Mid-Year Voice System Market Update: Cisco Still #1Mid-Year Voice System Market Update: Cisco Still #1

The mid-year results are in and Cisco Systems has proven that its meteoric rise, reaching first place among North American PBX market share leaders last year, was not a fluke. Less than a decade after buying Selsius Systems to enter the enterprise voice communications market, Cisco is proving to be more than a formidable competitor, as it is widening its line station shipment lead over Avaya, the perennial market leader reduced to runner-up status.

Cisco’s first half PBX line station shipments exceeded the Avaya total by more than 50%, 1.574 million compared to 0.978 million (see Figure 1). Last year’s first half data had Cisco holding a 15% lead over Avaya. Although Avaya had a strong first half, Cisco’s has proven to be much stronger. Cisco’s most recently released financial reporting data indicated that its Unified Communications revenues increased 51% on a year-to-year basis, an unprecedented result for a system supplier with a substantial revenue base.

This is especially impressive considering that the North American PBX market declined about 5% from the year earlier: estimated first half 2008 PBX line shipments were about 5 million compared to 5.25 million last year. Gloomy economic conditions have affected many customer purchasing plans, especially in the financial services and housing sectors. The rise in energy costs, the sub-prime mortgage market disaster and higher unemployment rate have placed a damper on enterprise communications market growth.

Coming in a distant third, and continuing its slide down the shipment ladder, is Nortel (an estimated 0.577 million), very closely followed by Mitel Networks (0.550 million).

The Cisco and Avaya data are based on detailed line station shipment reports provided to industry analysts. Nortel data is estimated based on system shipments, because the system supplier has not provided line station numbers for several years. Mitel data is based on line station reports including all customer premises equipment (CPE), including a small percent attributed to key/hybrid systems from the Inter-Tel acquisition.

Among other vendors, first half results for Siemens Enterprise Networks and NEC Unified approximated last year’s totals. Siemens’ line station shipments were estimated at 0.250 million and NEC’s at 0.235 million. Siemens’ numbers should begin to rise following the announcement that Gores Group has acquired majority ownership, and as its evolutionary OpenScape Unified Communications Server platform takes hold in the market.

NEC should also see better days, because it finally released its new Univerge platform: the small/medium line size 8100 and 8300 models, and the large system 8500 model. The latter offers a migration path for the large installed base of NEAX2400 customers, supporting installed common equipment carriers, port circuit cards, and digital telephone instruments.

ShoreTel , an industry upstart, had a good first half with line station shipments estimated at 0.135 million. Rounding out the top 10 are Aastra, estimated at 0.1 million, 3Com estimated at 0.075 million, and Alcatel-Lucent at slightly less than 0.05 million. Aastra received a significant boost over last year due to its acquisition of Ericsson’s enterprise networks group. 3Com’s results are based on a preponderance of small system shipments. Alcatel-Lucent’s North American shipments continue to be disappointing, considering its position as a global market leader.A few words regarding the above market results are in order to place the competitors’ shipment results and rankings in perspective. Although it appears that Cisco and Avaya during the past few years have significantly increased the distance between themselves and Nortel, it must be stated that line station shipments for the two former system suppliers include data for small system models that some industry analysts, including myself, would not have classified as PBX systems a few years ago. Cisco’s Unified Communications Manager Express (UCME) and Avaya’s IP Office models are mostly purchased and installed as key/hybrid system replacements. UCME and IP Office have more moderate feature/function sets than the larger flagship IP telephony system platforms of each supplier. Nortel’s reporting data breaks out system shipments for its Business Communications Manager (BCM) platform separate from its traditional Meridian 1 and current generation CS 1000E platforms. BCM is classified as a key/hybrid system, yet it directly competes against the aforementioned Cisco and Avaya small system offerings.

If estimated Cisco UCME and Avaya IP Office line station shipments are factored out of the PBX market share equation, or if Nortel’s BCM shipments are factored in, the rankings would not change, but the gap between the three would greatly diminish. Although Nortel has been losing ground in the large enterprise system market segment, it has retained its market share lead for small systems based on continuing very strong shipments of its traditional Norstar and newer generation BCM models (both typically classified as key/hybrids).

Looking at the total CPE market by combining key/hybrid and PBX totals shows that Cisco and Avaya still retain the number one and two positions (with Avaya gaining on Cisco due to shipments of its Partner hybrid system) with Nortel in a much stronger third place position (see Figure 2).

First half results indicate that the three system suppliers will be battling it out for global market share leadership, although the trend line appears to favor Cisco. If Cisco’s established growth rate continues or even slacks off a little, the dominant data networking player is likely to sit atop the voice system leader board (based on line station shipments, only) by year’s end. Avaya will easily retain its global market leadership position based on product revenues (owing to its strength in high-priced contact centers), but should be concerned that Cisco is aiming to take this title as well in a few years.

The chart for Total North American CPE shipments shows Mitel is still in fourth place, but farther behind Nortel as compared to the PBX-only market. NEC’s strength in the key/hybrid market boosts the system supplier into fifth place, with Toshiba just barely edging out Siemens for sixth place based exclusively on shipments of its key/hybrid system models. Toshiba does not perceive itself as a PBX system competitor, although more than a few of the supplier’s system models compare favorably to many competitive enterprise-level offerings in terms of features and functions. Siemens hopes that its relatively new HiPath OpenOffice solution will reduce the supplier’s dependency on large, complex system sales to enterprise-level customers and help establish it as a viable small system competitor.

A more detailed look at the enterprise communications market, including critical, subjective competitor evaluations, will be presented during my upcoming conference session at VoiceCon San Francisco on November 11, 2008. The presentation will also address product trends such as the evolving federated communications server (FCS) class of product, and Microsoft’s emergence as a competitive threat to Cisco, Avaya and the other usual suspects. For more information and to register for the conference, head to www.voicecon.com/sanfrancisco.

Allan Sulkin, founder and president of TEQConsult Group, is also known as the Guru of PBXs. He is celebrating 30 years working in the telecommunications industry, has been a longtime contributor to Business Communications Review/nojitter.com, and helped found PBX in the 90s, the ancient ancestor of VoiceCon.