Cisco Still Leads Enterprise Voice Equipment Market, But Avaya Catching Up

by Trefis Team
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According to recent data from Telegeography, revenue from enterprise telephony equipment sales fell by 4 percent during the second quarter of 2011 over the same period last year. Though retaining its leading share of 30 percent of the market, Cisco’s (NASDAQ:CSCO) leading position narrowed as rival Avaya gained 3 percentage points to hit 22 percent market share. (Economy constrains enterprise voice equipment market , telegeography.com)) Cisco is the largest telecom hardware vendor in the world and competes with firms like Alcatel-Lucent (NYSE:ALU), Siemens (NYSE:SI), Avaya and Juniper Networks (NYSE:JNPR) among others. We currently have a $20.88 Trefis price estimate for Cisco, about 25% above the market price.

See our full analysis of Cisco.

Avaya Overtakes Cisco in IP Telephony Market

The enterprise telephony equipment sales include PBX/KTS systems revenues, voice gateways and IP (Internet protocol) telephony. One of the most notable shifts in the 2011 vendor ranking has been the Avaya’s overtaking of Cisco as the market leader in IP telephony in Q1 2011, which continued in Q2 as well. The communications giant has consistently lost market share in the IP telephone market to Avaya in the last few quarters, much like its share loss in the Wi-Fi equipment market to Aruba. (Economy constrains enterprise voice equipment market, telegeography.com))

We believe that IP telephony makes less than 4% of our $20.88 Trefis price estimate for Cisco, which is dominated by Cisco’s core offerings like network switches, routers and network services.

VoIP Continues to Gain Popularity

Despite the fact that Cisco was able to retain its share in the enterprise telephony equipment market, losing to Avaya in IP telephony segment could be a big concern for the networking giant.

VoIP technology (or Voice over Internet Protocol), which is a subset of IP telephony* is becoming more popular with businesses and growing at a rapid pace. According to a study by Heavy Reading, the number of installed business lines in North America that are VoIP-based will more than double from 31 percent now to over 66 percent by 2015 while share of traditional circuit-switch telephony lines will drop to 33.5 percent.  This will be a complete reversal of the current situation where traditional circuit-switch holds a 68 percent of market share compared with VoIP’s 32 percent. [1]

mVoIP Could be the Nail in the Traditional Telephony’s Coffin

In addition to rising adoption of VoIP, the improvement in prospects of mobile video calling over the last eighteen months largely due the launch of mobile video calling services by major industry players increased the availability of front-facing cameras on smartphones, and the simplicity of apps and underlying technology improvements have improved the market for mVoIP (or mobile VoIP) delivered through mobile clients downloaded to the handset. [2]

As a result, the mobile voice (as well as video) calling market is slowly but surely heading towards a total replacement of traditional circuit switched telephony by packet switched IP technology. As Cisco faces a threat to its dominant position in the IP telephony market, the firm must take steps to tackle this concern and make efforts to regain its top position.

Cisco Remains the Leader in Voice Gateway Segment

While Cisco lost share to Avaya in IP telephony, it continued to reign the voice gateway segment with a market share exceeding 80 percent. Gateway devices provide a bridge between two end users whose endpoints utilize different protocols. Gateways allow IP phones to interact with the billions of already deployed phones in the world. [3]

Thus as IP telephony picks up, the demand for voice gateways is likely to go up in tandem which surely is a sigh of relief for Cisco.

*IP Telephony refers to communications services—Voice, fax, SMS, and/or voice-messaging applications—that are transported via the Internet.

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Notes:
  1. VOIP ADOPTION: MORE AND MORE COMPANIES SAY “YES.”, windstreambusiness.com []
  2. Press Release: Mobile Video Calling Users to Exceed 130 Million by 2016 Finds New Juniper Research Report, juniperresearch.com []
  3. An Overview of Cisco IP Communications, ciscopress.com []
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