March 2022 - Dell'Oro Group

We’ve just wrapped up the 4Q21 reporting period for Dell’Oro Group’s enterprise network equipment programs, which include campus switches, enterprise data center switches, SD-WAN & enterprise routers, network security, and Wireless LAN. Enterprises include businesses of all sizes as well as government, education, and research entities. The equipment tracked in these programs can be used for wired or wireless data communication in private and secure networks.

Sales Hit Record Level in 2021

Despite a macro-economic environment that continues to be defined by supply constraints, our reports showed a strong rebound in the overall Enterprise Network Equipment market in 2021, following some stagnation in the prior year. Sales jumped 12% year-over-year (Y/Y), propelling the market to a record- level in 2021.

The strong performance was broad-based across all technology segments. Enterprise Routers, Wireless LAN, and Network Security were all up double-digits. In the meantime, Campus and Enterprise Data Center Switches were up mid-to-high single digits. All technology segments hit record-revenue level in 2021.

We have calculated that spending on enterprise network equipment rose by nearly $6.0 B in 2021. Security accounted for 40% of the increase in spending, while campus switches accounted for a quarter of the increase.

We attribute this broad-based recovery to the following:

Continuing improvement in macro-economic conditions.
Continuing government spending and stimulus around the world.
Network upgrades in preparation for workers returning to the office full or part-time.
Digital transformation initiatives, accelerated by the pandemic, are driving new network requirements and putting pressure on IT managers to upgrade their networks and add different security layers.
Orders pulled in from future quarters, to mitigate ongoing supply challenges that are adversely affecting product availability, lead times, and prices.

The 2021 robust performance in the Enterprise Network Equipment market was broad-based across all regions, except the Caribbean and Latin America, which was flattish (although showing a significant improvement from the high-single-digit decline registered last year).

Cisco Loses Some Ground — Still Leads the Enterprise Network Equipment Market

The analysis shared in our reports showed no major change in vendors’ ranking. Cisco remains the only vendor with more than 10% share in the market, although the firm lost three points of revenue share in 2021. This share loss was broad-based across all technology segments, except WLAN. In the meantime, HPE Aruba, Palo Alto Networks, Fortinet, H3C, and Arista, gained one point of revenue share, each.

Nevertheless, we would like to note that the vendor landscape continues to be defined by a challenging supply environment and that some of the share shifts witnessed in 2021 may not be necessarily reflective of competitive displacement, but rather the timing of order fulfillment.

Robust Market Outlook for 2022

Despite a challenging supply environment that is expected to persist through most of 2022, Dell’Oro analysts are projecting strong double-digit revenue growth in the Enterprise Network Equipment market in 2022. This optimism is underpinned by healthy outlooks provided by most vendors as a result of increased visibility and robust backlogs. Additionally, ongoing supply challenges will continue to encourage customers to place advance orders, which will have a positive effect on bookings first, then a few months later, on revenues, depending on lead times.

Dell’Oro Group Enterprise Network Equipment research programs consist of the following: Campus switches, Enterprise Data Center Switches, SD-WAN & Enterprise Routers, Network Security, and Wireless LAN.

OFC 2022 was held in San Diego, California with a large number of active participants at the show, filling the exhibit halls after two years of mostly virtual attendance. However, to accommodate those unable to attend in person, OFC held many virtual sessions. I was one of those remotely attending. Even though I attended OFC virtually, I think my experience, while different than attending in person, was really good. That is, I learned a lot. Here are four of the things I learned and found the most interesting at OFC 2022.

The top of my list was the announcement by EFFECT Photonics that the company was buying the coherent DSP and FEC technology from Viasat. This combination brings together the most valuable components in any coherent transponder: InP-based photonic integrated circuit that includes a high-performance tunable laser, modulator, amplifier, and receiver all on one chip along with the high-speed digital electronics. The only items that EFFECT Photonics will need to source are the TIA and Driver when producing coherent pluggable optics in the future. To put this in perspective, one of the key attributes for both Acacia’s and Inphi’s value was having all of these technologies in-house.

The second thing I learned during OFC was the volume of coherent DSPs shipped by Cisco (Acacia), but maybe more importantly, how fast the ramp of shipments is occurring for the company’s newest coherent DSP (Greylock) that are used for 400 Gbps pluggable optics. During OFC, Cisco announced that cumulative shipments of the company’s 600 Gbps-capable DSP (Pico) by port volume was 100k, which converts to 50k DSP chips since each DSP supports two ports. The Pico DSP is primarily used for metro and long haul spans that require the best-performing optics. Cisco, also, announced that the cumulative shipments of Greylock was at 50k with nearly half shipped in the most recent fiscal quarter and with most being sold in a 400ZR QSFP-DD; The remainder is used in 400 Gbps CFP2-DCO. This is a very fast ramp for Greylock, considering it was introduced over a year after Pico.

The third item of focus at OFC this year seemed to center around what comes after 400ZR. While there was talk about the progress of 400ZR and the possibility of 800ZR in a few years, I felt the discussions were more about 400ZR+. It seems 400ZR+ will continue to be a marketing term and not a standard. That is to say, companies were announcing better-performing 400ZR+ compared to competitors. And as you know, better performance, product differentiation usually translates to non-standard. However, one thing in common is that the vendors are producing 400ZR+ in a QSFP-DD plug. I had originally thought that 400ZR+ would generally be used in a CFP2 package due to thermal requirements, but many of these companies have solved that problem and can deliver better-performing 400 Gbps with just an extra watt or two of power. Of course, this makes me wonder (out loud), would operators be willing to forgo the standards-based 400ZR with a 120 km limit for a non-standard based 400ZR+ with span limits that could exceed 600 km if it is also a QSFP-DD and consumes only a couple watts more? I think we all know the direction Windstream chose with the partnership with II-VI (400 ZR+ in QSFP-DD to enable the use of a ROADM line system).

The last item I want to mention is the excellent tutorials and classes that OFC holds every year where people volunteer their time to share what they do and to present informational sessions. I wasn’t able to watch all of the sessions that OFC recorded and made available to virtual participants, but the ones I watched were all done well and the presenters did an excellent job. One, in particular, that stood out for me was a session by Alexander Nikolaidis of Meta (Facebook) called Building a Global Content Provider Network at Scale. He gave a really good overview and understanding of how the company thinks through building and scaling a large content delivery backbone. He walked the audience through the choices and trade-offs that are considered. Interestingly, many of these choices and trade-offs are similar to those made by the largest telecom operators. So, at the end of the day, the challenges and choices for scaling a large backbone network aren’t that different whether it’s a large Internet content provider or a tier-one communication service provider.

Huawei Loses Some Ground — Still Leads $100 B Telecom Equipment Market

We just wrapped up the 4Q21 reporting period for all the Telecommunications Infrastructure programs covered at Dell’Oro Group, including Broadband Access, Microwave & Optical Transport, Mobile Core Network (MCN), Radio Access Network (RAN), and SP Router & Switch. The data contained in these reports suggests that total year-over-year (Y/Y) revenue growth slowed in the fourth quarter to 2%, however, this was not enough to derail full-year trends.

Preliminary estimates suggest the overall telecom equipment market advanced 7% in 2021, recording a fourth consecutive year of growth, underpinned by surging wireless revenues and healthy demand for wireline-related equipment spurred on by double-digit growth both in RAN and Broadband Access. Total worldwide telecom equipment revenues approached $100 B, up more than 20% since 2017.

In addition to challenging comparisons, we attribute the weaker momentum in the fourth quarter to external factors including COVID-19 restrictions and supply chain disruptions.

The analysis contained in these reports suggests the collective global share of the leading suppliers remained relatively stable between 2020 and 2021, with the top seven vendors comprising around 80% of the total market.

Ongoing efforts by the US government to curb the use of Huawei’s equipment is impacting the company’s position outside of China. Even so, Huawei continued to lead the global market, underscoring its grip on the Chinese market, depth of its telecom portfolio, and resiliency with existing footprints.

Initial readings suggest the playing field is more even outside of China, with Ericsson and Nokia essentially tied at 20% and Huawei accounting for around 18% of the market.

The relative growth rates have been revised upward for 2022 to reflect new supply chain and capex data. Still, global telecom equipment growth is expected to moderate from 7% in 2021 to 4% in 2022.

Risks are broadly balanced. In addition to the direct and indirect impact of the war in Ukraine and the broader implications across Europe and the world, the industry is still contending with COVID-19 restrictions and supply chain disruptions. At the same time, wireless capex is expected to surge in the US this year.

Open RAN ended 2021 on a solid footing. Preliminary estimates suggest that total Open RAN revenues—including O-RAN and OpenRAN radios and baseband—more than doubled for the full year 2021, ending at a much higher level than had been expected going into the year. Adoption has been mixed, however. In this blog, we review three Open RAN-related topics: (1) a recap of 2021, (2) Mobile World Congress (MWC) takeaways, and (3) expectations for 2022.

2021 Recap

Looking back to the outlook we outlined a year ago, full-year Open RAN revenues accelerated at a faster pace than we originally expected. This gap in the output ramp is primarily the result of higher prices. LTE and 5G macro volumes were fairly consistent with expectations, but the revenue per Open RAN base stations was higher than we modeled going into 2021, especially with regard to brownfield networks. Asymmetric investment patterns between the radio and the baseband also contributed to the divergence, though this is expected to normalize as deployments increase. In addition, we underestimated the 5G price points with some of the configurations in both the Japanese and US markets.

Not surprisingly, the Asia-Pacific (APAC) region dominated the Open RAN market in 2021, supported by large-scale greenfield OpenRAN and brownfield O-RAN deployments in Japan.

From a technology perspective, LTE dominated the revenue mix initially but 5G NR is now powering the majority of investments, reflecting progress both in APAC and North America.

Mobile World Congress (MWC) Barcelona 2022

Open RAN revenues are coming in ahead of schedule, bolstering the narrative that operators want open interfaces. Meanwhile, the progress of the technology, especially with some of the non-traditional or non-top 5 RAN suppliers has perhaps not advanced at the same pace. This, taken together with the fact that the bulk of the share movements in the RAN market is confined to traditional suppliers, is resulting in some concerns about the technology gap between the traditional RAN and emerging suppliers. A preliminary assessment of Open RAN-related radio and baseband system, component, and partnership announcements at the MWC 2022 suggests this was a mixed bag, with some suppliers announcing major portfolio enhancements.

Among the announcements that most stood out is the one relating to Mavenir’s OpenBeam radio platform. After focusing initially on software and vRAN, Mavenir decided the best way to accelerate the O-RAN ecosystem is to expand its own scope to include a broad radio portfolio. The recently announced OpenBeam family includes multiple O-RAN 7.2 macro and micro radio products supporting mmWave, sub 6 GHz Massive MIMO, and sub 6 GHz Non-Massive MIMO.

NEC announced a major expansion of its O-RAN portfolio, adding 18 new O-RUs, covering both Massive MIMO and non-Massive MIMO (4T4R, 8T8R, 32T32R, 64T64R). NEC also recently announced its intention to acquire Blue Danube.

Another major announcement was Rakuten Symphony’s entry into the Massive MIMO radio market. Rakuten Symphony is working with Qualcomm, with the objective of having a commercial Massive MIMO product ready by the end of 2023.

Fujitsu also announced multiple enhancements to its macro and small cell Open RAN portfolio including new mid-band O-RAN compliant Massive MIMO radios with 2022 availability.

Recent Massive MIMO announcements should help to dispel the premise that the O-RAN architecture is not ideal for wide-band sub-6 GHz Massive MIMO deployments. We are still catching up on briefings, so it is possible that we missed some updates. But for now, we believe there are six non-top 5 RAN suppliers with commercial or upcoming O-RAN Sub-6 GHz Massive MIMO GA: Airspan, Fujitsu, Mavenir, NEC, Rakuten Symphony, and Saankhya Labs.

Putting things into the appropriate perspective, we estimate that there are more than 20 suppliers with commercial or pending O-RAN radio products, most prominently: Acceleran*, Airspan, Askey*, Baicells*, Benetel*, BLiNQ*, Blue Danube, Comba, CommScope*, Corning*, Ericsson, Fairwaves, Fujitsu, JMA*, KMW, Mavenir, MTI, NEC, Nokia, Parallel Wireless, Rakuten Symphony, Saankhya Labs, Samsung, STL, and Verana Networks* (with the asterisk at the end of a name indicating small cell only).

The asymmetric progress between basic and advanced radios can be partially attributed to the power, energy, and capex tradeoffs between typical GPP architectures and highly optimized baseband using dedicated silicon. As we discussed in a recent vRAN blog, both traditional and new macro baseband component suppliers—including Marvell, Intel, Qualcomm, and Xilinx—announced new solutions and partnerships at the MWC Barcelona 2022 event, promising to close the gap. Dell and Marvell’s new open RAN accelerator card offers performance parity with traditional RAN systems, while Qualcomm and HPE have announced a new accelerator card that will allegedly reduce operator TCO by 60%.

2022 Outlook

Encouraged by the current state of the market, we have revised our Open RAN outlook upward for 2022, to reflect the higher baseline. After more than doubling in 2021, the relative growth rates are expected to slow somewhat, as more challenging comparisons with some of the larger deployments weigh on the market. Even with the upward short-term adjustments, we are not making any changes at this time to the long-term forecast. Open RAN is still projected to approach 15% of total RAN by 2026.

In summary, although operators want greater openness in the RAN, there is still much work ahead to realize the broader Open RAN vision, including not just open interfaces but also improved supplier diversity. Recent Open RAN activities—taken together with the MWC announcements—will help to ameliorate some of these concerns about the technology readiness, though clearly not all. Nonetheless, MWC was a step in the right direction. The continued transition from PowerPoint to trials and live networks over the next year should yield a fuller picture.

Contact Us