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Why Alcatel-Lucent May Be a Threat to Cisco in the Router Market

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Cisco leads the worldwide service provider router market

Cisco (CSCO) remains the leading player in the service provider router market. According to a report from Synergy Research Group, over the last few quarters, Cisco has maintained its share between 40% and 50% in the service provider router market, as the chart below shows. However, the report also mentioned that Alcatel Lucent (ALU) gained share in this market, with Huawei and Juniper Networks (JNPR) both losing share.

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Alcatel-Lucent gaining router business at Cisco’s expense

Alcatel-Lucent’s 7950 XRS core router has started to become popular. In October last year, CenturyLink (CTL), one of the largest telecom companies in the US, agreed to deploy Alcatel-Lucent’s 7950 XRS core router to support its growing broadband needs. Alcatel-Lucent also gained a contract with China’s major telecom providers—China Mobile (CHL), China Telecom (CHA), and China Unicom (CHU)—to provide its 7950 XRS core router. Here, Alcatel-Lucent took advantage of Cisco’s relatively weak position in China.

A report from China’s government, authored by the Internet Media Research Center, alleged that the US government conducted snooping activities on Chinese networks. A China Youth Daily report indicated that Cisco aided these spying activities. China represents a good opportunity for networking players, as it’s in the middle of rolling out its LTE/4G network. Cisco’s loss is Alcatel-Lucent’s gain in China.

These trends indicate that Cisco could well start to lose share in the router market to Alcatel-Lucent. To gain diversified exposure to Cisco, you can invest in the Technology SPDR (XLK). XLK invests 3.6% of its holdings in Cisco.

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