Networking is Where the Money Is

The best way to predict the future direction of IT technology is to follow the money. And these days, the money is in networking.

Networking, after all, is how you get data from one place to another. Now that virtualization and the cloud have made both compute and storage resources available on a limitless scale, productivity is now largely a function of how quickly and efficiently users can access and share their data across highly distributed environments. And that means both inside and outside the traditional data center, throughput and bandwidth are the new masters.

The proof is in the numbers. According to IDC, Ethernet switch and router sales are on the rise. Layer 2/3 switching revenue topped $5.5 billion worldwide in the second quarter, a healthy 8.5 percent gain over the same period last year. Sales were up in all major world segments − even in struggling Europe, which reported a 5.2 percent increase. The router market saw a more modest 0.6 percent gain for the quarter, which is most likely a consequence of the drive to flatten out enterprise networking infrastructure.

At the same time, a quick scan of the most recent platform vendors’ quarterly results shows a stark contrast between networking and other components  of data center infrastructure. HP, for example, saw declines across the board in PCs, servers, storage and various business critical systems, all contributing to an $8.9 billion loss. However, networking saw a 6 percent increase. If not for the company’s software business, life for Meg Whitman would be even more unpleasant over what is expected to be a long and tortuous turnaround.

But HP is not alone. Dell is prepping markets for eerily similar results in the current quarter. Declining PC sales are expected to contribute mightily to perhaps a 5 percent overall decline, about $14 billion by some analysts’ reckoning. Sales of enterprise storage are expected to remain in positive territory, although that represents a significant drop from the double-digit results of previous quarters. The company lists servers and networking as one item, but it’s a fair bet that the 14 percent growth in the category was led by networking products like the PowerConnect and Force 10 lines. It’s also interesting to note that the company recently hired none other than Marius Haas as president of its Enterprise Solutions group. Haas previous served as GM of HP’s Networking Division.

Meanwhile, over at networking specialist Cisco, things couldn’t be much better. The company reported a 56 percent jump in fourth quarter earnings, which was partly due to lower operating and restructuring costs but also to a 2.6 percent increase in system sales. The company specializes in both data center and Internet networking equipment, which puts it in a pretty good position to capitalize on distributed network environments and cloud computing.

Technology markets being what they are, things could turn around for all of these players very quickly. But the fact remains that the real action in enterprise circles is on the network and will likely remain so for the next decade, at least, as organizations look to serve the twin masters of increasing data capacity and lowering costs.

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