High-end router segment impacted by carrier inventory correction

Feb. 26, 2024
According to a Dell’Oro report, router revenue dipped 8 percent in the second half 2023.

The router market is another segment of the networking industry that service providers' ongoing inventory digestion has impacted. 

In the second half of 2023, Dell’Oro found that the high-end router market declined 8 percent year-over-year in the second half of 2023, following an abrupt surge in equipment deliveries in the first half of the year.

“The disruptions caused by component shortages and supply chain bottlenecks that started over two years ago are still occurring,” said Jimmy Yu, VP at Dell’Oro Group. “Once supply freed up, router manufacturers could fulfill backlogged orders faster, driving high-end router revenue up 12 percent year-over-year in the first half of 2023."

Yu added that service providers’ efforts to stockpile more router platforms became surplus inventory. “However, this turned into extra inventory at customer sites, causing them to rationalize future new orders,” he said. “We believe it may be another two quarters before inventory levels return to normal at these service providers.”

Cisco, Huawei, Nokia dominate

The high-end router market reached nearly $13 billion in 2023, led by Cisco, Huawei, and Nokia.

Dell’Oro noted the only vendors to gain more than one percentage point of market share were Cisco and Huawei.

However, Cisco nor Nokia saw profits affected by the inventory digestion issue.

Nokia posted fourth-quarter net sales of $6.2 billion, down 23% year-on-year.

Likewise, Cisco saw challenges in its second quarter as total revenue dipped 6% year-over-year to $12.8 billion. Cisco also announced it would reduce 5% of its workforce, translating into over 4,000 positions when its enterprise and service provider customers are more cautious about spending and correcting the inventory created during the COVID-19 pandemic.  

Core, edge migrations

Within the router segment, core router revenue grew 14 percent in 2023.

Cisco, Huawei, and Juniper were the top three vendors by revenue share. Cisco gained nearly six percentage points of market share and was the only vendor to gain market share in the year.

Edge router and aggregation switch revenue were unchanged from the year-ago period.

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