It's like some sort of riddle. How is it that the LAN switch market is shrinking, yet demand for products is higher than ever?

Falling prices are the cause for this paradox in the Ethernet switch market. A recent report from In-Stat/MDR shows that revenues from 2002 sales of Ethernet switches dipped from US$14.9 billion in 2001 to $12.4 billion in 2002. However, port shipments jumped 12 percent over the same time, going from 137 million ports shipped in 2001 to 154 million in 2002.

Layer 3 switches are one of the hottest product types. The report says Layer 3 was the fastest growing segment of the LAN switch marketing, jumping 13.8 percent in port shipments.

Overall prices for LAN ports went from $109 per port in 2001 to $86 in 2002. Meanwhile, the average Gigabit Ethernet port dropped from $802 to $584 over that time. Despite falling prices, however, Gigabit made up only 5 percent of Ethernet switch port shipments last year.