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As we enter the New Year, we pause to reflect on 2022 and look to 2023. In the last year, for the Mobile Core Network (MCN) and Multi-access Edge Computing (MEC) market, we focused on the momentum for 5G Standalone network deployments by MNOs, 5G Mobile Private Networks, and 5G Workloads moving to the Public Cloud. As we started the year, the hopes were high for all three of these segments, with much press coverage at the Mobile World Congress (MWC) in Barcelona. As the year unfolded, all three disappointed, not living up to the expectations.

5G Standalone (5G SA) Deployments

By the end of 2022, we had identified 39 MNOs that had deployed 5G SA eMMB networks. The list below does not cover MNOs that may be offering 5G SA private networks or 5G FWA networks only, which there are some. Unexpectedly, only 16 MNOs were added to the list in 2022, compared to 15 in 2021. There were hopes early in the year that many more would be launched in 2022, but the hopes were lowered as the year progressed. We even wondered if 2022 would equal 2021 as the year drew to a close.

Commercially Deployed 5G SA eMMB Networks by MNO

 

Reliance Jio, China Telecom-Macau, and Globe Telecom came to the rescue in the fourth quarter to push 2022 over 2021 for the number of 5G SA eMMB networks launched. This was a disappointment in contrast with over 200 5G Non-standalone (5G NSA) networks and over 700 LTE networks that could be implementing 5G SA networks.

 

5G Mobile Private Networks (MPN)

At the beginning of the year, it wasn’t easy to keep up with the plethora of press releases of vendors entering the private network space. We focused on Shared and Dedicated MPNs by MNOs in 2022.

Mobile Private Network (MPN) Deployment Options

The surprise for the year was China’s success with MPNs, compared to the worldwide market, excluding China. Chinese MNOs had deployed over 5,000 MPNs—employing Private and Public MEC and Network Slicing—as of June 2022, since beginning in June 2020. The Chinese MNOs reported they have over 20,000 MPNs in their respective pipelines to implement. We identified two “killer applications” in the Chinese market. Cloud gaming for Shared MPNs and Computer Vision for Public, Dedicated, and Standalone MPNs. We estimate that the Chinese MNOs account for over 90% of the MPNs in the world. So the other surprise is that the worldwide market, excluding China, is far behind in MPNs. We believe MPNs are a vital opportunity for MNOs to monetize their 5G SA investments and increase their ongoing revenues.

 

5G Workloads Moving to the Public Cloud

DISH Wireless made a big splash in 2022, building its 5G SA network with its 5G Workloads integrated into the Public Cloud of a Hyperscale Cloud Provider (HCP) as promised. A lot of press had been given to this concept at MWC – Barcelona, but interest has since waned.

HCPs Integrating 5G Workloads into the Public Cloud

HCPs are now focused on attracting their Information Technology (IT) customers to use HCPs’ services and applications for their 5G Operational Technology (OT) services and applications. A better solution might be for MNOs to integrate HCPs services and applications into the MNOs. Many MNOs have implemented this strategy, gaining more traction in the marketplace.

MNOs integrating HCPs and other 3rd Party Services and Applications Into the 5G Telco Cloud

As 2022 numbers close, it looks like 2022 will be marginally better than 2021 concerning manufacturers’ revenues for 4G Core, 5G Core, and IMS Core. We expect higher revenues in 2023 over 2022 as we anticipate more growth in 5G Core revenues as more coverage is added to existing 5G SA networks by MNOs and as new MNOs launch their 5G SA networks.

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400 Gbps Upgrades Will Propel SP Router Market in 2023

The Service Provider (SP) Router market, like other infrastructure segments, finds itself being pushed and pulled by technology shifts and the swirling winds of the global macroeconomic environment. Here is what we learned in 2022 and what we expect to see in 2023.

Market review and outlook

After returning to growth in 2021, the SP Router Market continued its strong performance in 2022, despite a challenging macroeconomic environment. 2022 SP Router revenue grew 3%, as we had projected. For 2023, we expect growth to continue, although at a lower rate of 2% Y/Y. We anticipate macroeconomic conditions to worsen in 2023, so we believe the global demand for SP routers will be tempered as companies reset budgets, reduce operating expenses, and shift spending to protect their bottom lines.

Router demand driven by 400 Gbps technology

In 2022, we observed a significant shift towards 400 Gpbs-capable routers, driven by a global upgrade of IP backbones. 400 Gbps router port shipments grew by triple digits Y/Y, and we expect that momentum to continue in 2023.

IP backbone/Internet backbone network upgrades are driving the highest demand for 400 Gbps routers. The Internet backbone includes both Cloud and Telco SP networks and transports traffic from mobile and broadband service networks and cloud infrastructure. We expect that most 400 Gbps router ports will be deployed in IP backbone networks over the next five years.

Growth in 2022 was driven by SPs upgrading networks to gain the advantages of 400 Gbps technologies and expand their networks to accommodate growing traffic. Demand for network capacity was spurred by 5G RAN (Radio Access Networks), IoT, increasing numbers of broadband subscriptions, and Cloud-based video, music streaming, and gaming platforms.

5G RAN deployments are leading to a rapid expansion of mobile networks, with a two-fold effect. First, mobile SPs need to expand their mobile transport networks and are deploying 400 Gbps routers to do so. Second, 5G technology enables higher mobile internet connection speeds, which encourage mobile network customers to consume data-heavy media content and thus drive up traffic volumes on SP networks.

The Core Router segment saw growth decline slightly in 2022. We believe SPs postponed Core router purchases as they awaited the market launch of the newest ASICs. We expect segment growth to improve in 2023 when some of the top-five Core Router vendors launch their newest ASICs.

In 2022, the Edge Router and Aggregation Switch segment grew strongly, driven by the increasing adoption of Edge Router and line cards based on the newest ASICs, which support 400 Gbps connections. Telecom SP’s continued investments in 5G RAN, expansions of mobile transport capacity, and increasing residential broadband deployments contributed to growth in the combined Edge and Aggregation Switch segment. For 2023, we project segment growth to moderate, as we expect a slowdown in Mobile Backhaul and RAN built-outs in China.

IP mobile backhaul upgrades slowing down in China

The IP mobile backhaul market grew outside of China in 2022, as we had projected. Our preliminary 2022 estimates of IP mobile backhaul revenue for markets excluding China are for single-digit growth in North America and EMEA and double-digit growth in APAC excluding China. The China market declined slightly in 2022 but still accounted for about one-third of the global market.

The 2022 decline in mobile backhaul expansion in China resulted from a slowdown of 5G RAN buildouts as the two largest Chinese SPs near completion of their mobile backbone and IP transport networks.

For 2023, we project the decline in the IP mobile backhaul market in China to worsen, while investments move to SP Core and Metro networks. Outside of China, we expect the mobile backhaul market to grow at a lower rate than in 2022.

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Happy New Year! This always marks an opportune time to look back and reflect on the previous year and make predictions for the upcoming one. Possibly the only thing certain about 2023 is it’s to be filled with uncertainty. After two years of Covid-related lockdowns, the world appears to be fully open with China lifting Covid restrictions in early 2023. Supply chain constraints, although still present, are easing. At the same time, the global economic outlook remains uncertain as central banks around the world raise interest rates in an attempt to reduce inflation. But before we dive into our 2023 outlook, let’s review our 2022 predictions.

Last year, we made three predictions for 2022:

  • Plans to Reach Long-Term Data Center Sustainability Goals Begin to Materialize

This absolutely occurred, as sustainability became the number one topic for the data center industry in 2022. Energy efficiency, heat reuse, and water consumption were publically discussed topics, with regulators and industry stakeholders all getting heavily involved. At Dell’Oro Group, we published a whitepaper on Achieving Sustainable Data Center Growth and identified sustainability as one of the leading drivers of growth in our July 2022 5-year data center physical infrastructure forecast. The topic of data center sustainability won’t be going away anytime soon.

  • Liquid Cooling Adoption Momentum Continues as POC Deployments Proliferate and Early Adopters Begin Larger Roll Outs

Momentum for liquid cooling did not continue, it accelerated, with revenue growing an estimated 54% to $259 million in 2022. Most importantly, the ecosystem of IT equipment manufacturers, system integrators, and data center end users are understanding the high-level value proposition and need to plan for liquid cooling solutions in the near term. This means a growing ecosystem of products and solutions to be born in liquid are quickly coming down the pipeline.

  • Supply Chain Resiliency and Integrated Solutions Drive Mergers, Acquisitions, and Partnerships

This prediction didn’t turn out as expected in 2022. Supply chain constraints and inflation outpaced nearly everyone’s expectations. This has led to rising interest rates and economic uncertainty, with DCPI vendors focusing on internal operations and execution. Legrand’s acquisition of USystems to add thermal management infrastructure to their portfolio came the closest to the M&A activity we expected to see more of. Where we did see significant activity in the M&A space was from private equity (PE) acquiring ownership in data center colocation providers to help finance their capital-intensive data center expansion plans.

Now, looking ahead to 2023, Dell’Oro Group is predicting the following for data center physical infrastructure in 2023:

Prediction 1: There will be no data center physical infrastructure recession in 2023

As a result of increasing inflation throughout 2022, central banks around the world have been raising interest rates, leading to macroeconomic uncertainty in 2023. This resulted in tech-related layoffs in 2H22 which have continued into early 2023. However, these have primarily correlated to the consumer-linked segments of these tech companies so far. There have been a handful of data center construction jobs canceled or rescoped, but we believe record low data center vacancy rates and historically high DCPI vendor backlogs will ultimately drive market growth in 2023. Currently, our preliminary forecast for 2023 is an estimated 9% Y/Y DCPI revenue growth.

Prediction 2: Power availability will force a rethink of data center energy storage and on-site power generation architectures

Data center sustainability has largely been focused on the topics of energy efficiency, reducing water usage, and enabling heat reuse so far. The topic of power availability has been discussed to a certain extent, but we predict it will become increasingly discussed in 2023 as power constraints in key markets inhibit new data center construction. We predict this will materialize in altering data center power architectures in three ways.

The first way this will materialize is in long-term energy storage deployments, namely lithium-ion batteries in the duration of 2 – 4 hour runtimes. Historically, backup energy storage for data centers has been in the runtime of 5 – 10 minutes. However, with increasing renewable energy deployments and grid-interactive UPS capabilities, the benefits of long-term energy storage are becoming clear.

Second, the conversation on hydrogen fuel cells will continue to evolve. The “EcoEdge PrimePower” (E2P2) project, led by a consortium of seven organizations including Equinix and Vertiv with funding from the Clean Hydrogen Partnership, is due for a major milestone, and test, in 2023. Vertiv is expected to release a proof-of-concept fuel cell solution, combining a 100 kW fuel cell module, a UPS, and lithium-ion batteries.  The potential success, or lack thereof for this project, will have a major impact on the timeline and potential use of hydrogen fuel cells in the data center industry.

Lastly, a new entrant into the power availability conversation for data centers, SMRs, or small modular nuclear reactors, with power generation capabilities from 50 – 300 MWs will garner increasing mind share. SMRs can theoretically generate an appropriate amount of reliable electricity for data centers, in a relatively small footprint with zero scope 2 carbon emissions. This makes their development intriguing for the data centers industry, where they could potentially evolve into the holy grail of sustainability-minded on-site power generation. We won’t see any deployments until the end of this decade at the earliest, but the data center industry will start laying the groundwork for what that will look like.

Prediction 3: A major hyperscale will make the plunge with a 10+ MW immersion cooling deployment

Our 3rd and final prediction for data center physical infrastructure is related to liquid cooling. We’ve seen significant momentum for direct liquid (coldplate) and immersion cooling technologies in 2022. The one thing missing for immersion cooling and what we are predicting we’ll see in the second half of 2023, is our first public, large-scale immersion cooling deployment from a top hyperscale cloud service provider. This will serve as a breakthrough moment for immersion cooling and help set the stage for mainstream adoption in the years to come. This doesn’t mean that momentum in direct liquid cooling will slow, or that air cooling is going away anytime soon, but the transition to liquid cooling will certainly get underway.

Watch This Video:

What’s next for Data Center Physical Infrastructure market in 2023?

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In the new year, the time is ripe to reflect on our 2022 predictions and look to a fresh batch of 2023 predictions. A year ago, we made the following predictions for 2022:

  1. Only a minority of enterprises will fully deploy SASE in 2022, but all will force SASE of their vendors
  2. The physical Firewall market rebound will modulate, while cloud-centric security will continue to grow faster
  3. Firewall-as-a-Service will begin to cannibalize carrier-class Firewall physical appliances

On our first prediction, we believe we were right. SASE, an architectural IT direction to transform and unify WAN-centric networking and security for branches and remote users, continued to gain interest and traction. However, how the enterprises deployed SASE networking versus security technologies remained extremely disaggregated and on different timelines due to the difficulty of changing too many parts simultaneously. The implications for the technology vendors were that irrespective of whether disaggregated or unified–or even whether single-vendor or multi-vendor SASE–they had to demonstrate to customers that they could help them on their SASE journey today and into the future. In other words, vendors were forced to show SASE capability even if customers didn’t yet take advantage.

Our second prediction was a split decision. We were right that cloud-centric security–the SaaS- and virtual-based variants of network security solutions–would grow faster than traditional network security solutions. While there will always be a role for hardware, the ongoing shift to the cloud limits the role that hardware can play in the enterprise, particularly in the data center. However, as corporate networks–or even cloud service provider networks–footprint expands in size, hardware firewalls play a role. We are wrong about how much appetite the market still had in 2022 after robust 2021. 4Q22 numbers haven’t come in, but if current trends hold, the full-year 2022 revenue growth of the hardware firewall market will match the 2021 rates.

Our third and last prediction was the boldest, and we were wrong. We still believe that cloud-based firewalling can and will eventually put pressure on the highest tiers of firewalls (carrier class), but 2022 was a different year. However, at the branch or even small data center level, we did some start on displacing lower-end firewalls.

Gazing in our crystal ball, we have the following three predictions for 2023:

1 – Security spending to remain stable in looming economic storms

Most economists predict that in 2023 the worldwide GDP growth rate will be weaker at 2.1% compared to the actual 6.0% and expected 3.0% growth in 2021 and 2022, respectively.  Put in perspective, 2.1% growth would be the third weakest rate of growth in the last 20 years and only overshadowed by the Great Recession in 2009 and the Covid-19 drop in 2020.

While it would be folly to say security spend will break records in 2023, we expect it to remain stable against increasing economic storminess. Of late, security has and is expected to continue a board-level discussion and hence be a top investment priority. Attacks aren’t stopping even if the economy does. No CEO wants their mugshot on the nightly news because of a security breach.

2 – SASE to keep growing, but a split decision between networking and security components

SASE is the amalgamation of networking (SD-WAN) and security (security service edge [SSE]) technologies. Most enterprises have and will continue to purchase separate SD-WAN and SSE solutions to (eventually) integrate them to achieve the disaggregated form of SASE. We expect enterprises to continue to prioritize the security side of SASE but slow down the networking side as the economic pressure increases. As a result, we foresee the SSE-side of SASE to post another year of solid growth in 2023, but we anticipate that SD-WAN will see a marked deceleration in its growth.

3 – Increased cloud breaches to cause spending on cloud workload security to be over $6 B in 2023, which is over 4x higher than in 2020

This past Fall, we issued our first Advanced Research Report on the cloud workload security market, which goes by various names, including CNAPP, CWPP, and CSPM. We delved into this space because network security vendors have entered cloud workload security as a natural adjacency. We found a market in hypergrowth as enterprises that have or embrace the cloud find many new, thorny security problems. As a result, we expect that enterprises will have to spend the money and lead the cloud workload security market past the $6 B mark, which is 4x higher than in 2020.

A year from now, we’ll reevaluate and see what came true. Until then, all the best in the new year.

Watch This Video:

What’s next for SD-WAN, SASE, and network security in 2023?

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There’s nothing like starting the New Year armed with the latest information and insights; so I thought I would share some of Dell’Oro Group’s key predictions for the Wireless LAN market in 2023.

Supply chain acrobatics was the name of the game for Wireless LAN in 2022.  Manufacturers demonstrated some impressive flexibility by redesigning products, expediting components, and paying for air freight in a bid to fulfill their accumulating orders. Just as the lockdowns were underlining the importance of Wi-Fi to the hybrid work model, WLAN equipment became a scarce commodity.

In 2023, the WLAN market will be all about growth. It’s not that the supply constraints have gone away, but they are lessening, and the solutions put in place by the manufacturers are bearing fruit. Meanwhile, enterprises are still clamoring for connectivity.

In this context of accelerating supply meeting backlogged demand, here are a few predictions for the year to come.

1) The Enterprise Class WLAN market will surpass $10B in 2023

Last year, we projected that the WLAN market would break the $10B mark in 2025. However, the last couple of quarters of 2022 showed us how high prices can combine with rising unit volumes to bring record-level revenues. We’ve brought our $10B prediction forward an astonishing two years.

After one of the most prolonged periods of year-over-year price increases, it may seem bold to predict that they will keep rising into 2023. However, there are a couple of unfolding trends backing up this prognosis.

First, prices over the past few quarters have been driven up by the adoption of Wi-Fi 6 (802.11ax) – and there is still room for Wi-Fi 6 to grow. Its adoption curve has been altered by the supply constraints but we are still expecting several more months of gain in share of shipments.

The second trend buoying prices is the rise of manufacturers’ costs, which has been passed on in the form of WLAN price increases. With a backlog worth two quarters of revenues for most manufacturers outside China, it takes at least six months for the higher-priced WLAN orders to flow through to delivery. This means a boost to manufacturers’ revenues in the first half of 2023. Eventually, the basic laws of economics will prevail and price erosion will kick in.  We are predicting that prices will peak and start to come down in the second half of the year.

 

2) Unit shipments will defy the usual seasonality

History tells us that the Enterprise Class Wireless LAN market is back-end loaded. That is, the majority of units are shipped in the second half of the year.  But 2023 will be a year like no other. The industry’s unprecedented backlogs are coinciding with a period of slowing economic growth.

In 2023, we predict that the market won’t follow its usual seasonality, and half of the year’s units will be shipped in the first two quarters of the year – six points above the five-year average.

 

3) The WLAN industry will gain clarity around Campus Network As A Service offers, and the NaaS business model will be put to the test

The term “Network As A Service” was bandied around quite a bit in the context of Campus IT services in 2022, although the industry lacks a common definition for the term.

On one hand, we saw new companies, like Meter, Nile, and Shasta promising to change the way enterprises consume Wireless LAN, building their brand on both technological and pricing innovation. The latter involves moving Wireless LAN from an upfront purchase to a recurring monthly expense, often based on a simplified metric, such as office area or number of employees – a metric that is more intuitive than the number of access points or switches.

On the other hand, we heard incumbent HPE Aruba announce some mega-NaaS deals, with large retailers and educational institutions. These companies bought the As A Service offer in part because it included “Day-2 Operations”; that is, professional services such as network design, monitoring, and troubleshooting. This definition of NaaS is similar to Managed Wi-Fi offerings already being delivered by service providers and systems integrators.

As we peel the onion of the different Campus NaaS offers, we find important dimensions such as consumption-based pricing; a mix of self-managed, co-managed, or fully-managed equipment; value-added network services, service-level guarantees; evergreen technology offers;  and AI-enhanced operations.

Which market segments will be attracted to which definition of Campus NaaS? How will the service impact manufacturers’ revenues?  We will start to get some answers in 2023, and Dell’Oro Group will be front and center in defining and sizing the opportunity.

 

Watch This Video:

What’s next for Enterprise Class Wireless LAN market spending in 2023? 

About the Author

Siân Morgan joined Dell’Oro Group in 2022 and is responsible for the Wireless LAN, and Campus NaaS and Public-Cloud Managed LAN market research program She's known for delivering comprehensive quantitative insights into the Enterprise Wireless LAN market and cloud platform adoption, including AI. With over 25 years of senior management experience in telecom and network technologies, such as 5G, OpenStack, LTE, IMS, and Wi-Fi, Ms. Morgan has held various roles in pre-sales, R&D, and post-sales support. Fluent in both French and English from a decade in Europe, her research is widely cited in industry publications. Ms. Morgan is also a frequent industry conference speaker.

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