Avaya Elbows into Ethernet Switch Market to Challenge Cisco

Cisco (NASDAQ:CSCO) is now set to face increased competition in the core Ethernet switch market from Avaya after consistently losing 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. Avaya is updating its Ethernet switch portfolio with six new models offering plug-and-play capabilities for IP phones, quality of service (QoS) management, and support for both standard and enhanced power over Ethernet. Cisco currently leads Ethernet switch (Layer 2/3) market with a dominant share of 63% as of second quarter of 2011, according to research firm IDC, well ahead of competitors like Juniper Networks (NYSE:JNPR), HP (NYSE:HPQ) and Avaya. ((Avaya Goes After Cisco With New Ethernet Switches, networkcomputing.com))

We currently have a $21.20 Trefis price estimate for Cisco with Network Switches making up nearly 21% of the company value.

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Cisco May Lose Market Share

With a number of Cisco products about to be discontinued, Avaya – with its updated product portfolio – could potentially snatch some market share from the networking giant as customers look to evaluate different options. ^[1] In addition, the growth in the Ethernet switch market slowed down to 7.1% sequentially in the second quarter. The two factors combined could result in a potential loss of revenue for Cisco in the coming quarters.

However, as this is Avaya’s first attempt to extending capabilities in the network switching domain, the threat for Cisco can be relatively small. But Cisco had once enjoyed near monopoly in a number of market segments where it no longer is the leader, so it’s going to be an interesting battle for market share between the two players. (See Cisco Still Leads Enterprise Voice Equipment Market, But Avaya Catching Up)

We currently forecast Cisco’s market share in the bottom layer (Layer 2/3) switches market to remain constant going forward. However, a constant decline in the future to as a result of increased competition would result in a significant downside to our $21.21 Trefis price estimate for Cisco.

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1. Avaya Goes After Cisco With New Ethernet Switches, networkcomputing.com [↩]