The LAN market: segments at a crossroads

Computer Industry Report,  August 31, 1995  

Tags: Desktops, HARDWARE, International Data Corp., LANs, Microsoft Corp.networkNETWORKINGPCrevenueserverSOFTWARETCP/IP

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Definitions

The Transmission Control Protocol/Internet Protocol (TCP/IP) is actually a set of protocols developed in the early 1970s according to Department of Defense specifications for the communication of systems from multiple vendors. TCP/IP is the standard network protocol for Unix, and a family of applications has evolved on top of it. These include Telnet (terminal access), FTP (file transfer), SMTP (mail), and SNMP (management).

PC Network Interface Cards (NICs)

The worldwide PC NIC market will continue to grow at least until 1997 although that growth will be driven largely by markets outside the United States. In fact, the NIC market will peak in the United States in 1996. Not only are prices falling, but the market is approaching saturation. From worldwide revenue of $3.7 billion this year, the PC NIC market will peak at $4.2 billion in 1997, after which revenue will steadily decline. Given this outlook, some NIC vendors are diversifying into higher-growth markets. 3COM, for example, is aggressively pursuing opportunities in LAN backbone equipment like hubs, routers, and switches.

To the extent that a market opportunity exists for non-high-speed NICs, it is outside the United States and Western Europe. The Asia/Pacific and Latin America regions are particularly attractive because they are growth markets until nearly the end of the century. More specifically, the Rest of World, or ROW, market (basically, the world, except for the United States and western Europe) for ethernet adapters will grow from 5.1 million units in 1995 to a peak of 9.2 million units in 1998. In 1999, however, shipments will begin to drop off to 8.7 million as the ROW regions start to become saturated, much as the United States will in 1996.

From a NIC technology standpoint, ethernet dominates today, and it will continue to account for the majority of both unit shipments and revenue through 1999. Meanwhile, token ring unit shipments will be flat essentially through 1999, although the value of these shipments will steadily decline as prices fall. Finally, after rivaling token ring from a unit-shipment perspective in 1997, high-speed NIC shipments (like 100Base-T, 100VG AnyLAN, and ATM) will take off, accounting for roughly half as many shipments (and roughly half as much revenue) as ethernet in 1999. Growth in high-speed NICs will be driven by heightened bandwidth requirements for business applications including LAN-based multimedia (like online training and education) and advanced Internet use.

Definitions

IDC forecasts the following network interface card products: ethernet, token ring, 100Base-T, 100VG AnyLAN, FDDI/CDDI, desktop ATM, and wireless LANs. The revenue figures are based on the average street price of a PC LAN adapter multiplied by the weighted shipments by vendor (to ensure that low-volume vendors do not skew the average street price value).

Routers and Hubs

Routers

The worldwide router market will continue to experience steady growth: from 328,370 units in 1994 to 923,025 units in 1999 (1994-1999 CAGR of 23%). Revenue, however, will grow more slowly than units (9% CAGR 1994-1999) as the low-end segment of the router market booms driven by remote-site connectivity and deeper penetration into midsized and small corporations. The high-end router market will lose unit shipments to LAN switching products in 1997 and 1998, a fate the rest of the router market could share long term.