Stockman -- (sigh)
Just had the chance to read your comments re: market share numbers.
Paint it any way you like. Bay's market share numbers look LOUSY. You ask about fixed Ethernet market share, one of Bay's strong suits:
Revenue decrease from Q497 to Q198: $122 million to $65 million (!!)
Ports shipped decrease: 1.07 million to 800,000.
Cisco: $79 million to $99 million
Ports: 863,000 to 1,180,000
How many more ways do you want me to paint this (to borrow your favorite phrase) "bad smelling" picture? Just ask for any cut of this data. Bay is losing the Ethernet/Fast Ethernet shipping market. The picture may be bad, or "not quite as bad", but the bottom line is that it is still BAD. These numbers underscore Bay's biggest problem. Not only are port shipments flat (actually falling), but revenues are sharply down -- almost 50%!!!!! Bay's product strengths lie in the most commoditized area of networking products, and Bay itself is responsible for much of these price cuts. Not a good recipe for growth! That's $65 million out of revenues of around $540 million subject to huge price pressures. Dell'Oro cites another $65 million last quarter from shared Ethernet and $35 million from shared Fast Ethernet.
If you're counting, that's $165 million quarterly revenue out of approx. $540 million tied to low-end products subject to severe commodization, price wars and market shrinkage (shared media hubs.) That's 30%!!!! Please, PLEASE tell me how this translates into Bay having better growth and market potential than Cisco!!! Think about that before you go handing out investment advice.
Gigabit and Layer 3? You must realize that in this industry, winning a "marketing battle", especially when the market is tiny, is quite trivial.
Re: routers -- the router market is still growing. Don't believe me? Look at the latest market research reports. Close to flat growth on the high-end, but Cisco seems to still be selling a heck of a lot of these. Great growth in mid- and low-end. Large corporations simply will not forklift out proven technology and replace wholesale with L3/Gigabit switches at the backbones of their networks. It just won't happen anytime soon. Is the market moving towards L3 and gigabit? Yes! Definitely! Will it happen this year? Not like Bay hopes it will. In the meantime, Cisco enjoys hypergrowth in the switching market, taking market share from all competitors, and will most likely do the same in the L3/Gigabit area once there's a market and the technology (including Bay's) is proven. Thus Cisco will still grow at an amazing clip for a $8 billion/year company. Bay will either be bought or flounder where they are, unless House has some master plan to hire Cisco's entire, far superior sales force, gain instant credibility at the CIO level, and round out product offerings -- all within the next year.
And by the way, access devices (i.e. routers of all shapes and sizes) sell in much higher volume than hybrid access/core, or core products. Cisco's router sales don't just happen at the high-end. There's still plenty of growth opportunity in the router market. I admit that, over the next few years, that Cisco won't be able to match and/or sustain the existing revenue growth from its routers. But, don't buy the "latest/hottest box" theory. Customers don't. They deploy time-tested, proven technology enmasse in production networks. Accelar switches are not time tested or proven. Routers aren't going away ay time soon.
To summarize:
Bay is far more subject to product commodization. Next to zero presence in high-end, high-margin Ethernet/Fast Ethernet switching.
Bay's strength lies (and large majority of revenue stream) comes from channelized products like stackable switches and shared media hubs. THIS is where the price wars (often initiated by Bay) hit a company's growth prospects big-time.
Again -- little to no exposure in the high-end, high-margin product area in the hottest growth segment in the market: Ethernet/fast Ethernet. Tons of exposure in the low-end, where prices drop by the day.
Gigabit layer 3 switching is still a tiny market. Market won't arrive until Cisco does, and Cisco will dominate with superior influence, sales force, support, marketing, and comparable products.
Cisco -- Tremendous presence across both low- and high-end. More than triple R&D spending vs. Bay. Better management, better sales, better execution, better breadth of product. Huge head-start in data/voice/video integration.
WHERE WOULD YOU PUT YOUR MONEY?!!!
One final point: Please quit pointing out how Cisco's growth is slowing. If Cisco was still growing at the rate it did three years ago, I think the company would by now have employed every single person in Silicon Valley. $8 billion/year companies simply don't grow at the rate of start-ups or mid-sized companies in hot markets. Kind of a law of nature. |
