Sales pulse research 2013 annual survey results

IT and Service Provider Capital Priori3es

Annual Survey Results January 2013

Sales Pulse Research

Sales Pulse Research, LLC 2013 All rights reserved

About this Survey and Results

Results are based on our end of year survey combined with our on-‐going research and analysis. Our survey was designed to be “high touch” primarily at the field level for a boLoms up view into overall spending trends. This year the survey was sent to 750+ known industry contacts around the world and so far have received a ~20% response. The following disclosures are provided to survey par3cipants:

No company confiden3al informa3on is requested or will be knowingly included in any report or communica3on associated with this research. This research is NOT an aLempt to gain insight into non-‐public company specific financial data or any other confiden3al informa3on. The focus of this report is market dynamics. Our goal is to gain input across various geographies and industry segments to understand broader industry trends.

Par3cipants: For their input, industry par3cipants receive our reports. This informa3on may help beLer understand the industry and assist with individual job ac3vi3es, or in some cases job searches. Par3cipants should not provide any informa3on that conflicts with the policies of the company they work for. We welcome your input regarding compe3tors, customer trends, and other market observa3ons. Survey par3cipants should decline to par3cipate in the survey if par3cipa3ng would violate any confiden3ality obliga3on.

Our thanks to all who have assisted with market input and sugges3ons. Please call or email with any ques3ons.

Sales Pulse Research Technology Trends

Sales Pulse Research, LLC 2013 All rights reserved 2

2013 Key Takeaways from our Survey Results •  Overall expecta3ons and survey input for IT spending in 2013 were less posi*ve when compared to the previous 2 years indica3ng only

slight growth ~4% for the industry and budgets. Commentary and recent discussions indicate the nega3vity is a result of slowing momentum in Q4 and uncertainty for CY Q1 and early 2013.

•  Service Provider CAPEX 2013 Outlook is also expected to improve over 2012 with ~4% growth however it is heavily dependent upon the geography (NA growth, Asia Pac growth, EMEA stable), macro economies, and operator priori3es as many 2013 budgets are s3ll being finalized. We are uncovering broad evidence of growth or worst case flat YoY spending.

•  In contrast to the current weakness, ac3vity related to new projects, improving pipelines, proposals and RFP ac3vity remains very high. Field contacts are op3mis3c and believe that the tech industry is poised for faster growth based upon a strong underlying demand that is s3ll restrained by macro and fiscal uncertainty.

•  We believe 2013 is off to a slow start indica3ng possible risk to the seasonally weak Q1 expecta*ons in spite of the improving sen*ment.

•  We believe Federal spending in FY Q1 likely underperformed even the already lowered expecta*ons for federally exposed suppliers and integrators with a few outliers such as WiFi , Cloud/Outsourcing and Security.

•  Similar to last year, much of our input has come from individuals who are in segments that they believe are growing faster than overall growth in CAPEX. Ver3cals seen as maintaining the most momentum include Wifi, hosted/cloud services, and network management tools. Other areas that are viewed as growing quickly, but not immune to current budget restraints include storage, security, SaaS and Unified Communica*ons.

•  Hiring was frozen or had slowed no3ceably in Q4 at several companies with expecta3ons of improvements in mid Q1 2013. For 2013 23% see a slow down in hiring, 56% report a pickup, 21% see no change





Results and Analysis of Enterprise Spending

•  As discussed in our summary page, input has suggested a slow finish to 2012 for most segments of enterprise IT spending. A slow start to Q1 2013 is also expected. Due to the contrast with between weak spending and of the high levels of sales ac3vity, we are working to monitor spending closely to see if / when we can recognize signs of a pickup which is an3cipated in Q2 2013.

•  More contacts this year noted segments where they believe growth would be stronger than overall market expecta3ons. The strongest of these segments include: –  Wireless LAN to support BYoD. Contacts who are working directly with WiFi, BYOD , MDM and Mobile Security solu3ons remain

very enthusias3c! We believe this area was among the strongest in Q4 and is likely to con3nue through 2013. –  Cloud con3nues to gain momentum with most contacts seeing con3nued strong growth and some seeing accelera3on. The

implica3on of this growth is generally a net nega*ve for vendors who tradi*onally sell to large enterprises (discussed later within this document).

–  Tools for tes*ng, diagnos*cs, visualiza*on and network management. Although this is a narrow market we were surprised at the number of contacts who noted strength. We believe this trend is posi3ve for Ixia, Gigamon, Opnet/Riverbed and others.

•  Our contacts also see spending on NGN, Mobile/BYOD and Applica*on Security as a top priority, noted by 38% or respondents, up from 29% in 2010, and 33% in 2011.

•  In contrast, WAN Op*miza*on has fallen from 28% in 2010, 18% in 2011, now to 13% in this years results. Our sampling may skew these results to the downside due to supplier consolida3on or lack of focus from JNPR and CSCO. We believe Riverbed and Silver Peak are likely to con3nue to gain share and to outpace overall market growth projec3ons of ~10% in their core business.

•  Unified Communica*ons remains in the early stages of market penetra3on and our research supports a mul3-‐year transi3on that is a top priority by end users. Vendors include Broadsop, Cisco, Microsop, Acme Packet, Sonus, Plantronics and Polycom.

•  Areas of weakness include: Closet Switching, SAN, Legacy Security, Federal spending on equipment and Systems Integra3on.





Results and Analysis of Service Provider Spending •  Posi*ve expecta*ons for Service Provider spending in 2013: -‐ 63% indicated a view that is consistent with a forecast for slight growth

of ~4%. The majority of our research also highlighted ongoing cau3on that without improving macro economic condi3ons success based capital may be at risk thereby impac3ng overall CAPEX. Presently, enterprise customer spending remains sop and there is evidence consumers are beginning to reverse course with discre3onary services and bundles.

•  CAPEX Priori*es include: Wireless Mobility, wireline expansion, metro/regional/core 100G capacity upgrades, WiFi, Cloud/Managed/Hosted Services for enterprise, Home Monitoring/Security/Automa3on, NGN Security, Hosted Unified Communica3ons, OSS/BSS Upgrades/Moderniza3on, Network Management/Monitoring/Traffic Visualiza3on Tools, and Cloud based video delivery.

•  We believe 2013 is likely to be slow to accelerate with seasonal sopness in Q1, then improving Q2 and beyond based on current sen3ment from end users, operators, field teams, distributors and Integrators.

•  As compared to previous input from our industry contacts in the service provider segment they remain more op3mis3c about an increase in overall CAPEX for 2013. This is based on mul3-‐year project ini3a3ves along with increasing levels of ac3vity and growing pipelines. Fewer contacts highlighted budget flush at the end of Q4 due to push outs, and ongoing poli3cal, fiscal and macro uncertain3es.

•  Current feedback points to stabiliza3on in EMEA, con3nued growth in Asia PAC and YoY improvements in North America for 2013.

•  We are uncovering broad based expecta3ons of con3nued co-‐ope33on, strategic partnerships, OEM’s to fill product gaps, as well as ongoing M&A specula3on across both the operator and supplier community. As a result we also believe Global Tier 1 suppliers are likely to become larger and more strategic integra3on partners for their customer base resul3ng in new mul3-‐year contract rela3onships involving mul3ple technologies and companies to fill product, services and sopware gaps.

•  Similar to responses in enterprise spending, a significant change is reflected in response to the ques3on regarding the specific segment the par3cular contact is targe3ng. This year only 21% believe their segment will grow faster than the overall CAPEX forecast, down from 40% last year.





•  Cloud -‐ Most contacts (70%) see con3nued and steady growth. Otherwise, more see accelera3on (17%) vs. slowing (12%). –  Cloud Frameworks remain fragmented with AWS, Azure, OpenStack, CloudStack, Vcloud… –  Service Providers con*nue to shiW investment to infrastructure for cloud services, via purchase of servers, storage, data center

fabrics and sopware. Strategic partnerships are also expected to accelerate geographic reach and offerings. –  As expected, vendors are making moves through partnerships and M&A to fill out product stacks for cloud solu3ons as vendors

seek alignment of network, server, storage, virtualiza3on sopware and management tools. Even more aggressive moves are expected in 2013.

–  The ship of spending by enterprises to cloud services moves spending away from higher margin servers, network and storage to the more commodity products and components purchased by large service providers, resul3ng in a growing head wind for vendors who sell into large enterprises (ie NetApp, EMC, Cisco, HP, IBM, Dell and others).

–  For private clouds, enterprises are increasingly choosing bundled solu*ons such as Flexpod (NetApp), Vblock / Vspex (EMC), PureSystems and PureFlex (IBM) to shorten the 3me required to deploy systems and reduce demand for scarce exper3se.

–  Companies best posi3oned to benefit include: VMware, Rackspace, Verizon, Citrix, Microsop, FusionIO.

•  WiFi – Input on WiFi growth remains very strong driven by BYOD, tablets, DoD, customer reten3on strategies and the increasingly mobile workforce. –  Based upon recent input, we believe that demand for WiFi has held up beLer than just about any other segment due to the

strong BYOD trend and assisted by the fact that the size of many WiFi projects and orders are smaller than other IT projects. –  Cellular offload and Service Provider WiFi blanket coverage is accelera3ng into a 3-‐5 year deployment cycle. We are following

several very large (~$300m to over $1B) deployment ini3a3ves on a global basis. Cisco remains the market share leader in this market, followed by Ruckus and Bel Air/Ericsson. Aruba is having some success in public venues.

–  WiLan solu3on providers are offering new higher margin sopware based features and offerings for policy enforcement, DPI, Security, Mobile Device Management that should help offset margin pressures for the commodity AP’s. Aruba and Ruckus are expected to see improving demand in 2013 for their SW based solu3ons.

–  Companies best posi3oned to benefit include Aruba, Ruckus, Cisco, Meru, and Xirrus


Results and Analysis of Priority Trends by Segment – Cloud, WiFi


•  Investment in Data Centers con3nues to rank among the highest priori3es for Government, Web 2.0, Enterprises and Service Providers. Unified Compute and Unified Storage architectures leveraging sopware integra3on are also gaining momentum. –  Cisco con3nues to gain momentum with UCS and Nexus. –  Brocade is also benefiyng as those refreshing SANs are staying commiLed to tradi3onal Fiber Channel vs. FCoE. Addi3onally,

Brocade con3nues to lead the switching segment with their SDN strategy and Fabric solu3ons. –  Juniper’s PTX product is winning business in large enterprises, Web 2.0 as well as in the Service Provider markets. –  Infiniband con3nues to grow as an interconnect technology in HPC and Web Scale data centers. Although demand is lumpy, as

seen in Mellanox’ results, the niche market for IB con3nues to expand. –  There is a high level of an3cipa3on for the next genera3on of servers and processor architectures from Intel, AMD and ARM

from vendors like Quanta, SuperMicro, Calxeda... In addi3on to delivering low power, higher performing denser compute, these systems provide for high speed interconnect on and between motherboards and processors. Implementa3on of these systems is expected to drive network upgrades, however they are also expected to reduce the # of required VM’s and reduce port requirements for Top of Rack switches which will impact the switching vendors.

–  Enterprises prefer bundled solu3ons and/or reference architectures (as discussed under Cloud) to achieve faster deployment 3mes and reduce resources needed for integra3on, tes3ng and support.

–  Companies best posi3oned to benefit include: Cisco, Brocade, Juniper, F5, Arista, Citrix, and IBM.

•  Storage con3nues to be highlighted as an ongoing area of priority however the ship to SSD and commodity disk is impac3ng the tradi3onal suppliers high margin HW businesses. Newer SW and feature integra3on efforts are priority #1 leading to Unified Storage. –  This year much of the posi3ve comments were from VARs who men3oned smaller vendors like Nimble, Tegile, Tintri, NextGen,

Fusion IO, Nimbus, Pure, Violin, and WhipTail. Although the majority of spending remains with incumbent vendors, end users are more frequently making tac3cal choices to find lower cost and/or higher performance storage solu3ons for new applica3on deployments. SSD arrays have broadened the deployment op3ons for end users.

–  As in other segments, end users are breaking up projects and releasing smaller orders only to meet short term requirements. Storage appears to be an area of pent up demand that is poised to accelerate with a more favorable economic outlook.


Results and Analysis of Priority Trends by Segment Data Centers, Storage


•  VoIP/Unified Communica*ons/Infrastructure/SIP Trunking (SBC) – Due to the posi3ve ROI, this segment remains on an accelera3ng growth trajectory, although we uncovered evidence of temporary weakness due to EoY budget constraints. –  Based upon survey input we believe that we are s3ll early in the mul3-‐year UC market adop3on curve and we expect investment

in infrastructure to support SIP trunks and voice transforma3on projects to remain high priori3es in 2013. –  Contacts highlight Microsop as gaining more share, others view Cisco as the biggest winner and remain consistent in repor3ng

share loss by Avaya. Broadsop’s BroadCloud hosted UC is gaining support of several Tier1/2 service providers. –  Regarding Enterprise SBC’s we con3nue to uncover wins by Acme, Cisco, with improving demand for Sonus and Audiocodes. –  Vendors best posi3oned to benefit include: Plantronics, Polycom, Shortel, Acme Packet, Sonus, Cisco, Broadsop, Audiocodes.

•  WAN Op*miza*on – Input on the growth of the WAN Op3miza3on market remains mixed. –  Some see con3nued growth while others see growth slowing. All agree however, that Riverbed con3nues to lead and gain

market share and likely to outpace the overall growth expecta3ons of ~10%. –  Silver Peak also con3nues to gain, as Cisco, and Juniper give up market share. Exinda is geyng some aLen3on with their lower

cost solu3on. –  New applica3on use cases, integrated security/NGFW partnerships, and CSP/Telco channels are contributors for accelerated

growth in 2013.

•  Virtual Desktop and End User Compu*ng– Aper a slow and open uncertain start, input is more posi3ve regarding the adop3on curve of VDI in large enterprises, financials, government, healthcare and service providers for 2013. –  Microsop, Citrix, VMware, and Dell are seeing improving demand for their respec3ve VDI solu3ons as organiza3ons move

towards EUC. –  Although the ROI on VDI is s3ll not as straight forward as for server virtualiza3on, VDI elements have become more mature and

easier to implement and manage especially with the con3nued adop3on of servers with integrated SSD.

Results and Analysis of Priority Trends by Segment VoIP / UC, WAN Op3miza3on, Virtual Desktop



•  Applica*on Delivery Controllers – We believe that this market segment remains a priority and will see con3nued growth above 10%, although we uncovered temporary weakness in Q4 which is likely to con3nue into Q1 2013. –  We see no challenge to F5s leadership in the near term, however startups like Embrane, Linerate Systems and VMWare and

Riverbed’s SW based approaches are gaining mindshare. –  Survey input also highlights a resurgence in Brocade’s ADC business. The BRCD ADC scrip3ng is very easy to configure, customize

and support. It is being adopted in mul3-‐tenant environments by CSP’s and Tier1 Service Providers. –  Radware is doing well in some geographies, although input suggests that their security solu3on is driving more of their growth. –  Citrix’ success appears to remain limited with exis3ng accounts and to new opportuni3es that are driven by their sopware. One

area of growth has been in healthcare, where Epic Sopware is domina3ng and Citrix has been part of the standard configura3on.

•  Security – Evidence points to con3nued replacement of legacy firewalls with Next Gen Firewall (NGFW) solu3ons and UTM devices. –  We believe security momentum slowed in Q4 and likely Q1 due to budget constraints but is expected to reaccelerate in 2013. –  Palo Alto con3nues to disrupt the marketplace although their aggressive expansion has caused some conflict among channel

partners. –  Cisco and Juniper are most open men3oned as losing share and are expected to add/upgrade their product lines this year. –  We expect security vendors to introduce new, lower cost/Mb very high performance NGFWs pla{orms this year leveraging

solu3ons from Cavium , Netronome and Intel based architectures. –  We expect 2013 to be an interes3ng year as Palo Alto’s mindshare and market share growth is challenged by Sourcefire and

For3net as well as from new offerings from Cisco, Sonic Wall/Dell, Juniper and perhaps F5.


Results and Analysis of Priority Trends by Segment Applica3on Delivery, Security




SoWware Defined Networking (SDN) and the SoWware Defined Data Center remain a mul*-‐year Evolu*onary End User Transforma*on •  Enterprise/IT and Data Center contacts an3cipate early adop3on this year with liLle impact on mainstream IT in 2013. Research

supports the disrup3ve evolu3onary trend playing out over the next several years while impac3ng current design decisions and architectural strategies.

•  Contacts in the service provider, CSP markets indicate that 2013 will see pilot projects and evalua3ons and highlighted accelera3ng ac3vity and expect significant changes as the SDN market matures…

•  We are con3nuing to follow the complex web of public and private companies in addi3on to the changing percep3ons regarding orchestra3on, customiza3on, integra3on, configura3on, workflow placement and automa3on along with the rumina3on that coincides with the hype cycle we are currently experiencing. One thing is for certain based on our ongoing research, hardware based approaches in networking for the data center are a commodity and every supplier has no uncertain percep3on the game has changed and they may not even be in the playbook.

•  Our research points to further consolida3on and expansion of supplier partnerships with open SDN controller approaches for the likes of EMC/VMware, IBM, Microsop, Oracle, Cisco, Brocade, HP, Citrix, NEC, Dell... We con3nue to follow Cisco’s evolving marke3ng efforts to stem mindshare losses while protec3ng their legacy HW business. Cisco’s SDN story has notably improved over the past few months based upon input from industry contacts and end users.

•  We remain surprised as to how quickly the industry has adopted the SDN philosophy across nearly every infrastructure and IT ver3cal. Our ongoing research is focused on the progress that includes emerging business models, use cases and secular changes that are occurring with service providers, Web 2.0, government and large enterprises.



Impact of SDN on IT Spending in 2013



•  Most contacts (70%) see con3nued steady growth in spending on Cloud services. Otherwise, more see accelera3on (15%) vs. slowing

(10%). Comments indicate the usual considera3ons including security and selec3vely choosing apps for to move to the cloud. The benefits of lower CAPEX, reduced need for expensive personnel and flexibility outweigh the nega3ves. Most see organiza3ons developing cloud strategies that includes Hybrid clouds and various selec3ons of Sopware (SaaS), Pla{orm (PaaS), and Infrastructure (IaaS) services.

•  As spending ships from the enterprise to the cloud, margins for hardware and most soWware vendors are reduced. In some cases equipment requirements are reduced due to more dense sharing of components of the infrastructure. Service providers tend to buy more commodity components; they leverage more open source sopware and they achieve larger discounts through higher volume purchases.

•  Quote from a mid sized channel partner: “We recently provided a quote for a opportunity that included 900 servers. In the past, we would have been fully engaged in the sales cycle for this size opportunity, from discussing the requirements, designing a solu3on to providing detailed configura3ons and a proposal, with plenty of face 3me with the end user and maybe an execu3ve briefing. Now more customers have the resources to do all this themselves. In this case they just sent us their detailed configura3ons and asked for our best price.”

•  The overall impact of the shiW of spending to cloud providers is a nega*ve headwind for vendors who have historically sold on-‐premise based enterprise solu3ons, including Cisco, EMC, Netapp, Oracle, HP, Dell… However, the ship represents new opportuni3es for the same companies as well as emerging companies not tradi3onally considered on the hosted side when decisions on RFP’s and infrastructure is built to support the move off premises.



Results and Analysis of the Ship to the Cloud



•  70% of respondents believe that the ship towards Cloud and managed services represents a significant opportunity for VARs and System Integrators to add value to their customer base… however, follow up discussions suggest the changing business models and the move from transac3on to recurring revenue is proving a more difficult transi3on due to the lower human resource element of cloud/managed/hosted services vs. on-‐premise support.

•  In addi3on to resale of managed services, opportuni3es exist for support services, online/onsite training, and the integra3on of reference architectures and the support legacy Tier1 applica3ons.

•  Several survey respondents noted that Cloud channel programs are just emerging and s3ll not well formed in terms of a WIN/WIN for both SaaS/PaaS providers and frontline VARs.

•  Contacts also highlighted that VARs will need to evolve their primary business models to take advantage of the Cloud. Their challenge is to offer a compe33ve advantage by developing an understanding of cloud architectures and the ability to design or have partners design secure Cloud systems.



Impact of Cloud spending on VARs and SIs



Private Company Views Private Vendors receiving posi1ve comments (We are happy to discuss in further detail if interest exists): Arista -‐ Growth con3nues for sopware defined networking and large cloud/data center deployments. Embrane – Distributed SDN for on-‐demand services. Silver Peak -‐ Technology leadership via scalability along with strategic partnerships con3nue to support market share gains in the WAN op3miza3on market. Cyan -‐ Tier2/3 Telco and MSO share gains for access and converged metro transport applica3ons. Ac*ve Video – Cloud based video delivery framework likely being adopted by Tier 1 Service Providers. Fireeye – is a leader in next gen security targe3ng advanced malware, zero-‐day and targeted APT aLacks Gigamon – is growing quickly providing traffic monitoring solu3ons. We are an3cipa3ng con3nued growing demand and a posi3ve IPO recep3on. Veeam – is gaining share in the backup and replica3on market including virtual environments. Netronome’s network flow processing is under the covers in a growing number of security and DPI devices. Avere – leverages solid state disk and real-‐3me 3ering to reduce cost and op3mize storage performance.



Private Company Views Private Vendors receiving posi1ve comments (We are happy to discuss in further detail if interest exists): Linerate Systems – an SDN oriented early stage company providing L7+ policy-‐based traffic management using off the shelf hardware. Jeda Networks – is developing Sopware Defined Storage Networks to leverage the opera3onal and cost advantage of SDN to storage. Plum Grid – Network virtualiza3on for sopware defined data center. Plexxi – recently out of stealth – delivering a SDN switch with integrated op3cal technology Forescout – provides network access control; seeing a boost in demand from the BYoD trend.

For more informa3on contact: Williams C. Hay Tom Morphis 404-‐229-‐4995 404-‐217-‐7626 [email protected] [email protected] Copyright 2013, Sales Pulse Research, LLC ® All rights reserved. Important Disclosures: Facts and the other informa3on contained in this report have been obtained from public sources considered reliable but are not guaranteed in any way. No independent confirma3on of the truth, correctness or accuracy of the informa3on presented has been made by Sales Pulse Research, LLC. This report is published solely for informa3on purposes and is not an offer to buy or sell or a solicita3on of an offer to buy or sell any security or deriva3ve. Sales Pulse Research, LLC accepts no responsibility for any loss or damage suffered by any person or en3ty as a result of any such person's or en3ty's reliance on the informa3on presented in this report. Opinions and es3mates expressed herein cons3tute judgments as of the date appearing on the report and are subject to change without no3ce. Employees of Sales Pulse Research, LLC may from 3me to 3me acquire, hold or sell a posi3on in the securi3es men3oned herein in this report. All of the recommenda3ons and views about the securi3es and companies in this report accurately reflect the personal views of the analyst(s) of Sales Pulse Research, LLC. No part of analyst's compensa3on was, is, or will be directly or indirectly related to the specific recommenda3ons or views expressed by the research analyst. No part of this document may be copied, photocopied, or duplicated in any form or other means redistributed or quoted without the prior wriLen consent of Sales Pulse Research, LLC. The informa3on contained herein has been obtained from sources believed reliable but is it not necessarily complete and accuracy is not guaranteed. Confiden3ality No3ce: This transmiLal is a confiden3al communica3on or may otherwise be privileged or confiden3al. If you are not the intended recipient, you are hereby no3fied that you have received this transmiLal in error and that any review, dissemina3on, distribu3on or copying of this transmiLal is strictly prohibited. If you have received this communica3on in error, please no3fy the sender immediately by reply and delete this message and all its aLachments, if any.



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