Swot Cisco Wired and Wireles

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G00250957

SWOT: Cisco, Wired and Wireless LAN Access

Infrastructure, WorldwidePublished: 4 December 2013

Analyst(s): Christian Canales, Tim Zimmerman

This document analyzes the strengths, weaknesses, opportunities and

threats that Gartner expects will have the greatest impact on Cisco's

position in the wired and wireless LAN access infrastructure market.

Table of Contents

Analysis..................................................................................................................................................1

SWOT Analysis.................................................................................................................................2

Strengths....................................................................................................................................3

Weaknesses...............................................................................................................................7

Opportunities..............................................................................................................................9

Threats.....................................................................................................................................11

Recommendations for Partners and/or Competitors.......................................................................13Implication for Cisco....................................................................................................................... 14

Company Overview........................................................................................................................ 14

Methodology.................................................................................................................................. 15

Gartner Recommended Reading..........................................................................................................15

List of Figures

Figure 1. Graphical Representation of SWOT: Cisco, Wired and Wireless LAN Access Infrastructure,

Worldwide..............................................................................................................................................2

Figure 2. SWOT: Cisco, Wired and Wireless LAN Access Infrastructure, Worldwide............................... 3

AnalysisThis document was revised on 9 December 2013. The document you are viewing is the corrected

version. For more information, see the Corrections page on gartner.com.

http://www.gartner.com/technology/about/policies/current_corrections.jsp



SWOT Analysis

The vendor analyzed in this strength, weakness, opportunity and threat (SWOT) report was selected

because Cisco is the largest global provider of enterprise network access infrastructure.

Figure 1 provides a graphical representation of the strengths, weaknesses, opportunities andthreats of Cisco's wired and wireless access infrastructure business, based on Gartner's SWOT

rating model. Figure 2 describes those strengths, weaknesses, opportunities and threats.

Strengths outweigh weaknesses because Cisco has made its wireless LAN (WLAN) product line

more competitive. Including the acquisition of Meraki, this has helped Cisco increase its WLAN

revenue share from 2H12 to 1H13, a positive sign given the loss in share that Cisco experienced for

a number of years (from 62% in 2006 to 50% in 2012). In the access layer Ethernet switch market

— despite continuing to face competition from vendors like D-Link, Dell, Huawei, Netgear and,

especially, HP, in different markets and geographical regions — Cisco continues to hold more than

60% revenue share of the market.

Opportunities had more weight than threats in our analysis. This is primarily because we expect

Cisco to be well-positioned to take advantage of a strong wired and wireless component and

network service application position in the enterprise market. The evolving needs of cellular and

WLAN integration and the increasing demand from the communications service provider (CSP)

WLAN market are other areas of opportunity.

Figure 1. Graphical Representation of SWOT: Cisco, Wired and Wireless LAN Access Infrastructure,

Worldwide

S

W

O T

Source: Gartner (December 2013)

Page 2 of 16 Gartner, Inc. | G00250957



Figure 2. SWOT: Cisco, Wired and Wireless LAN Access Infrastructure, Worldwide

Strengths Weaknesses

• Strong channel and revenue market share

• Loyal customer base

• Breadth of portfolio and deployment modes

• Cloud and controllerless-based WLAN solutions

• Taking the lead in indoor locationing, throughCMX tools and locationing technology

• Strong position in 802.11/hot-spot 2.0 solution

• Playing catchup in policy enforcement, guest

access and onboarding with ISE• Interoperability and integration strategy

limitations with the recently acquired MerakiSolution

• Product functionality differences and optionsoften unclear to customers

• Channel/reseller support needs to improve tobetter deal with complex installations

• Expensive solutions

Opportunities Threats

• Increasing demand of overlay network services

• WLAN becoming a key component of seamlesscellular/WLAN communication

• Small cell with Wi-Fi in the enterprise

• Growing WLAN hot-spot market

• Increased commoditization of access layerswitches has simplified buying decisions andproduct selection.

• Market consolidation

• Huawei and HP have strengthened theirposition in Asia/Pacific, the fastest-growingregion

• Lagging behind in commercial innovation

• Increasing availability of WLAN managedservices will limit Cisco opportunities in the SMBmarket

• Passive optical LAN

Source: Gartner (December 2013)

Strengths

Strong Channel and Revenue Market Share

Cisco is the largest company in the enterprise network access infrastructure market and has the

strongest channel. This results in local presence, across all the market verticals that leverage end-

to-end business and creates a strong revenue market share. The ability to stretch across the

enterprise carpeted space, as well as deep into traditional vertical markets like retail (both in-store

and in the office) and education, as well as new markets, to identify different solution needs means

that many Cisco customers have wired and wireless Cisco products end to end. Moreover, Cisco'scontrol of distribution channels (despite narrowing channel margins) means the company has the

potential to reach out and address the global market demand on a much wider scale than its

competitors. As a result, the fight to take revenue share away from Cisco can be tough for

competing vendors, especially when it involves winning customers for which Cisco is the first-

choice supplier of wired networking equipment. In the enterprise Ethernet switch market, Cisco had

a 65.2% revenue share in 2012, far ahead of the No. 2 player HP (with 12.5%) and No. 3 Juniper

Gartner, Inc. | G00250957 Page 3 of 16



Networks (2.7%). In the enterprise WLAN market, Cisco had 50.5% revenue share in 2012, far

ahead of the No. 2 player Aruba (with 13.0%) and No. 3 HP (5.3%).

Loyal Customer Base

Cisco's strong local presence helps build customer trust as solutions move from Tier 1 enterprise

deployments into the rest of the market. Especially among large corporations, Cisco benefits from a

huge loyal customer base. Cisco's influence over enterprise purchasing decisions is such that many

IT managers buy Cisco almost by default, regardless of price premiums or product differentiation.

The key here is that the customers like "one-stop shopping," the perceived value in the training and

certification, the safety of buying from a strong global brand and the opportunity to buy switches or

WLAN equipment bundled with other equipment at a discount. The importance of Cisco's loyal

customer base is further amplified by the fact that, according to our estimates, through 2017, more

than 60% of global revenue from sales of wired and WLAN access infrastructure will continue to

come from North America, Western Europe and Japan. Sales in these highly saturated geographies

are primarily driven by replacement cycles (for example, replacing a switch that's 6 to 8 years old),

rather than from business expansion or new networks being rolled out. Another aspect worth

pointing out is the limited market impact of WLAN vendors like Aerohive, Aruba and Ruckus

Wireless that decided to enter the commoditized access layer switching market during the last few

years.

Breadth of Portfolio and Deployment Modes

Through development and acquisition, Cisco has one of the broadest ranges of access layer

Ethernet switches and WLAN products. These allow it to compete with any networking vendor, no

matter the point of differentiation. Cisco has a vast hardware portfolio that, during the last couple of

years, has improved in flexibility and deployment-mode capabilities, which appeals to various

customer needs. Cisco's portfolio spans from lower-end small or midsize business (SMB)-targeted

switches, to fixed switches for wired connectivity; indoor and outdoor access points (APs), as well

as WLAN controller and controllerless architectures. Additionally, network service applications, such

as guest access, security, onboarding, network management and policy enforcement, continue to

be an important differentiator in client access layer decisions. Cisco has a solution that provides

access layer connectivity for the many needs of the vertical markets, such as retail or

manufacturing, in addition to the enterprise carpeted office. The combination of existing products,

strategic vertical-market relationships and best-of-breed channels enables Cisco to deliver end-to-

end solutions that customers worldwide have confidence in.

While many end users had to wait years for Cisco to provide leadership and "stickiness" between

its leading switch organization and its WLAN team, Cisco has finally stepped forward. Catalyst 3850

is Cisco's first Internetwork Operating System-based wireless controller to provide a switching

architecture that integrates wireless functionality, and when combined with the breadth of AP

offerings, allows Cisco to compete against vendors that provide controller-based or controllerless

solutions. Catalyst 3850 increases speed and resiliency, and adds significant functionality over the

3750-X platform for the same price. While neither product is currently a direct replacement for the

other, they can run in parallel, preserving investment protection and enabling customers to upgrade




at their own pace. Cisco has also introduced the Catalyst 3650, a midrange stackable switching

platform that costs as much as 30% less than the 3850.

Cisco continues to make advancements with its network service applications. The Cisco Prime

network management product (Cisco Prime Infrastructure) manages both wired and wireless across

the entire edge of the network from a single pane of glass. This is a big step that requiredconsolidation of as many as four Cisco network management packages. Cisco needs to continue

the progress with the integration of multivendor management to use this management tool to

enhance the selling process. On the security, guest access and onboarding front, Cisco has

combined its guest access, Access Control Server (ACS) and Network Access Control (NAC)

applications into the Identity Services Engine (ISE) for a single application across the entire network.

Cisco will need to accelerate the release of the next steps in the road map to remain competitive in

an application area that today provides differentiation for other vendors.

Another significant product addition by Cisco is the Catalyst 6800ia access layer switches, to which

the best analogy is the Fabric Extender (FEX) technology, deployed at the campus. The 6800ia

switches can virtually act as remote line cards, encapsulating traffic that will enable them to getCatalyst 6500/6800 features at the access layer. The 6800ia switches, unlike FEX, support stacking

and Power Over Ethernet (PoE) and attach to a downstream compact switch offering flexible

deployment options. They align with prevailing traffic patterns, with advantages in ease of

management.

The Aironet 3600 series AP is an industry-first 4X4 multiple input/multiple output, three-spatial data

stream AP that was launched in 1Q12. The 4X4 (four transmit and four receive antennas) can

improve redundancy, connectivity reach and throughput performance, making it a good product for

handling the higher requirements of video and voice. The Aironet 3600 and 3700 series are module

APs that can provide investment protection, allowing enterprises to transition from 802.11n to Wave

1 or Wave 2 802.11ac through a module upgrade, avoiding having to replace the AP.

Cloud and Controllerless-Based WLAN Solutions

WLAN controllerless solutions have become a hot topic in the industry today. While HP (3Com) and

D-Link have had a "unified" wired/wireless switch platform for more than five years, it was primarily

the revenue growth success that Aerohive and Meraki enjoyed from 2010 through 2012 that started

to draw considerable attention. Competitors watched how these two small companies were winning

customers, and end users, in general, began to be aware that WLANs can live without a controller

and still be able to support, for example, roaming, centralized reporting and security. For a market

that largely stood dormant for a number of years, vendors became increasingly aware of the

importance of being able to have WLAN products that virtualized controller functionality. A lot ofproduct development activity has taken place since 2012. Arguably that was often largely driven by

reaction to what competitors were doing, which partly explains why today we can see a lot of

aggressive marketing of controllerless solutions, and why, to some extent, this is an overhyped

space.

Cisco's first move to a solution that virtualized WLAN controller functionality was the introduction, in

2Q11, of its Flex 7500 series controller. The private cloud hardware controller resides in the data




center, from which it can manage as many as 6,000 APs spread across 2,000 branch-office

locations/Flex groups or up to 6,000 locations if not grouped. This is a high-capacity and costly

platform that, however, did not appeal to the needs of SMBs or large enterprises with few branch

offices. Cisco also has a VMware-based virtual form factor controller that operates on x86 servers

and can support as many as 200 APs, which, again, does not address the SMB market.

In 4Q12, Cisco completed the acquisition of Meraki, a vendor whose WLAN solution virtualizes

controller functionality in the cloud. While the Meraki portfolio, in some cases, competes with

Cisco's WLAN product line, especially in the SMB market, the clever part of this acquisition is the

two do not generally overlap. For WLANs that involve a small number of APs per location, Meraki is

ideal, as the cloud controller subscription-based payment model can simplify deployment

requirements for companies with limited IT resources. While the need to purchase a perpetual cloud

management software license for every AP made the Meraki solution too expensive for large

enterprises, it is a limitation Cisco has recently addressed. The newly announced Meraki enterprise

licensing model enables customers to pay a fixed license cost for management of an unlimited

number of APs. Meraki can boast several strengths in functionality, such as industry-leading device

profiling, as well as subscription-based cloud applications that include basic traffic shaping, WAN

optimization and content filtering. The next step is integration of what is best in both solutions, for

example, Meraki's device profiling and Cisco's breadth of APs to make both solutions stronger and

provide differentiation.

Taking the Lead in Indoor Locationing, Through CMX Tools and Locationing Technology

The Cisco Connected Mobile Experiences (CMX) leverages its ThinkSmart Technologies acquisition

and uses the Cisco Mobility Services Engine (MSE) platform, in combination with an open MSE

REST API, to integrate real-time WLAN-based location and contextual attributes into customer

applications. This solution can enable enterprises to create or customize their mobile applications,

such as loyalty applications via CMX, giving real-time context-aware capabilities to mobile

application experiences (for example, receiving specific push notifications, launching certain mobile

applications, connecting to a guest WLAN or receiving real-time location updates). The Cisco MSE

provides a SOAP-based API that allows third-party applications to query location information for

wired/wireless clients, tags and APs reported within a Cisco wireless network. While Cisco has

taken the lead in this area of the market, others, including Aruba and Ruckus Wireless, have

followed quickly with similar acquisitions. The key for this solution, however, will be the search for

more granular locationing capabilities than the 30 feet (10 meters) that is currently available without

additional beaconing input points within the environment.

Strong Position in 802.11u/Hot-Spot 2.0 Solution

While this is a strength that predominantly touches Cisco's position in the service provider wireless

space, WLAN APs are connected to the access layer wired infrastructure, and cellular to Wi-Fi

offloading is expected to gain traction in the enterprise space. Similar to competitors like Ruckus

Wireless and ZTE, Cisco has dominated this market segment by leveraging its relationship with

carriers, addressing demand for a market (carrier Wi-Fi) that, at least for the next two or three years,

is expected to grow at a faster pace than the enterprise counterpart. As a major customer win, for

instance, at the end of 2012, Cisco announced the rollout of 100,000 APs across Indonesia as part




of a Wi-Fi offloading deployment by PT Telekomunikasi, Indonesia's largest telecommunications

service provider. Growth of the hot-spot Wi-Fi market in recent years has partly contributed to

Ruckus Wireless growing its WLAN revenue from less than $40 million in 2009 to $190.3 million in

2012, although it is a distant second in WLAN CSP market share. And it is no coincidence that

Aruba Networks — a vendor that, in recent quarters, has struggled to keep up with growth of the

overall WLAN market, partly due to its lack of presence in the carrier-class AP space — announced

in 1Q13 its HybridControl architecture, targeted at service providers to offer private Wi-Fi for

managed services and Wi-Fi hot spots for public access. Cisco is well-positioned to continue to

benefit from this vertical market in the short and long term. While ZTE should continue to serve well

the Chinese market and Ruckus Wireless is expected to nip at Cisco's heels from a product and

innovation perspective, Cisco has an advantage in the hot-spot market (due to its carrier

relationships) over other competitors that otherwise pose more threat in the enterprise space, such

as Aruba, Motorola Solutions, Alcatel-Lucent, Juniper Networks or Xirrus.

Weaknesses

Playing Catch-up in Policy Enforcement, Guest Access and Onboarding With ISE

Network service applications are the new differentiator at the edge of the network. They apply to all

users that connect to a wired or wireless network to determine if, when, where and how the user will

be allowed access to the enterprise network. Cisco introduced the ISE in 2Q11, aimed at

addressing bring your own device (BYOD) trends and user demand to work from anywhere, either

wired or wireless, on the device of the user's choice. ISE has security, device profiling and context-

aware enforcement capabilities (such as automatic network enablement based on device type and

enforcement of contextual-based business policies) that are built into a platform and replace several

stand-alone Cisco solutions, including NAC and ACS.

Today, the platform integration is incomplete, as Cisco needs to internally adopt a best-of-breed

methodology and not try to solve the business problem with two solutions. ISE struggles to

rationalize its existing capabilities, such as the differences in its own wired and wireless guest

access from its NAC and Wireless Control System (WCS) applications, while attempting to move

forward at the pace of the market addressing the needs of BYOD usage scenarios that require

deeper integration with a broader set of mobile device management partners. Cisco's strategy is

not a matter of moving in the wrong direction, it is only the timing of execution in a rapidly changing

access layer environment.

One of the next steps is also looking at the functionality that Merkai brings to the Cisco product

family. While the Cisco enterprise network team brings industry-leading APs and switches to theCisco access layer portfolio, the ISE team needs to minimally integrate Meraki's device profiling and

look at other functionality that can be leveraged across the entire Cisco access layer to provide a

consistent competitive advantage, rather than applied to enterprise-deployed or cloud-deployed

architectures. Additionally, policies that are created in ISE should be able to be deployed across the

entire Cisco access layer solution, whether it is an enterprise-network-deployed architecture or a

Meraki cloud architecture. Lastly, Cisco needs to update its deployment model. ISE entry-level

pricing and lack of modularity often leave Cisco on the sideline, especially when clients need only




guest access service or Remote Authentication Dial-In User Service (RADIUS), but currently must

purchase the entire suite to deploy a single application.

Interoperability and Integration Strategy Limitations With the Recently Acquired Meraki

Solution

Differing capabilities of the Meraki and core Cisco product families often leave clients to consider

these solutions separately, instead of as an implementation choice. As noted with software

functionality, Cisco needs to rationalize the best-of-breed access layer components, such as a

common set of APs and switches that are independent of an enterprise network or cloud-based

architecture. Meraki's launch of new APs creates not only confusion in Cisco's integration strategy,

but also a crack in the strategy that is currently used by competitors to separate branch-office and

campus-enterprise decisions. Currently, none of Cisco's industry-leading enterprise networking

WLAN APs and only limited wired equipment can interoperate in the (Cisco) Meraki WLAN cloud

model, or vice versa. Since this is not Meraki's core competency, Meraki should focus on creating

cloud-based access layer solutions utilizing the products that have enabled Cisco to maintain its

market-share-leading position in access layer connectivity.

Cisco Prime can monitor Meraki and the small-business product portfolio today via Simple Network

Management Protocol (SNMP). This is the same as monitoring any other third-party devices via

SNMP. According to Cisco, the ability to cross-launch the Meraki Dashboard from Cisco Prime will

be added in 2014.

Product Functionality Differences and Options Often Unclear to Customers

While we have noted Cisco's breadth of portfolio as a strength, it also has weaknesses due to

overlapping product functionality. As mentioned in Gartner's "MarketScope for Wireless LAN

Intrusion Prevention Systems," Cisco has two wireless intrusion prevention system (IPS)

applications. First, Cisco has a basic WLAN IPS application that is unlicensed and exists as part of

WLAN controller (WLC) functionality. This solution is used by 70% of Cisco's installed base, and it

can be managed through the WLC interface or through Prime, Cisco's network management

application. The second solution is an adaptive WLAN IPS (aWIPS) application with advanced

capabilities and reporting that is licensed separately and sold in conjunction with or runs on an

existing MSE appliance. Many Gartner clients still do not recognize or understand how to take

advantage of the aWIPS capabilities, and they often confuse aWIPS functionality with the integrated

WLC capabilities. As a result, the opportunity to upsell to the aWIPS over basic functionality is often

lost, and buyers are not getting the full advantage of aWLAN IPS. Additionally, clients using the

WLAN functionality in the 3850 should test the needed capabilities since the application version

integrated into the 3850 lags behind the released software of the controller-based solution.

Channel/Reseller Support Needs to Improve to Better Deal With Complex Installations

Cisco has a reseller channel that is large and strong, but historically, these Gold- and Silver-certified

partners, as well as the rest of the reseller community, have focused on wired connectivity. Their

proficiency in wired connectivity does not match their WLAN knowledge, and not all resellers can —

or should — sell WLAN equipment. The complexity of WLAN solutions has grown from the days




when APs were generally installed to support a limited number of users and basic business

application requirements. Today's wireless resellers must understand signal-to-noise ratios,

capacity planning and multiple frequency migration strategies. This is not knowledge and

experience that can be obtained from Web-based training or by sending a technician to a three-day

certification course. The issue here is that many Cisco Gold partners — that used to make most of

their revenue from wired equipment — are now trying their hand at selling and installing wireless

technology, and some Gartner inquiries indicate this can lead to situations in which Cisco partners

lack good understanding of design, configuration and support issues. Cisco needs to make sure

that resellers selling wireless technology understand the medium; otherwise, it risks losing the

wireless business — and possibly, the entire access layer business — to other vendors. Alongside

its partners, there are opportunities for Cisco to better educate and prepare the channel/resellers,

by improving the training and radio frequency knowledge base with updated certifications, as well

as making more in-depth training available for partners worldwide.

Expensive Solutions

Historically, Cisco has had strong presence in the enterprise wiring closet. While the products

continue to "check the box" in regard to functionality, Cisco's competition during network refresh at

the access layer has intensified through the years, as commoditization and price play bigger roles in

the decision process. While we have noted that Cisco's portfolio has improved its breadth, which

also results in a broader set of price points for different customers, client pricing commonly remains

higher compared with other vendors (even at heavily discounted prices when Cisco faces the

prospect of losing a customer). Especially with edge switches, these premiums are largely

unjustified, given the lack of competitive differentiation. Gartner has also often seen other vendors

offer similar, or even lower, average selling prices than Cisco for equivalent market requirements.

Additionally, competitive offerings have lower maintenance and support costs (albeit none can

match Cisco's geographical coverage).

In the WLAN market, a trend that should further question Cisco's premiums is carrier Wi-Fi rollouts,

which tend to involve deployment of thousands of APs, given out heavily discounted against list

prices. This will drive down the prices of APs, or at least put more pressure on vendors to lower

their prices. The Cisco Aironet 3600 AP is an expensive product, with a list price of around $1,495 in

a market where Gartner continues to see AP ASPs in the $400 to $450 range in the enterprise and

lower in the carrier Wi-Fi market, depending on functionality. Cisco needs to continue to refresh and

rationalize its WLAN AP product families as competitors look at replacing Cisco in access layer

connectivity solutions, not only for wired connectivity, but also for wireless.

Opportunities

Increasing Demand of Overlay Network Services

Physical technologies, such as PoE and 802.11n, have become largely commoditized at the access

layer, and this commoditization has increased the useful life of equipment. This makes selling

overlay network services (for example, context-aware and location-based services, security, and

BYOD support) across the entire network for wired and wireless connectivity more important.




Deployment of network application services, such as network management, security authentication

and authorization, and policy enforcement, will continue to be driven by enterprises seeking

efficient, secure and predictable behavior from their network.

Gartner is already hearing clients ask for the next step in the access layer market: SLAs for wired

and wireless communications. Cisco's position in the access layer has it well-positioned to takeadvantage of this change in the market. Clients want a guarantee that client bandwidth

requirements are being met. They also want end-to-end monitoring of the network, and proactive

and dynamic changes to the network to maintain SLAs, independent of client-based input. They

want it for data, voice and video, which means monitoring tools must provide feedback on

bandwidth and latency across the end-to-end network.

There is also a need in the market for managed services; however, without monitoring tools and the

ability to proactively address issues, partners will not be able to meet the market requirements.

WLAN Becoming a Key Component of Seamless Cellular/WLAN Communication

While Cisco has taken some steps to address the needs of cellular and WLAN integration (on such

things as smartphone support and mobile core gateway functionality), this remains a market with

important evolving needs, and adoption of seamless integrated cellular and WLAN voice

communications is still rather embryonic. And while it will be prevalent outside of the building, it

may never reach critical mass inside the enterprise, except in vertical markets like retail or higher

education. Within the context of Cisco's access layer infrastructure, we have classified this as an

opportunity because broader adoption of integrated cellular/WLAN solutions will inevitably lead to

WLAN equipment gaining importance as a component of seamless communication for WLAN-

enabled handsets. While many initiatives around Wi-Fi Certified Passpoint and 802.11u support

today primarily target service providers and carriers, this will begin tilting to the enterprise space in

the future, although the two solutions, cellular offloading and fixed mobile convergence, will lookvery different.

A driver will be seamless connectivity needs and the opportunity of choice for employees. While

implementation of an in-building or campus WLAN can enable calls to be switched from the public

cellular network to a private enterprise network, bypassing cellular charges, there will be software

costs to provide the handoff, so the cost-saving opportunity will be mainly lower handset operating

costs. The 3G small-cell module that can plug into Cisco WLAN APs and the Quantum software

(both introduced in 1Q13) is a good step by Cisco to improve connectivity between WLAN and

cellular networks. Jabber for Mobile is a good addition to the Cisco product set, allowing calls to

move from a WLAN to a cellular network and back, keeping calls live without disconnecting. Jabber

is offered on a number of devices, and mobile operating systems can support organizations' needfor better mobility.

Small Cell With Wi-Fi in the Enterprise

Acquisitions of Intucell and Ubiquisys (completed in the first half of 2013) will also help Cisco

compete with established mobile network vendors, such as Ericsson, Alcatel-Lucent and NSN, in

the emerging small-cell infrastructure market. Small-cell technologies have the potential to extend

coverage for 3G, Long Term Evolution (LTE) networks for service providers into the enterprises,




depending on the pricing model of the cellular technology. Cisco has an opportunity to lead in this

embryonic market since many competitors push for cellular for some applications, for example,

voice on smartphones for education or healthcare or Wi-Fi for other applications, including data and

video. Cisco has the ability, through products and relationships, to provide both small-cell and Wi-Fi

capabilities and seamless transition for enterprises looking to invest in both technologies. The

modular design of the Aironet 3600 and 3700 AP series — which includes a module for 3G/small-

cell connectivity — can further help Cisco leverage this opportunity.

Growing WLAN Hot-Spot Market

Gartner has forecast CSP WLAN (Wi-Fi) hot-spot market revenue to outpace growth in the

enterprise market at least through 2016. As one of the leading market suppliers, Cisco is well-

placed to take advantage of this opportunity, although its main competitor in the U.S., Ruckus

Wireless, has made more progress on integrating Passpoint support in APs. Wi-Fi hot-spot services

will continue to be strongly driven by service providers looking to relieve congestion on cellular

networks in busy indoor locations, and, increasingly, also by location owners wishing to use Wi-Fi

as a marketing tool .Together with growing interest in monetizing Wi-Fi, consumer profiling, data

analytics and location awareness technologies, this market sector has plenty of opportunity for both

equipment sales and professional services.

Threats

Increased Commoditization of Access Layer Switches Has Simplified Buying Decisions and

Product Selection

This threat will continue to put into question Cisco's ability to charge higher price premiums. And

while fear of interoperability between Cisco and other vendors' equipment often makes customersavoid looking at other vendors for replacements, multivendor networks will continue to grow as a

result of increased commoditization. Access layer switches represent a mature market that has not

seen much innovation in the past few years. Many vendors continue to fight the war primarily from a

price point perspective, mostly with gigabit product additions targeting the apparent "future-

proofing" needs of businesses. From a marketing perspective, support of the 802.3az "energy-

efficient Ethernet" standard, which "shuts down" idle ports, has seen some recent interest. Lifetime

warranties and functionality, such as the security ability to lock down Media Access Control

addresses at the port level, PoE support, port mirroring, or stackable and stacking capacity, have

become common features for access layer switches.

Market Consolidation

We have seen consolidation through the years (acquisition by HP of Colubris Networks and 3Com,

Juniper Networks of Trapeze Networks, and Adtran of Bluesocket). More recently, in November

2013, Extreme Networks completed the acquisition of Enterasys Networks; these two vendors have

been in the Ethernet switch market for more than a decade. The access layer has evolved into a

market where only established or fast-growing, innovative companies likely have a chance for

survival. We classify this as a threat because market consolidation can lead to bigger enemies with




a broader distribution channel and potentially more resources to focus on differentiation. The

Enterasys Networks acquisition will make Extreme Networks one of the top five vendors of LAN

access infrastructure in revenue, behind Cisco and HP, but very close to Juniper Networks and Dell.

Huawei and HP Have Strengthened Their Position in Asia/Pacific, the Fastest-Growing Region

Gartner has forecast Ethernet switch market revenue in Asia/Pacific to grow by a compound annual

growth rate (CAGR) of 4.9% from 2012 through 2017, against a CAGR decline of 3.3% for North

America and 3.4% for Western Europe. The key here is that, while most of the market revenue is still

concentrated in the mature regions, Asia/Pacific will see the highest growth. We classify this as a

threat because HP and Huawei have in the past 18 months strengthened their footprint in Asia.

Currently, less than 15% of Cisco's switching revenue comes from Asia/Pacific, compared with

more than one-third for HP and more than 50% for Huawei, which experienced very good growth

from 2011 through 2012.

Lagging Behind in Commercial Innovation

We classify this as a threat because in the switch market, some vendors have started to look at

ways to offer more flexible and innovative commercial solutions, which adds differentiation as an

alternative to Cisco. Brocade's Network Subscription and HP's FlexNetwork Utility Advantage are

rental models that can add flexibility to network acquisition. There are possibilities for CSPs to use

this type of model to offer managed network solutions on a pay-per-port monthly subscription

basis. For the targeted large enterprises and government organizations, the key will be savings on

capital expenditure, as well as greater flexibility in aligning network capacity with changing business

needs (customers can, for instance, turn ports on and off). For the cost-conscious SMB market,

Alcatel-Lucent offers Fast Ethernet switches with the option to upgrade to gigabit via a licensed

software upgrade.

Increasing Availability of WLAN Managed Services Will Limit Cisco Opportunities in the SMB

Market

Increasing availability of managed WLAN services will continue to help lower the bar of adoption for

WLANs for companies that do not have the resources or technical knowledge to maintain their own

network. An emerging trend that could help managed services break into the market is delivery of

WLAN software as a service.

Although Cisco has strengthened its position with the Meraki acquisition, this has become a

crowded space in recent years. WLAN managed and professional services today are offered not

only by WLAN competitors, such as Aruba and Motorola Solutions, but also by service arms by

carriers (such as AT&T, BT Global Services, Orange Business Services, T-Systems and Verizon

Business), system integrators/outsourcers (such as Accenture, CSC, HP and IBM), channel partners

of network equipment manufacturers (such as CDW, Insight Networking and Presidio), independent

network consultants and offshore providers (such as Tech Mahindra and Wipro).

The value proposition is that the WLAN controller and accompanying network application services

no longer reside in the enterprise network, but are moved to the cloud and delivered through the




Internet for a monthly subscription. This can add flexibility to how enterprises wish to have wireless

networks managed, and can reduce installation and maintenance costs.

Passive Optical LAN

We classify this as a threat because passive optical LAN can significantly reduce the number of

switching cabinets and Ethernet switches needed within a LAN architecture and, hence, threaten a

portion of LAN switch sales. However, while this is a growing market, it remains relatively small, and

for this reason, we give this threat a low score rating. Based on gigabit passive optical network

technology commonly deployed in carrier networks, the LAN equivalent can eliminate the limit of

90-meter horizontal cable runs to switch cabinets and provide a more passive centralized

architecture. The recently formed association for passive optical LAN includes a group of vendors

looking to promote adoption of this LAN architecture. To date, deployments have focused on the

government and hospitality verticals.

Recommendations for Partners and/or CompetitorsGartner remains cautiously optimistic that Cisco will continue to maintain its strong revenue share in

the global access layer infrastructure market for at least the next five years. Upcoming sales of

802.11ac products will be successful, despite relatively slow adoption in the next 24 months, due to

the multiphased introduction of 802.11ac capabilities (many enterprises will decide to wait for the

advanced set of Wave 2 product capabilities), the inability of 802.11ac to support the 2.4GHz

frequency band, the declining costs of 802.11n chipsets and the scalability of 802.11n. Because of

its market power and ability to influence purchasing decisions, Cisco has historically rarely missed

out on opportunities with technology transitions. In the switch market, HP will continue to pose

strong competition to Cisco, which could lead to a reduction of Cisco's higher price premiums.

Potential and current Cisco partners should, however, remain confident of Cisco's commitment to

the product and customer demand.

Competitors should learn from the loss in revenue market share that Cisco experienced until it

decided to invest more resources in improving its wired/wireless integrated management

capabilities. While there are still competitors of Cisco for integrated wired/wireless network

management capabilities (for example, Aruba, Enterasys Networks and HP), Cisco's strong

presence in the switching market continues to be a clear advantage. This advantage gives Cisco the

exposure to be more shortlisted than any other vendors in opportunities to win customers.

Competitors must understand their differentiation, because they will lose trying to stand toe-to-toe

with Cisco if they are trying to check the box. Vendors that have also identified complementary

functionality specific to vertical markets like point of sale and kiosk integration in retail, teacher tools

in education or small-cell integration with Wi-Fi for cellular offloading will be able to competeagainst Cisco and its partners that have a generalist approach. Ease of use, proactive network

management and cloud deployment options for network service applications continue to expand

with both SMBs and enterprises.

Partners should recognize Cisco's recent ability to strengthen its position in the WLAN space and

be aware that differentiation will increasingly move to network application services, solutions that

also apply to wired connectivity. Opportunities will come from many areas, such as resell, system/




product integration, consulting collaboration and service support, but will require additional

investment by partners in both additional staff and training of existing personnel. Partners need to

recognize that the market is moving to end-to-end access layer solutions, with demand for higher

levels of service to ensure that the network is available for critical business applications. Historically,

we have seen partners that have traditionally sold part of Cisco's product line, with the associated

certifications, try to expand their footprint in the market (for example, by offering both wired and

wireless solutions), but they found difficulties because of the business and technical differences in

these access layer components. This is an issue when the market is moving to create complex

policies for access and applications, as well as SLAs to support an increasing number of end users.

Implication for Cisco

Cisco has maintained its position as the largest enterprise access layer network infrastructure

vendor through its influential market power, broad channel capabilities, acquisitions and, recently,

an improvement in execution. To maintain this lead, Cisco must continue to build on its access layer

market strategy to capitalize on the growing opportunity of organizations moving to wireless for

end-user connectivity. The carpeted WLAN enterprise market remains largely untapped, but Cisco

risks missing opportunities if it fails to quickly react to customers considering replacing wired with

wireless connectivity, as Cisco inadvertently protects its switching business line. Cisco needs to

continue to invest in aspects that still need more work to keep lowering the bar of adoption for

WLAN, including voice, security, installation requirements and network management. Cisco should

also review and consider simplifying its portfolio, which often seems too broad and complex for

buyers.

Company Overview

For an overview of Cisco's business performance in all its market and solution segments, see

"Vendor Rating: Cisco."

Cisco was founded in 1984 and is headquartered in San Jose, California. The company has more

than 75,000 employees worldwide (as of 2013). Net revenue for Cisco's fiscal year ending 27 July

2013 was $48.6 billion, up by 5.5% year over year.

In the LAN market, Cisco has the following market share.

In worldwide enterprise Ethernet switches, Cisco's port shipments declined by 2.6% year over year

during 2012, as its shipment share declined from 35.7% to 34.2%. Associated revenue increased

by only 0.1%, leading to a loss in revenue share, from 67.7% in 2011 to 65.2% in 2012. Since

Gartner does not segregate its estimates between campus and data center, these estimates are forthe overall market, not only for the LAN access switching space. Port shipment share was 36.6% in

1H13, up from 33.6% in 2H12. Associated revenue share was 66.0% in 1H13, up from 64.7% in

2H12.

In the global WLAN market, Cisco's revenue grew by 30.7% from 2011 to 2012. Revenue share

dropped from 50.6% in 2011 to 50.2% in 2012. Its revenue share grew to 52.4% in 1H13, up from

49.9% in 2H12.


http://www.cisco.com/

http://www.cisco.com/



Methodology

Cisco was selected because of its overall stature and influence in the worldwide wired and WLAN

access infrastructure marketplace as the leading provider in revenue and product shipments. We

based our ratings on an evaluation of Cisco's business on its own merits in the market, but also in

the context of market dynamic shifts that might occur in the future. To formulate this SWOT, weused quantitative data, including Gartner Forecast and Market Share reports, and qualitative data,

including briefings from enterprise network providers, discussions with Cisco and reports from

customers.

The Gartner vendor SWOT analysis is designed for the use of providers, as well as individuals, in

strategic planning, marketing and competitive analysis roles as a supplement to their planning

processes. Its primary value is as an independent analysis of the provider's competitive situation.

The SWOT analysis provides a unique independent view of the strengths, weaknesses,

opportunities and threats for a specific part of a provider's business in a specific market and

geography.

Gartner Recommended ReadingSome documents may not be available as part of your current Gartner subscription.

"Vendor Rating: Cisco"

"Magic Quadrant for the Wired and Wireless LAN Access Infrastructure"

"Forecast Analysis: Enterprise WLAN Equipment, Worldwide, 3Q13 Update"

"Forecast: Enterprise Network Equipment by Market Segment, Worldwide, 2010-2017, 3Q13

Update"

"Market Share: Enterprise Network Equipment by Market Segment, Worldwide, 2Q13"

"Forecast: Small Cells Infrastructure, Worldwide, 2011-2017"

"Market Share: Enterprise Ethernet Switches, Worldwide, 2012"

"Market Share Analysis: Enterprise WLAN Equipment, Worldwide, 4Q12 and 2012"

"Market Share: Enterprise WLAN Equipment, Worldwide, 4Q12 and 2012"

"Service Provider Wi-Fi Will Drive Changes in Enterprise Wireless LANs"




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