Computer Networking Equipment Manufacturing

Industry Overview

The computer networking equipment industry includes about 1,000 companies with combined annual revenue of $60 billion. Major US companies include Cisco Systems, Juniper Networks, Extreme Networks, and Foundry Networks. Large foreign competitors in the US market include Nortel, Fujitsu, NEC, Alcatel-Lucent, and Siemens. The industry is concentrated: the 10 largest companies hold 50 percent of the market.

Competitive Landscape

Demand is driven by economic growth as enterprises and service providers expand networks to meet increasing user needs, and by the superior performance of new equipment, which encourages replacement of existing equipment. Profitability of individual companies depends on timely development and delivery of products in high volumes for large customers. Small companies can successfully compete by designing and developing products that meet highly specialized needs. The industry is capital-intensive: average annual revenue per employee is about $500,000.

The US telecommunication industry is in transition: the current telephone backbone network is being converted from circuit-switched to multimedia networks combining voice, data, and video over high-speed links. This transition will require replacing a substantial portion of equipment, presenting an opportunity for all equipment vendors.

Products, Operations & Technology

Major products of networking equipment manufacturers are switches, routers, and network control equipment interconnected using fiber optic and high-speed wiring. Major services of equipment suppliers include system and network design, software development, installation, monitoring, and maintenance. Other hardware and software products include intrusion prevention devices, remote termination equipment, firewalls, and network appliances.

Most major computer networking equipment companies have outsourced volume production of standard products to contract manufacturers. Equipment companies specialize in system design and software development; they maintain limited production facilities to produce the initial versions of new products for in-house testing and development. Initial versions are built using standard components to verify design. During final development, some product functions may be converted to application specific integrated circuits (ASICs) to improve performance. Design and quality-control teams from the networking equipment company, located at the contract manufacturer's facilities, resolve manufacturing issues, ensure integration of design changes, and oversee testing and acceptance prior to shipment.

Since components, such as ASICs and circuit boards, may be manufactured in one location and shipped to the final assembly plant, manufacturing locations are chosen to minimize transportation and labor costs. Volume manufacture is highly automated, but requires skilled labor for final assembly, testing, and quality assurance. To minimize equipment failures at initial installation and operation, large complex equipment is operated at higher temperatures during final test to eliminate marginal components.

Computer networking equipment companies use CAD systems extensively, and most use enterprise resource planning (ERP) systems. Companies also have high-speed, high-capacity communication systems to connect design, manufacturing, sales, and administrative facilities. These systems allow designers to communicate changes directly to the manufacturer's computer automated manufacturing systems (CAM). Many companies also have logistics and supply chain management systems.

There's more: Quick insight to make your sales call count.