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.
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 |
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Asymmetrical Digital Subscriber Line |
AP |
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Access Point |
ASP |
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Average Selling Price |
EMS |
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Electronics Manufacturing Services |
FE |
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Fast Ethernet |
FSM |
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GbE |
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Gigabit Ethernet |
GSM |
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IAD |
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Integrated Access Device |
IC |
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Integrated Circuit |
MAC |
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Medium Access Control |
ODM |
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Original Design Manufacturing/ Manufacturer |
OEM |
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Original Equipment Manufacturing |
OSI |
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Open Systems Interconnection |
PoE |
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Power Over Ethernet |
PHY |
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Physical Layer |
PVR |
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Personal Video Recorder |
SOHO |
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Small Office/Home Office |
VoIP |
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Voice over Internet Protocol |
WLAN |
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Wireless Local Area Network |