Economies in all regions are posting gains and are again cautiously expanding, according to ACG Research. "This growth supports our forecast that global service providers are increasing their purchases of routers and switches as they leverage service innovation and invests in their next-generation networks," states Ray Mota, managing partner. An increase in spending by businesses, consumers as well as an increase in exports contributed to this growth. ACG Research anticipates that this trend will continue in 2011 and expects an upswing in carrier spending in all regions in the next two to three quarters based on improving economic conditions, continued growth in data traffic and the unrelenting demand for innovative and intelligent applications and services.

1.  Carrier Routing & Switching
Summary: The Total Worldwide Carrier Routing & Switching market grew 15.7% sequentially and 28.2% year over year, driven in part by the fast-growing converged mobile device category. Every market segment realized sequential positive growth, and ACG Research forecasts that all carrier router-switching market segments will continue to see positive growth with the exception of BRAS - which will still see demand but the interface has shifted to more Ethernet deployment - will grow going forward. This trend will continue (2010-2015) as service providers find and leverage service innovation related to next-generation networks.

• 15.7% Q/Q; 28.2%Y/Y; Revenue: $3B
• Core Routing revenues up 19.2% q/q and up 28.2% y/y
• Edge Routing & Switching revenues up 14.6% q/q and up 28.3% y/y
• Access/Aggregation Switching revenues up 8.2% q/q and up 16.2% y/y
• Services Edge Routing revenues up 16.4% q/q and up 31.8% y/y
• BRAS revenues up 36.6% q/q but down 11.9% y/y
• ESER revenues up 17.3% q/q and up 38.7% y/y
• MSER revenues up 13.3% q/q and up 26.5% y/y  
• Carrier Ethernet Routing & Switching revenues up 14.5% q/q and up 31.3% y/y

2.  Mobile IP Infrastructure
 Summary: The Mobile IP Infrastructure market realized strong sequential growth, 21.5% in 4Q10 and solid year-over-year growth, 36.0%. The explosion of data applications in the market and the increase in mobile users downloading from the Internet continue to drive market growth. The mobile infrastructure is expected to double in size over the next five years (2010-2015) as worldwide carriers in countries such as China and India launch or build 3G networks.

• 21.5% Q/Q; 36.0% Y/Y; Revenue: $1.1B
• Mobile IP Backbone up 13.6% q/q and up 11.6% y/y
• Total Mobile IP Edge up 23.1% q/q and up 41.6% y/y
• Mobile IP Backhaul (Routing + Switching) up 20.0% q/q and 42.3% y/y
• IP Backhaul Routing up 30.7% q/q and up 56.0% y/y
• IP Backhaul Switching up 7.1% q/q and up 26.1% y/y
• Total Packet Core up 26.0% q/q and up 40.8% y/y 

3.  Optical Networking
Summary: The optical market 4Q 2010 ended on a strong note for most vendors. Reasons for the strength are attributed to typical quarterly upswings. However, the reconciliation of supply chain issues that affected several companies early in the year also contributed to the increase as companies were able to ship again, thus addressing their growing backlogs.  In some cases North America Tier 1 capital budgets were tapped before 4Q started, but projections for 2011 have not been altered.

• 15.2% Q/Q; 6.9% Y/Y; Revenue: $3.5B
• Long Haul DWDM grew 13.2% q/q and 9.8% y/y
• Total Metro (Metro WDM+POTS) increased 19.0% q/q and 30.2% y/y
• Metro WDM increased 19.3% q/q and 23.6% y/y
• POTS increased 18.1% q/q and 53.1% y/y
• MSPP increased 21.3% q/q but down 2.4% y/y
• OXC down 6.3% q/q and 40.6% y/y
• SONET/SDH down 11.8% q/q but up 42.5% y/y
  

4.  Video Infrastructure
Summary: The Total Service Provider Video Infrastructure market was up 7.7% q/q and up 6.5% y/y. 2010 was a year of transition for the Service Provider Video Infrastructure market. The STB market staged a comeback in 4Q10, but was down for the year. Cable STBs declined while IPTV STBs, hybrid STBs and DTAs increased compared to 4Q2009. We also saw the continuing growth of digital, HD and DVRs, which helped increased service providers' ARPU but also necessitated continued network and CPE CapEx.

• 7.7% Q/Q; 6.5Y/Y; Revenue: $3.6B
• The total Set-Top Box (STB) market up 6.5% q/q but down 1.3% y/y
• The IPTV (SD, SD+DVR, HD, HD+DVR) STB market up 15.6% q/q and up 0.5% y/y
• The Cable (SD, SD+DVR, HD, HD+DVR, & Hybrid) STB market up 3.3% q/q but down 2.9% y/y
• The DTA market down 1.0% q/q but up 58.1% y/y.he Video Packet Infrastructure market up 9.4% q/q and up 19.7% y/y
• The CMTS market up 3.0% q/q and up 0.2% y/y 

QUARTERLY TREND and DRIVER HIGHLIGHTS
 
Pay-as-you grow models for aggregation side of businesses are gaining traction as providers look for ways to get more out of their CapEx.
 
Mobile backhaul is driving BRAS replacement, which will result in caps or removal of these routers from networks going forward.
   
The move to develop and release products that scale to 100GigE continues to gain traction, especially as traffic becomes greater and more complex; providers need bandwidth that can handle applications such as IPTV, video, peer-to-peer sharing and wireless backhaul. 
 
CapEx spend is anticipated to be stronger in 2011 in the IP space as SPs continue to upgrade and develop networks.
 
The Content Delivery Network market (nearly half a billion dollars) is forecasted to grow approximately 30 percent in the next few years. However, a crowded market and current business models will not promote or extend market growth for most vendors. The influx of telcos and carriers will also contribute to the pressure.
 
Given the combination of traffic growth and new service demands, we believe service providers have no choice but to increase capacity, add service flexibility and improve the overall performance of their networks if they want to maintain or grow market share and revenues.

• 3G is the main driver of mobile infrastructure growth. Although the market is seeing LTE deployments and revenue is expected to be significant, in the long run WCDMA will be the most significant driver of the market.
• The trend is for flatter architecture for IP networks and less encapsulation across the network, as it has to be "smart" to deal with differentiated services.
• The transition to DTV continues. To date, 18 countries have completed their transition and 40+ are in progress, with 10 scheduled for 2011. China and India are continuing major rollout of DTV.  The transition to digital drives the DTA market and often accelerates consumers' decision to upgrade to high definition (HD).    
   

For more information about ACG Research's syndicated services, contact sales@acgresearch.net.

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