Is Competition Starting to Eat Into Cisco’s Core Markets?

Cisco Systems (s CSCO), no matter what happens, always seems to find a way to move forward. It grows its revenues and squeezes out profits even when the world is falling apart, thanks largely to its near-complete domination of its two core businesses, routers and switches. But it seems the 2009 recession, increased competition and the presence of low-cost hardware providers has started to cut into company’s seemingly unassailable position. (Related: Cisco vs All Comers)

Nikos Theodosopoulos, research analyst with UBS Research, today sent out a note to his clients that highlights data from market research firm, The Dell O’ro Group. Here are some of the highlights from his report:

  • Cisco’s share of the Ethernet switching market declined to 67 percent in 2009 from 71 percent in 2008 and 72 percent in 2007. The reason: competition from HP (s HPQ), 3Com (s coms), Juniper Networks (s JNPR), Brocade (s BRCD), f5 Networks (s FFIV) and Citrix (s CTXS). I’m not sure if the rivals are doing all that well so much as they’re causing Cisco some migraines.
  • Alcatel-Lucent (s ALU) and Juniper claimed 20 and 19 percent of the carrier edge routing market respectively in 2009, while Cisco’s market share declined 8 percent to 43 percent.
  • In the core routing business, Huawei increased it share in 2009 to 12.4 percent vs. 10.6 percent in 2008. Cisco, meanwhile, saw its share of the market slip 1 percent to stand at 55 percent.
  • In the enterprise routing market, Cisco saw its share stay flat with 2008 at 82 percent.

So are these losses permanent? The answer is no, at least in the short term. The company is clearly working on new switches for the big shift to the next generation of switching. And ASR sales have picked up, so there is a pretty good chance Cisco can snap back in the edge routing business. However, over the longer term the company is going to find itself challenged by low-cost manufacturers and increasingly desperate competitors. The very fact Cisco has made enemies of former partners such as IBM (s IBM) is only going to hurt the company.