retained its second position in the switching market in the 2005-06 fiscal too. It held market share of around 7%.

Nortel recovered from its negative growth last year, and grew at 18%. It came in third with a market share of 6.3%.

Despite a growth of around -15% in the 2005-06 fiscal, 3Com still had a market share of around 4% and stood fourth in the rankings, the same as in the 2004-05 fiscal.

Dax Networks shot its way into the ranking table with revenue of Rs 19 crore, helped primarily by the declining revenues of 3Com and Enterasys. These two companies suffered with the sharply declining prices of the unmanaged layer 2 and 3 switches. Dax grew significantly faster than the market average with around 36% last year. Its market share was 1.2%.

Enterasys' revenue from enterprise switching declined around 44%, and its market share dropped below 1%.

Outlook
All eyes are now set on the retail sector. Whether it is at the level of the remote shopkeeper connecting to the enterprise networks via hosted solutions, or it is the growth of networks within a distributor's premises, or the natural growth of the branch offices. The retail boom, when it occurs, will drive the next wave of business with customers demanding all varieties of switching solutions to get connected with the enterprise network.

Also, with even the SOHOs going in for ethernet switches, the current market logic (which is based mainly on enterprise or to some extent SMBs) is going to change. Leaders such as Cisco seem to be preparing for that change with their quiet though determined focus on their Linksys brand.

With convergence of transport and services, organizations will continue to move up the value chain. They are likely to go for IN type of solutions that will give their infrastructure some sort of security from obsolescence.

Alok Singh
aloksi@cybermedia.co.in