January 2024 - Dell'Oro Group

What the Numbers Say

The announcement that HPE plans to acquire Juniper Networks for almost $14 B surprised the industry. HPE has declared it wants to be a networking company. In the enterprise market, this means one thing – challenging Cisco – and according to HPE CEO Antonio Neri, he does business like he plays soccer. If he can’t be first, he’ll start a fight.

An analysis of the total enterprise market, defined as a sum of the Infrastructure Security, Enterprise Routing, WLAN, Campus Switch, and Enterprise Data Center Switch sales, reveals that a simple combination of Juniper’s and HPE’s Enterprise market share will not make much headway in taking on the market behemoth.

In addition, it is legitimate to question whether the acquisition would result in a straightforward addition of HPE’s and Juniper’s enterprise revenues. Given the overlap in product portfolios, the results of a combined entity will more likely be a complex algebraic formulation of the separate pieces. Whether the result is accretive depends on the strategy that the company leaders will take in each of the enterprise market segments, considering the strength of the two companies’ portfolios and market presence.

Market Share Ranking – Additive Scenario

Breaking down the total market into its five distinct pieces demonstrates Cisco’s dominance. Huawei makes multiple appearances on the leaderboard, but in North America is virtually absent.

HPE is a significant player in the Wireless LAN (WLAN) and Campus Switch markets, whereas Juniper is not prominent in any of the five markets. However, just looking at the top three in each market does not reveal that Juniper outperforms HPE in revenue share of both the Network Security (Infrastructure Security) and Enterprise Data Center Switch markets. In these areas, Juniper can offer HPE an expanded customer base and a more diverse range of products. At the end of this blog, we highlight recently published blogs that delve into the effects of the merger within the realms of the WLAN, Data Center Switch and Network Security markets.

Considering Juniper’s Enterprise Routing and Campus Switch revenues in the first three quarters of 2023, the combination with HPE’s results would have propelled the joint company to a higher share rank in both markets. In Campus Switch, a segment in which both companies have a strong showing, the combined revenues would have narrowly edged out Huawei for second place.

In the other enterprise markets, the substantial revenue advantage held by the top vendors means that the merging of Juniper and HPE wouldn’t have affected the combined company’s overall revenue ranking over the first three quarters of 2023.

Product Overlaps – Worst Case

The most significant overlaps in enterprise portfolios between HPE and Juniper are in the WLAN, Campus Switch, and SD-WAN domains.

Where there is a clear overlap in product portfolio, gains may still be possible if the companies serve different market segments or geographies. HPE’s core strength is in the mid-market, whereas Juniper has made inroads with higher-end enterprises. Juniper’s Mist solution is managed from a vendor cloud, while HPE’s strength is with on-premises managed equipment.

However, both companies obtain significant revenue from the Higher Education and Retail verticals, increasing the risk of cannibalization. On a regional basis, Juniper is heavily weighted towards North America and would benefit enormously from expanding its reach to the rest of the world.

Our analysis of the two companies reveals that the maximum overlap in revenues in the first three quarters of 2023 was 24% of their combined revenues. The cost-cutting targets announced by Neri could compensate for the associated reduction in net income if this range of overlapping revenues were to evaporate once the acquisition occurs.

Opportunities for future growth

The data shows that, in the total enterprise market, this acquisition is less about HPE purchasing market share and more about investing in future technological capabilities. The main question is whether the combined company will be able to capitalize on respective portfolio strengths and market segment differences to go beyond what each company could achieve individually.

HPE stands to gain AI assets and strong branding by purchasing Mist. In domains where Juniper’s technology is considered superior, it will benefit from HPE’s scale in go-to-market organizations, especially outside North America. However, once the acquisition is complete, judicious choices must be made, portfolio by portfolio, to ensure that one plus one does not equal less than two.

Despite the minimal impact the acquisition will have on short-term market share, buying into AI-driven technology is a smart move for HPE. Juniper’s Mist brand for enterprises has been gaining steam and has been lauded publicly by CIOs evangelizing about the dramatic simplifications Mist’s AIOps has brought to their network operations. In North America, larger companies are coming around to adopting public cloud-based management of their networking equipment, opening the door to Mist.

Meanwhile, most incumbent vendors are turning their development efforts and marketing messages to AI. In addition, a new startup in the networking market, Nile, has been spawned by ex-Cisco executives and is positioning fully automated, AI-based networking technology. Any vendor not using AI in their offers will be left behind. This highlights a key risk HPE must now navigate. The acquisition announcement heavily emphasizing ‘Artificial Intelligence’ implies that the primary risk to customer confidence lies with the Aruba portfolio, which lacks AI flair.

Until the acquisition is complete, the two companies will continue to compete head-to-head. Because of the overlap of Juniper and HPE’s enterprise portfolios, customers can be forgiven for being concerned about the longevity of either company’s technology. Competitors such as Cisco, CommScope Ruckus, Huawei, Extreme, Fortinet, Palo Alto, and Nile will try to capitalize on customer confusion while HPE awaits regulatory approvals.

To read more on the HPE’s acquisition of Juniper, consult the following Dell’Oro blogs:

HPE to acquire Juniper – WLAN market impacts (Siân Morgan)
HPE Contributes better ‘Networking for AI’, Juniper Contributes better ‘AI for Networking’ (Sameh Boujelbene)
HPE Acquires Juniper: What does this mean for its Network Security and SASE/SD-WAN aspirations? (Mauricio Sanchez)

*data presented in this blog has been extracted from the following Dell’Oro Group reports: Ethernet Switch – Campus 3Q23 Quarterly, Ethernet Switch – Data Center 3Q23 Quarterly, Network Security 3Q23 Quarterly, SASE & SD-WAN 3Q23 Quarterly, Wireless LAN 3Q23 Quarterly.

In Dell’Oro Group’s January 2024 update to the Microwave Transmission & Mobile Backhaul Transport Five-Year Forecast report (2023-2028), a mixed outlook emerges. Here are some good news and bad news. Let’s delve into the highlights of these contrasting trends:

Good News

The good news is that the microwave transmission market entered a growth cycle due to the expansive 5G buildouts in 2021 and has enjoyed a steady pace of growth. Furthermore, we expect that there will be at least two more years added to this growth cycle, culminating in five years of market expansion. During this period, the microwave transmission market’s annual revenue will increase 22% and the cumulative revenue for that period will be nearly $17 billion. Other factors contributing to the near-term growth projections include:

Overall demand for more bandwidth by customers is expected to continue for many more years, requiring higher link capacities. As a result, the adoption of E/V Band systems is expected to be much higher, and the number of carriers per cell site is also projected to increase.
Revenue in Europe is expected to recover following a significant decline in 2022 and 2023 that was caused by the Russia/Ukraine war, unfavorable currency exchange rates, and macroeconomic uncertainty.
India surprised us on the upside in 2023. We do have concerns that spending in 2024 will be lower after such a strong start to rolling out 5G, but based on our understanding, outside of one operator, the 5G roll out in the country has really just gotten started.
Worldwide government initiatives to expand broadband coverage into rural areas should stimulate additional demand for microwave systems beyond mobile backhaul.

Bad News

Now for the bad news. The bad news is that the Microwave Transmission market, like many others, is cyclical. Therefore, following these five years of expansion, we are predicting the market to decline or contract for a few years. Specifically, we believe the Microwave Transmission market revenues will trend lower until the next growth cycle is initiated by 6G. Also, similar to past mobile generations, we anticipate that operators will focus on installing new 6G sites at locations with fiber before advancing to sites that use wireless systems for backhaul. So, the next growth cycle for microwave may not occur until 2030, meaning the market contraction period may also be five years in length.

There is one silver lining. Although the broader microwave market will be in a multi-year decline, we believe demand for E-band systems will continue to increase. We are forecasting E/V Band radio transceiver shipments to grow through 2028 at a 13 percent CAGR.

We just wrapped up our semi-annual Router Five Year Forecast report, refreshing our near-term and long-term market views. The following are some of the highlights of the January 2024 forecast report and key market trends for this year.

Near-Term Trends for 2024

The level of market uncertainty remains higher than normal this year due to the following factors: 1) supply and demand imbalance among North American service providers; 2) wars in both Eastern Europe and the Middle East; 3) concern about or fear of an impending economic recession; and 4) higher borrowing costs created by governments raising interest rates.
The component shortage that disrupted the industry is behind us. But, the residual effect of this long supply chain disruption is expected to have some adverse market effects in 2024, particularly in North America where service providers may be sitting on excess inventory.
Although the full year 2023 results are not in yet (4Q23 reports to be completed in February 2024), Core Router revenue looks poised to grow 12% in 2023. That said, some market softness should be expected in 2024 following such a strong year.

Long-Term Trends beyond 2024

The longer-term view of the routing market remains positive, especially for High End Routers since the need for routing capacity will trend higher for many more years to come. We forecast that the cumulative revenue of High End Routers for the next five years will be 15% higher than that of the previous five years at nearly $70 billion.
Based on the annual shipment capacity we are projecting for the next five-years, we estimate that the cumulative network capacity from High End Routers will grow at an average annual rate of nearly 30% with the highest share contribution from 400 Gbps Ethernet and higher port speeds.

All major applications should contribute to Edge Router market growth over the next five years. While network capacity/transport will remain the largest contributor to the market revenue, Cloud DCI and fixed broadband should drive more of the growth in the next five years.

In 2024, the prospect of being the most exhilarating year for RAN revenue growth is unlikely. Analyst Stefan Pongratz shares the top trends in the RAN market.

In this annual forecast blog covering our network security and SASE/SD-WAN services, we explore a pressing question for 2024: Will 2024 be the year traditional firewalls and branch access routing die in favor of SASE? As we embark on a new year, it’s crucial to examine how these longstanding network security and connectivity pillars are expected to respond to the rapid advancements and growing adoption of SASE (which we see as the combination of SSE and SD-WAN). Let’s dissect how these adjacent markets are expected to behave in 2024 and influence each other to reveal a complex narrative of give and take.

Firewalls Won’t Die in 2024 but Will Continue to Take Some Body Blows

In 2024, the overall firewall market is set to experience a modest, low-single-digit growth, mirroring its performance in 2023. This steady yet subdued growth trajectory reflects the market’s resilience amidst evolving challenges and the shifting landscape of network security. For example, after weathering a significant 16% drop in 2023, the high-end firewall market is expected to rebound slightly with a single-digit increase in revenue. This recovery, although modest, signals a stabilizing trend under the influence of broader economic conditions and a restart of purchasing by service provider customers.

Conversely, the midrange firewall market anticipates a single-digit decline in 2024 after growing solidly in 2023. This downturn highlights a shift in the fortunes of a wider swath of the enterprise market, which is expected to return to earth after robust growth in the past couple of years. The low-end firewall segment, in contrast, is forecasted to see a marginal 1% growth. This limited increase points to the segment’s challenge in adapting to the growing preference for cloud-based alternatives and the evolving requirements of hybrid work environments.

On a brighter note, the virtual firewall market is poised for a significant surge, expecting a nearly 40% increase in revenue in 2024. With impressive growth, it will represent nearly 15% of the overall firewall market, underscoring the sector’s growing importance in a cloud-centric world and its adaptability to protect distributed, dynamic environments.

Despite the varied performance across these segments, the overall firewall market’s persistence in achieving low single-digit growth in 2024 suggests a continued relevance and necessity for firewalls in network security, albeit in an evolving role and form.

Access Routing Will Become a Shell of its Former Self in 2024 if Cisco Gets Their Way in the SD-WAN Market

Access routing, a mainstay in enterprise networks, is undergoing a dramatic transformation, largely influenced by Cisco’s strategic push towards SD-WAN. With the sunsetting of its successful ISR 4k access routers and the introduction of the Catalyst 8000 series, which are optimized for SD-WAN, Cisco is steering the market towards SD-WAN. This shift marks a significant pivot from traditional access routers to more agile, software-defined networking solutions.

The impact is stark: access router revenue is expected to drop by over 30% in 2024 to $1.4 billion. This seismic shift underscores the industry’s rapid adaptation to the changing needs of enterprise networks, favoring flexibility and cloud integration over traditional hardware-centric models. As SD-WAN gains prominence, it’s clear that access routing, as we know it, is on the brink of a fundamental change.

SASE Will Buck Market Uncertainty and Crack $10 B for the First Time

In 2024, the SASE market is expected to continue its upward trajectory, bucking broader market uncertainties and achieving a record-breaking milestone of $10 billion. This growth underscores the rising importance of SASE as a cornerstone in modern enterprise networking and security strategies. The surge in SASE’s popularity is driven by its ability to seamlessly combine SD-WAN networking with SSE security into an integrated service. This integration increasingly appeals to enterprises seeking efficient, streamlined, and secure network infrastructures, especially in an era of distributed workforces and cloud-centric IT models.

2024 will stand as a landmark year for SASE, not just in terms of technological adoption but also as a strategic response to the evolving needs of modern network environments. Reaching the $10 billion mark is a testament to its growing significance and the industry’s shift towards integrated, agile, and cloud-centric network solutions.

As we analyze the trajectories of firewalls, access routing, and SASE in 2024, it’s clear that we’re witnessing a period of significant transition in the enterprise network and security landscape. Traditional firewalls and access routing are being redefined and challenged by the rising tide of SASE, which offers a more integrated, flexible, and cloud-centric approach.

This evolution is not just about technological change; it reflects a deeper shift in how enterprises view and manage their networks in an increasingly cloud-dominated, hybrid work environment. While traditional solutions will not vanish overnight, their role and relevance are being reshaped in the face of these emerging paradigms.

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