Voice market expanding.

The U.S. enterprise equipment market strengthened in the 2004 and 2005 period, expanding 14%, compared with only 5% growth in previous years (2000-03), according to the Telecommunications Industry Association (TIA). Total revenue from spending on enterprise equipment reached $98.3 billion in 2005,

an increase of 6.9% over 2004, and is expected to climb to $104.5 billion in 2006. Computer-telephony integration (CTI) was the fastest-growing component of the enterprise market in 2005, with a 10.5% increase to $5.7 billion, followed by videoconferencing equipment, which rose 10%, reaching $825 million.

The enterprise equipment market tracked by TIA consists of private branch exchanges (PBXs), key telephone systems (KTSs), voice-processing equipment, internetworking equipment, videoconferencing equipment, and CTI systems and software.

Enterprise equipment revenue was hampered by the weak economic climate in 2001-03 and by Y2K concerns in the late 1990s, which caused companies to replace equipment more quickly than they might have otherwise. In 2000-03, equipment was relatively new, lessening the demand to replace or upgrade. By 2004, however, equipment purchased in 1998-1999 was beginning to age, leases were expiring, the economy had improved and enterprises were once again looking to upgrade their existing infrastructure.

Purchases picked up in 2004-05, concentrating on IP and convergent systems and internetworking equipment to support those systems. As legacy equipment ages, replacement demand, along with rapid growth in videoconferencing and unified communications, will continue to fuel spending. Total revenue from spending on enterprise equipment is expected to reach $121.7 billion by 2009, growing at a 5.5% compound annual growth rate (CAGR).

PBX revenue increased 20% percent in 2004-05 to $4.1 billion on the strength of accelerating IP/converged sales. The KTS market, which plunged 42% over the 2000-03 period, rebounded 7%. Voice-processing equipment also rebounded in 2004-05 following three years of decline, increasing 6.5% in 2005, totaling $5.3 billion. Internetworking equipment increased 6.7% in 2005 to $81.1 billion, its largest gain in five years; internetworking equipment will expand at a 5.7% CAGR from 2006-09, fueled by advances in Gigabit Ethernet.

IP/converged systems will continue to fuel PBX sales over the next few years. By 2009, however, as the installed base becomes predominantly IP, most equipment will be relatively new, and the replacement demand for PBXs will drop. TIA predicts revenue growth in this area will fall to 1.1% in 2009, following three years of mid-to-high single-digit gains.