Cisco's Switch Market Grows but Competition Increases

 |  Includes: CSCO, HPQ, JNPR
by: Trefis

The Ethernet switches market has witnessed significant growth in the recent past, and this is expected to continue in 2010 as well. Cisco (NASDAQ:CSCO), Juniper (NYSE:JNPR), HP (NYSE:HPQ) are among the major players who sell Ethernet switches. The growing market for Ethernet switches has also led to increased competition. We estimate that the switch business accounts for 24% of the $23 Trefis price estimate for Cisco’s stock compared to about 19% of the Trefis price estimate for Juniper’s stock.

Ethernet is a network standard for communication widely used for Local Area Network (LAN), while Ethernet Switches enable connection between different devices on LAN. Below we discuss how 10GbE standard has driven growth for the Ethernet switches market, and how increasing competition in bottom layer switch market can impact Cisco’s market share in the future.

10GbE Will Drive Ethernet Switches Market Growth

The growth in the Ethernet switch market is mainly driven by growth in 10 Gigabit Ethernet (10GbE) Standard. 10GbE, which transmits data at the rate of 10 Gigabits per second, is being increasingly used in data centers to rapidly route data.

In Q4 of 2009, companies like Cisco, Juniper and HP added about $600 million in incremental revenues, which led to 20% sequential growth in the Ethernet switches market.

You can modify the forecasts below to see how the stock prices for Cisco and Juniper may be impacted if their bottom layer switch market size were to grow higher than we estimate.

Cisco Leads Bottom Layer Switch Market, But Others Are Gaining Share

We estimate that Cisco leads the bottom layer switch market with a share of about 63% versus Juniper’s 4%. However, competition in data center networking space is intensifying. HP recently acquired 3Com for $2.7 billion and this will boost HP’s presence in the networking market.

You can modify the forecast below to see how Cisco’s stock can be impacted if it were to lose share to its competitors in the bottom layer switch market.

Disclosure: No positions