Jun 28, 2012
The latest market research on SAN and data center network equipment shows that bigger, faster pipes are driving the biggest growth, but in many respects, it can be characterized as business as usual, says Sam Barnett, directing analyst for data center and cloud at Infonetics Research. But there are a number of trends emerging that bear watching, including a big drop-off in traditional WAN optimization sales in the first quarter of 2012.
Q1 data center equipment sales rose 17% year over year to $2.2 billion, although that was a 6% drop from the fourth quarter. Fibre Channel (FC) and Ethernet products both turned in impressive performances, growing 52% and more than 300%, respectively. However that growth was restricted to the higher-speed segments (16Gb FC and 10GbE), with both total markets staying relatively flat for now and the foreseeable future.
If there was one surprise in the report, it was a huge drop in WAN optimization appliance sales. Barnett says the surprise wasn’t that the segment was down, but by how much. Infonetics has been predicting that the market for traditional hardware-based WANop appliances is largely saturated for the last three quarters. “Nobody anticipated a 20% falloff for the first quarter.”
Infonetics attributes the drop to a variety of factors, including virtualization, integration, the time customers take to evaluate and make purchases, and the emergence of integrated products. WAN optimization has traditionally been relatively expensive, so the midmarket can’t afford it, and the Fortune 1,000 market is largely saturated.
However, Barnett qualified his dire WANop predictions by saying that the bleak future is primarily for the branch-office segment. The lion’s share of this segment is represented by Riverbed Technology, which has historically reported seasonably lower Q1 results. However, according to Riverbed’s Q1 2012 results, year-over-year WAN optimization revenue actually grew by 12%.
The data-center to data-center prospects look a lot brighter, and a bright spot in the market is privately-held Silver Peak Systems, which specializes in WAN optimization software for data centers. According to Silver Peak CEO Rick Tinsley, the data center WAN optimization market is “barely penetrated.” Unlike the rest of the market, Silver Peak reports closing a record quarter with double-digit growth. Tinsley noted, “It’s no secret that the requirements for WAN optimization are evolving. The growing adoption of virtualization, dynamic workloads, and shrinking physical real-estate in today’s data centers are all contributing to the shift from legacy, custom hardware-based WAN optimizers.”
At the end of May Cisco reported that Internet (IP) traffic will surge 400% by 2016, to 1.3 zettabytes – more than a trillion gigabytes – annually. Part of this massive growth will be driven by an almost doubling of network connections, moving from 10.3 billion in 2011 to 18.9 billion by 2016. In addition to more users, there will be faster broadband speeds, accelerating from last year’s 9 megabits-per-second (Mbps) to 34 Mbps.
Consumers will account for a lot of this growth, but directly or indirectly businesses will shoulder more than their share of the burden. Cisco says business Internet users are projected to grow from 1.6 billion in 2011 to 2.3 billion by 2016. Desktop videoconferencing will be the fastest-growing service, increasing to 218.9 million users from last year’s 36.4 million. Mobile location-based services (LBS) are forecast to be the fastest-growing business mobile service, with 27 million users in 2011, increasing to 158 million users by 2016, while business IP video conferencing is projected to grow six-fold over the forecast period, growing more than two times as fast as overall business IP traffic, at a CAGR of 42% from 2011 to 2016.
The bottom line is that WAN optimization is here to stay, but like the rest of the IT industry, it is changing to meet new and emerging demands. Analyst firm IDC agrees, and expects growth in spending for WAN optimization and network intelligence tools to outpace that for network equipment as a whole, with revenues climbing to $1.3 billion by year-end.