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To: Simon who wrote (29965)	1/10/1998 9:38:00 PM
From: Glenn D. Rudolph	Respond to of 61433

Highlights: This is a summary of a 48 page report which focuses on the data networking equipment market. It covers the key drivers of overall market growth and reviews major market segments in detail, identifying growth drivers and projections, business trends, key technology issues, and market share for each segment. Highlights from the report are as follows: <sum> We estimate that revenue growth for the eight traditional data networking segments was about 16% in 1997, a significant slowdown from about 50% in 1996. The weighted average increase in unit/port shipments was 55% in 1997 compared to 70% in 1996. <sum> For 1998, we estimate revenue growth of 22% to $28 billion, reflecting a 47% growth in unit/port shipments. <sum> The LAN Switch and ATM WAN Switch segments will be the primary beneficiaries of increased investment in Internet and Intranet infrastructure during 1998. We estimate that each of these segments will increase by over 45% in 1998 to about $1.6 billion (ATM WAN) and $7.5 billion (LAN Switch). <sum> We estimate growth in traditional data networking segments to increase at a CAGR of 12-15% through 2001 to $36.4 billion. We expect growth in the traditional segments to be augmented by 50-100% growth in emerging technologies (cable modem and xDSL equipment, network security, voice/data/video integration, and other internet/intranet applications). For the total market, we are forecasting a CAGR of 20% during the 1997/2001 period. <sum> We expect three major industry trends to continue during 1998 1. Continued price competition 2. Consolidation and partnerships 3. Move to strategic vendors We believe that Cisco is best positioned to compete in this environment, as they hold the number one or two market position in five of the eight major data networking segments. We estimate that these segments account for about 85% of Cisco's revenues and expect the total market for these segments to increase by about 33% to $17.5 billion in 1998. Comment United States Telecommunications Equipment/Networking 2 January 1998 Joseph J. Bellace First Vice President Data Networking Industry revenue growth estimated at 22% in 1998, up from 16% in 1997 Reason for Report: Update on Market Trends Merrill Lynch & Co. Global Securities Research & Economics Group Global Fundamental Equity Research Department 437200/437197/437100/437000 RC#30200208