Research Reports
The Taiwanese Switch Industry, 2004 and Beyond
February 14, 2005 / Jeffrey C.F. Tai
25 Page, Topical Report
US$1,250 (Single User License)

Abstract

Peaking retail markets and mass production of new enterprise switches drove a fourth quarter revival in Taiwanese switch shipments. Layer 2 10/100M switches remained the primarily drove fourth quarter Taiwanese shipment growth, while share of Gigabit and Layer 3 switches declined, leading to a rapid slump in Taiwanese switch ASP. In the first quarter of 2005, Taiwanese makers, the bulk of whose shipments are Layer 2 10/100M, should face clear seasonal shipment decline.
  •  List of Topics
  •  List of Figures
  •  List of Tables

The replacement wave in enterprise markets drove global switch shipments to new heights. The global shipment share of gigabit switch products rose from 9% to over 20%. In 2005 it is expected to reach 30%, becoming a contested territory for major vendors in global markets.

Makers of Gigabit switches other than Cisco may be divided into three groups. The first consists of technology leaders such as Extreme, Enterasys, and Foundry, whose primary product is Layer 3 GbE switch, which are able to support multi-service applications, 10 GbE uplinks, and integrated PoE and WLAN functionalities. This group clearly focuses on large enterprise core networks and data center upgrade demand, and thus competes head-to-head with market leader Cisco.

The second group is represented by vendors like 3Com, Dell, and HP. This group markets to medium-sized enterprises. In addition to offering a complete line of managed/unmanaged Layer 2 switches, they also offer Layer 3 pure Gigabit switches to the enterprise core network market.

The third group is composed of brands targeting the retail market. D-Link, Netgear, and Linksys are the leading examples. These retail brands are distinguished from the second group above by their use of blitz tactics of unleashing a barrage of models into the market. These players not only roll out Layer 3 Gigabit switches, but also Layer 2 models segmented into unmanaged, smart, and managed. This precise targeting of each market segment enables the supply of many different types of products to satisfy demand for different port counts and other unique product features.

Retail brands compete on price, detailed product segmentation, and a complete product line. As the next wave of Gigabit switch upgrade begins, it will be a serious threat to traditional major vendors in the SMB and SOHO markets such as 3Com, Dell, and HP. Further, these two groups offer Layer 2 Gigabit switches that are fairly homogenous. It is expected that especially vicious price competition will break out in the market.

Over the last two years Broadcom's monopoly on Gigabit switch chips has been erased by the entrance of Marvell, Agere, Vitesse, and Realtek. Market competition is now intense. Players throughout the supply chain now face a strongly competitive market that is expected to effectively drive product prices down. As a result, in the past the Gigabit switch upgrade process had been lead by large enterprises, with the SMB and SOHO markets trailing. However, in 2005 this situation should change.

Figure 19

Fixed-port Gigabit Switch Product Portfolio by Vendor

Note: * denotes product with PoE feature
     ** denotes product with PoE and WLAN switch features
Source: The respective companies; compiled by MIC, March 2005

 

Appendix

Definitions

Business Types

OEM

The OEM business model entails carrying out product manufacturing or assembly according to specifications supplied by the customer. The OEM business model emphasizes production efficiency; thus, in order to lower costs, customers outsource manufacturing to OEM providers. This cooperation forms a division of labor among design, manufacturing, and sales.

OEM production for WAN includes shipments in both PCB (Printed Circuit Board) form and bundled with desktop and notebook PCs. Manufacturing undertaken for leading international vendors is also included.

ODM

The ODM business model entails undertaking product design and manufacturing, but not direct retail sales or brand promotion. ODM providers either collaborate with customers on product specifications or independently design products according to customer specifications; the ODM provider then receives manufacturing orders upon customer approval. The ODM model links the sales capabilities of the ODM customer and the design and manufacturing capabilities of the ODM provider, developing a cooperative division of labor throughout the product's value chain.

Retail Channel

Business from retail channels includes orders from brand-name retail channel players, such as Linksys or Netgear, with whom Taiwanese makers cooperate on design. Business from retail channels also includes private label shipments to end-market retailers.

Shipment Destinations

''Asia Pacific'' does not include Japan or China, but includes Australia and New Zealand. Russia is included in ''Europe.''

Glossary of Terms

ADSL

 

Asymmetrical Digital Subscriber Line

AP

 

Access Point

ASP

 

Average Selling Price

EMS

 

Electronics Manufacturing Services

FE

 

Fast Ethernet

FSM

 

 

GbE

 

Gigabit Ethernet

GSM

 

 

IAD

 

Integrated Access Device

IC

 

Integrated Circuit

MAC

 

Medium Access Control

ODM

 

Original Design Manufacturing/ Manufacturer

OEM

 

Original Equipment Manufacturing

OSI

 

Open Systems Interconnection

PoE

 

Power Over Ethernet

PHY

 

Physical Layer

PVR

 

Personal Video Recorder

SOHO

 

Small Office/Home Office

VoIP

 

Voice over Internet Protocol

WLAN

 

Wireless Local Area Network

 

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