Network Vendors Focus on Opex and Services Budgets in Order to Increase Profits

Published on: 22nd Jan 2013

­Global economic instability, intense competitive pressures, and decreased spending by communications service providers (CSPs) are all forcing networking equipment vendors to streamline and refocus their business strategies in order to maintain profits.

According to new vendor profiles from IDC, eight of the top global networking equipment vendors -- collectively generating an estimated $124 billion in 2012 revenue, or approximately 90% of total worldwide network infrastructure revenue -- are placing significant emphasis on professional services and software product enhancements that can enable them to access CSP opex budgets in addition to capital budgets.

Pressure is mounting on CSPs to reduce their capex spend in 2013 to be slightly lower than 2012, and IDC expects this to impact many of the leading telecom equipment vendors. Additionally, as CSPs shift their focus to reducing their opex, improving time to service, and offering more innovative mobile broadband and cloud-based virtualization services with higher margins, equipment vendors must become more flexible and agile in order to evolve within this changing landscape.

"As network equipment continues to commoditize, the vendors look to sell software-based product offerings and value-added services in addition to network equipment as a way to drive margin expansion," said Nav Chander, Research Manager, Enterprise Communication Services. "Those vendors that focus on virtualized product strategies; embrace open, software-based architectures incorporating SDN concepts; and create value by driving CSP opex lower will have the greatest impact in the telecom market."

Additional findings from IDC's research include the following:

• Ericsson and Huawei continue to be the overall global telecom product revenue leaders from 2010 through the first half of 2012 with Huawei poised to be the 2013 market leader;
• Cisco, Juniper, and Ciena have over 50% of their telecom revenue from the North American region;
• The smaller vendors such as Juniper and Ciena have invested a significantly higher percentage of overall revenue into R&D.