Alcatel-Lucent’s edge cred grows

Alcatel-Lucent (NYSE: ALU) continues to drive hard at the edge networking equipment market, having become an estimable rival to Cisco Systems (NASDAQ: CSCO) and Juniper Networks (NASDAQ: JNPR) over the past five years.

The latest sign of the vendor’s growing power in this market is a deal to supply Verizon Communications with edge switches to support Ethernet services, unannounced but reported in a note today by Morgan Keegan analyst Simon Leopold [See Update below]. The fact that the deal -- which could initially be worth $150 million, he said -- appears to be focused on business services is significant, if chiefly in a symbolic way, as Alcatel-Lucent has long leveraged its position in the broadband access space to penetrate the edge equipment market supporting residential services, while Juniper has long had advantages in the business services space, supporting AT&T’s Ethernet offerings, for example. So Alcatel-Lucent’s reported deal with Verizon essentially represents a win on Juniper’s home turf.

And Alcatel-Lucent is gunning ever harder for 2010, unveiling last week 100-gigabit-per-second Ethernet interfaces for its edge gear to be generally available next summer. That gear is denser than Cisco’s and Juniper’s current products, Leopold said -- 10 100GE ports or 100 10GE ports in a third of a rack versus 48 10GE ports in a half rack for Juniper’s MX 960 and 32 10GE ports in a half rack with Cisco’s ASR 9000 – but Juniper is expected to add 100G soon, as it has already done with its core routers. Alcatel-Lucent is putting its product development cycle well ahead of industry standards here, planning to make the new gear generally available around the same time the IEEE is expected to finalize 100-GigE standards.

Shin Umeda, analyst for market research firm Dell'Oro Group, told the Wall Street Journal this week, “You're likely to see Alcatel wedge themselves into certain parts of the core and then slowly chip away.”
Over the past four quarters combined, Alcatel-Lucent has surpassed Juniper in the edge market, according to Ovum-RHK, winning 18% of the market, while Juniper won 16%. (In the first quarter, Alcatel-Lucent’s share reached 20%, Ovum said.)

Citing Ovum numbers, Alcatel-Lucent claims it has grown its share of the IP/MPLS edge market by 19 points over the past five years while Juniper has lost 5 points and Cisco has lost 24. Still, Cisco continues to dominate the edge market, holding 42% of it over the last year. Alcatel-Lucent still has plenty of room to grow.

UPDATE 7/24/09: Simon Leopold issued another note today referencing the aforementioned rumor of a Verizon contract win. Citing more recent conversations with sources in response to his earlier note, he wrote, "The final decision has not been made, and it's not likely worth as much as $150 million."