The network market is one of the most vital of all ITC areas, as it enables the connection between devices in a world in which it seems everything is being computerised. Partially due to this important role as well as its beginnings in the telecoms world, it is one in which national suppliers are still battling for dominance. It is hardly surprising therefore that this market is being deeply affected by the growth of new nationalism and trade wars between the USA and China. My Figure above shows the 2018 market shares of the leading suppliers split between enterprise and (the much larger) service provider network markets.
Networking has been most important in the Americas, although recent trends have seen Asia Pacific sales grow as a proportion of the world total. Spending in EMEA has been flatter lines in comparison. However the level of spending is not the only measure of the growing importance of a market in which Moore’s law is delivering significant advances in technology and ever cheaper prices.
Cisco is the stand-out leader of the $52b enterprise network market
As the inventor of IP networking Cisco has created an unassailable first mover advantage. Throughout the last 13 years it has captured 50% or more of the spending on enterprise networks (see my Figure opposite). Other enterprise computer suppliers have had to decide whether to compete by providing their own products (Dell EMC and HPE for instance), or to partner closely with Cisco when necessary (IBM). Beyond its products Cisco owns the majority of the patents that other suppliers need to licence in order to compete. In short Cisco’s dominance of the enterprise network market is so strong that it has created an umbrella under which all other suppliers have to live, unless they are able and/or willing to ignore international patent laws – an issue which is open to many different interpretations dependent on which country you look at.
Given Cisco’s dominance of the enterprise network market I have had to show leading supplier market shares over time using a logarithmic scale in my Figure above. For many years Cisco’s strongest competitors were HPE (aided by its acquisitions of 3Com and Aruba) and Nokia (helped by its acquisition of Alcatel Lucent); since 2014 however Huawei – driven on by its close ties to the Chinese government – has overtaken both to become the strong and growing number two.
Service provider networks – Huawei leads the $129b market by addressing non-US markets
Huawei has grown its revenues faster than any other network supplier – see my Figure opposite for its annual market share of the service provider network market over the last 13 years. It has been the leading developer of 5G technology – a subject that has appeared over 200 times in its news announcements since the beginning of 2017. However Huawei has also expanded its activities in the enterprise network, focusing on countries and regions outside the USA, where there has been much opposition to its activities – not least in the Federal government’s Buy American act. As with a number of other server suppliers (Supermicro for instance) it has been accused of allowing the Chinese government access to information created on the products it provides – something it has denied strongly. I am extremely doubtful about whether Huawei or any other vendor would be complicit in any such activity, although I’m also surprised that in 2019 almost all enterprise networks around the world are so open that covert surveillance is a possibility for almost all of them. The Trump administration’s suggestion that customers should shun Huawei is clearly part of its initiation of a trade war in which it intends to promote the success of its own indigenous vendors, including Cisco.
Huawei’s incredible success has been counter to all of the other leading service provider network suppliers (see my Figure opposite). Although it has not yet achieved a market share equivalent to Cisco’s in the enterprise network market, it looks likely to do so in the future unless the US succeeds in deterring international governments and large business from buying its products, or the EU decides to promote the interests of Ericsson and Nokia in the same mechanisms used by the US and Chinese governments historically for Cisco and Huawei respectively – neither of which is very likely.
As always it’s important for customers to avoid the dominance of a global market by a single vendor to avoid lock-in, higher prices and slow release of new technology; however it will be as difficult for governments to prevent Huawei’s dominance of the 5G equipment and solutions market as it will be for anyone to make serious inroads to displace Cisco’s market share in the enterprise network area.
The network market will become ever more important as connected devices spread across the world
My Figure below shows the market shares of leading vendors across the total network hardware market, demonstrating that Huawei’s growing share of the service provider network market has allowed it to make much better progress that Cisco’s continued dominance of the enterprise network one.
Eventually most of the money made from this market may well come from the patents vendors own, but there’s a long way to go before then. In the next few years the need for both kinds of networking will grow significantly with the introduction of driverless cars and other devices and machines – driving up the revenues of all suppliers who manage to avoid being acquired. I still expect Huawei and Cisco to lead the network market in 5 years time.
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