The $207b network market – still haunted by issues of trust

Networking is vital to the digitization of the world – so useful during the pandemic, when meeting each other face-to-face became difficult and, at times, illegal. This is one area of the ITC market that is not dominated by US vendors. The strong presence of Nokia and Ericsson (see my Figure above for the annual revenues of the major suppliers since 2003) as well as Huawei and ZTE give Europe and China respectively strong current roles. These – added to Japanese and US suppliers – make this one of the most internationally balanced businesses in our industry.
In 2021 the overall market declined by 1% to $207 billion, but growth was different in the two sectors of the market; enterprise networking grew by 8% to $63b, while service provider networks declined by 5% to $145b. To a certain extent the decline in service provider revenues shows the uneasiness the US government – followed by a number of others – has with the rapid increase in sales by Chinese vendors, against which it imposed bans and embargos on the use of their 5G equipment. Despite this Huawei remained the overall market leader in the year, with a market share twice that of Cisco; these two companies dominate the service provider and enterprise sectors respectively.

The enterprise network market

The strongest regional market for enterprise networks is in the Americas – dominated by spending in the USA of course. Sales in EMEA have been relatively stable by year (see my Figure for annual sales by year for the period from 2005, where I show current and constant 2003 dollar values). Sales in Asia Pacific have grown, closing the gap with EMEA until the values were virtually the same in 2021. This momentum continues, making it likely that Asia Pacific will overtake EMEA in sales this year.

The strongest offerings within the enterprise network market are switches (LAN and wireless LAN), routers and enterprise (IP) telephony (see my Figure above). Over the last 18 years siwtches have grown fatser than routers.

Cisco’s lead in enterprise networking (a market it created and still holds major patents for) is so great that I need to use a logarithmic scale to show a comparison of the seven market leaders in my Figure above. Most of the other vendors have delivered consistent revenues year by year with the exception of Juniper, nVidia and Huawei, who have all grown their revenues significantly during the earlier years shown; Juniper’s stabilised from 2011 onwards; nVidia’s (on the strength of acquiring Infiniband networking along with Mellanox) star is still rising, while Huawei’s success in 2021 fell back slightly as the result of consistent sanctions placed on it by various governments.

The Service Provider network market

Service provider networks are those used by telcos to deliver wired and wireless services to their customers. 5G wireless networking is the most recent and important technology being offered. Investment for most telcos is difficult, not least because they’ve lost most of their over-the-top service opportunities to others such as Apple, Google and Amazon. The controversy started by the US government over the relationship between Huawei and the Chinese government has slowed the roll-out of 5G in many Western-facing countries. Spending on this hardware has not been affected in the rest of the world, much of which is in Asia (including China itself). The results are shown in my Figure above, demonstrating a widening spending share in Asia Pacific since 2013 (taking the constant $US dotted line view). Although the market in both the Americas and EMEA grew from 2015 onwards, both regions saw declines in 2021.

Huawei has grown its leadership of the service provider network market every year since 2014 until last year when its business declined. In second and third place are Scandinavian suppliers Nokia and Ericsson, whose revenues have been relatively level since 2014. It’s significant that they’ve not gained much from being the only sources of 5G equipment for telcos in those countries that have banned or are against using Huawei kit. The roll-out of 5G in those countries has slowed, while it goes ahead apace in many of the others.

I summarize the national attitudes of major countries to the use of Huawei’s 5G equipment in my Figure above, which is largely based on an excellent article in Channele2e. If the alleged connections between Huawei and the Chinese government are proved I expect immediate bans in those countries that are currently undecided and a consequential decline in sales of service provider networks; should they be successfully refuted, 5G will be deployed faster and the market will grow slowly.