As a result, we expect: 1) a slow, but meaningful, reduction in the number of routers and switches deployed into networks; 2) the adoption of an increasingly larger mix of white box, lower-margin product; and 3) the announcement of new competitive products and vendors that could negatively affect gross margins at both companies and across the space.
We encourage investors to take profits, and we move to the sidelines as we work to better understand the significant changes occurring across the networking landscape.
Could routers and switches go the way of the dodo? Yes, but slowly and not entirely. Our research does suggest that service providers and large enterprises are moving toward a significant reduction in the number of routing and switching ports deployed as a result of: 1) the continued shift from legacy packet and time-division multiplexing (TDM) networks into Ethernet networks; 2) a network infrastructure transition to common compute-based platforms; and 3) the consolidation of network functions to compute platforms based in metro or regional network data centers. Together, we expect these trends to drive more than a 40% reduction in the number of switching routing ports in service provider networks.