January 2024 - Page 3 of 3

Happy New Year! As usual, we’re excited to start the year by reflecting on the developments in the Ethernet data center switch market throughout 2023 and exploring the anticipated trends for 2024.

First, looking back at 2023, the market performed largely in line with our expectations as outlined in our 2023 prediction blog published in January of last year. As of January 2024, data center switch sales are set to achieve double-digit growth in 2023, based on the data collected up to the 3Q23 period. Shipments of 200/400 Gbps nearly doubled in 2023. While Google, Amazon, Microsoft, and Meta continue to dominate deployments, we observed a notable increase in 200/400 Gbps port shipments destined toward Tier 2/3 Cloud Service Providers (SPs) and large enterprises. In the meantime, 800 Gbps deployments remained sluggish throughout 2023, with expectations for acceleration in 2024. Unforgettably, 2023 marked a transformative moment in the history of AI with the emergence of generative AI applications, propelling meaningful impact and changes on modern data center networks.

Now as we look into 2024, below are our top 3 predictions for the year:

1. The Data Center Switch market to slow down in 2024

Following three consecutive years of double-digit growth, the Ethernet data center switch market is expected to slow down in 2024 and grow at less than half the rate of 2023. We expect 2024 sales performance to be suppressed by normalization of backlog, digestion of existing capacity, and optimization of spending caused either by macroeconomic conditions or a shift in focus to AI and budgets diverted away from traditional front-end networks used to connect general-purpose servers.

2. The 800 Gbps adoption to significantly accelerate in 2024

We predict 2024 to be a tremendous year for 800 Gbps deployments, as we expect a swift adoption of a second wave of 800 Gbps (based on 51.2 Tbps chips) from a couple of large Cloud SPs. The first wave of 800 Gbps (based on 25.6 Tbps chips) started back in 2022/2023 but has been slow as it has been adopted only by one Cloud SP. In the meantime, we expect 400 Gbps port shipments to continue to grow as 51.2 Tbps chips will also enable another wave of 400 Gbps adoption. We expect 400 Gbps/800 Gbps speeds to achieve more than 40% penetration by 2027 in terms of port volume.

3. AI workloads to drive new network requirements and to expand the market opportunity for both Ethernet and InfiniBand

The enormous appetite for AI is reshaping the data center switch market. Emerging generative AI applications deal with trillions of parameters that drive the need for thousands or even hundreds of thousands of accelerated nodes. To connect these accelerated nodes, there is a need for a new fabric, called the AI back-end network, which is different from the traditional front-end network mostly used to connect general-purpose servers. Currently, InfiniBand is dominating the AI back-end networks but Ethernet is expected to gain significant share over the next five years. We provide more details about the AI back-end network market in our recently published Advanced Research Report: ‘AI Networks for AI Workloads.’ Among many other requirements, AI back-end networks will accelerate the migration to high speeds. As noted in the chart below, the majority of switch ports in AI back-end networks are expected to be 800 Gbps by 2025 and 1600 Gbps by 2027.

For more detailed views and insights on the Ethernet Switch—Data Center report or the AI Networks for AI Workloads report, please contact us at dgsales@delloro.com.

Where is the 5G Core heading in 2024, and what happened with 5G Standalone deployments in 2023?

The short answer for what happened in 2023 concerning new 5G Standalone (5G SA) deployments for eMBB networks is ‘not much.’ We witnessed only 12 new 5G SA deployments in 2023, compared to the 18 in 2022. The biggest surprise for 2023 was the lack of 5G SA deployments by AT&T, Verizon, British Telecom EE, Deutsche Telekom, and other Mobile Network Operators (MNOs) around the globe.

Fifty 5G Standalone enhanced Mobile Broadband (eMBB) networks commercially deployed (2020 – 2023)

However, beneath the surface, these MNOs were building cloud-native dual-mode or converged 5G Cores. The primary focus was migrating their 4G and 5G non-standalone (5G NSA) subscribers to their new respective modern Telco Clouds based on the 5G Core Service-Based Architecture. Much of the heavy lifting was done in 2023, preparing for 5G SA launches in 2024. Some MNOs have already introduced 5G SA Fixed Wireless Access (FWA) services and 5G SA services to enterprises. The next step is to open up the MNOs networks to 5G SA services for the consumer market.

There are many benefits for end users when MNOs provide 5G SA services. While all 5G vendors promote these benefits, the following graphic from Ericsson succinctly illustrates the benefits of 5G SA for FWA, the enterprise, and the consumer customer base.

Why 5G Standalone? Unique benefits vs. 5G Non-standalone

In the blog “Building 5G – what is your best path to the future?” Ericsson summarizes that “Standalone unlocks more use cases for consumers and enterprises. 5G SA will also speed up network slicing opportunities for multiple customer segments, offering an infrastructure for businesses to enable solutions such as smart manufacturing and IoT-driven innovation, while giving consumers a better and more consistent service experience. It is a big step forward for communications service providers, as it enables a more flexible approach to service creation and provision for subscribers.”

What to expect for 2024

We project more 5G SA eMMB networks will launch in 2024 than in 2022, which is greater than 18 new networks. We will see network slicing being more utilized as it matures, lower cost IoT devices as RedCap NR comes to market, 5G VoNR (Voice of NR) will enhance voice communications, and we will see the beginning phases of 5G Advanced based on 3GPP Release 18 being implemented in the second half of 2024. (See our blog, “5G Advanced—what does it mean for the 5G Core market?”). These new services will enable more applications and enrich the communication experience for all users of 5G SA networks.

Yesterday’s announcement of HPE’s plan to purchase Juniper Networks for approximately $14B rocked the networking world. Impacts on the switching and security aspects of the business have been covered in briefs by analysts Sameh Boujelbene and Mauricio Sanchez. As the overlap in portfolio seems especially important in Wireless LAN, here is my take from a WLAN perspective.

Market Size

In the Enterprise Class WLAN market, HPE is the second largest by revenues. The company recognized $1.1 B for the first three quarters of 2023, giving it a 13% market share. This compares to Juniper’s WLAN revenues of $ 288 M (4% market share) for the same period. Combined, the two companies’ WLAN revenues are still well under half of Cisco’s, who is the market leader. However, this view belies the market potential.

Juniper Mist has been on a rocket ship trajectory over the past four years. The company has been displacing Cisco and HPE with Fortune 100 companies that are becoming more open to public cloud-managed WLAN, the only architecture that Juniper offers. In contrast, HPE Aruba has been underperforming in cloud-managed WLAN, with market share hovering around the 6% mark. Juniper’s revenues surpassed HPE’s public cloud-managed WLAN revenues in 2020. Mist WLAN grew 47% y/y for the first three quarters of 2023, compared to a 4% growth for Aruba public cloud-managed WLAN revenues in the same period.

Synergies

On the face of it, the two companies have WLAN solutions that compete head-to-head. However, each company has different strengths.

Whereas Juniper has been making waves with its AI-Ops network management engine, Aruba is known for its high-quality radio solutions. HPE took an early leadership position in the new 6 GHz band and shipped more Wi-Fi 6E APs in 2022 than any other vendor, more even than Cisco. The company also just won Wi-Fi Now’s Best Enterprise Wi-Fi solution for two of its 6E APs with a specialized design that maximizes use of the 6 GHz band.

Juniper’s Mist solution was developed by ex-Cisco executives who found the Cisco Meraki cloud too restrictive for their micro-services architecture. A cutting-edge software architecture has allowed Juniper to develop high-traction features, such as an AI-driven personal assistant, Marvis, to help operations staff with network decisions, and analysis of Zoom telemetry to improve videoconferencing quality.

Competitive Positioning

Antonio Neri, HPE’s CEO, has pointed to the complementarity of the two companies’ targeted market segments. An analysis of their 2022 WLAN market share by vertical indicates that Juniper and HPE have similar strengths in Service Provider, Retail, and Higher Education – in these segments, their market share is above their company’s overall share and future cannibalization of revenues in these segments seems inevitable. The analysis shows potential for HPE’s scale to boost Juniper’s WLAN performance in the Finance & Professional Services and Government segments. HPE’s GreenLake has obtained FedRAMP certification, which will boost government opportunities for Mist once the acquisition is complete.

The biggest upside for Juniper Mist sales will be in the geographic reach that HPE can provide. HPE provides access to a larger volume of channel partners, and Juniper underperforms in all macro regions outside North America.

What to watch for in the converged WLAN portfolio

Juniper’s impressive growth has been fueled by their AI-Ops solution, and HPE has the scale of Juniper executives’ dreams. However, pointing to complementary strengths in public cloud-managed WLAN (Juniper) and on-premises managed WLAN (HPE) is too simplistic. Today, the cloud is hybrid, and distributed enterprises want a campus networking solution that can work seamlessly whether it’s managed from the public cloud or on-premises.

Developing a coherence across the two architectures is a challenge that Cisco has been struggling with for the past year and a half. In mid-2022 they announced the intention to converge the Meraki and Catalyst platforms, but WLAN APs capable of operating under both management systems remain a small minority of their sales. Executives have told us that it is a long and complex endeavor to ensure that detailed networking parameters are represented and configured the same way from both Meraki and Catalyst management applications.

Once the HPE-Juniper deal closes, the first task for the combined company’s campus networking teams will be the migration of micro-services-based Mist into the GreenLake environment. Executives will have painful memories of the disruptive integration of Aruba Central into GreenLake in 2022. It will be crucial to maintain the same extensibility, the same high-frequency delivery of software updates, and the same large-volume data analysis that customers expect from Mist, at the risk of losing their customers’ goodwill.

However, the bigger technological challenge will be the development of a hybrid WLAN roadmap – involving seamless functionality across public cloud and on-premises managed WLAN equipment. Cisco and Extreme Networks already have a head start on that front.

I would like to share some initial thoughts about the groundbreaking announcement that HPE has entered into a definitive agreement to acquire Juniper for $14 B. My thoughts are mostly around the switch business of both firms. The WLAN and security aspects of the acquisition are covered by our WLAN analyst Sian Morgan and security analyst Mauricio Sanchez.

My initial key takeaways and thoughts on the potential upside and downside impact of the acquisition are:

Pros:

In the combined data center and campus switch market, Cisco has consistently dominated as the major incumbent vendor, with a 46% revenue share in 2022. HPE held the fourth position with approximately 5%, and Juniper secured the fifth spot with around 3%. A consolidated HPE/Juniper entity would climb to the fourth position, capturing 8% market share, trailing closely behind Huawei and Arista.
Juniper’s standout performer is undeniably their Mist portfolio, recognized as the most cutting-edge AI-driven platform in the industry. As AI capabilities increasingly define the competitive landscape for networking vendors, HPE stands to gain significantly from its access to the Mist platform. We believe that Mist played a pivotal role in motivating HPE to offer a premium of about 30% for the acquisition of Juniper. In other words, Juniper brings better “AI technology for networking” to the table.
In the data center space, HPE has predominantly focused on the compute side, with a relatively modest presence in the Data Center switch business (HPE Data Center switch sales amounted to approximately $150 M in 2022, in contrast to Juniper’s sales that exceeded $650 M). Consequently, we anticipate that HPE stands to gain significantly from Juniper’s data center portfolio. Nonetheless, a notable contribution from HPE lies in their Slingshot Fabric, which serves as a compelling alternative to InfiniBand for connecting large GPU clusters. In other words, HPE brings better “Networking technology for AI” to the table.
Juniper would definitely benefit from HPE’s extensive channels and go-to-market strategy (about 95% of HPE’s business goes through channels). Additionally, HPE has made great progress driving their as-a-service GreenLake solution. However, GreenLake has been so far mostly dominated by compute. With the Juniper acquisition, we expect to see more networking components pushed through GreenLake.
In campus and with the Mist acquisition in particular, Juniper has been focusing mostly on high-end enterprises whereas HPE has been playing mainly in commercial and mid-market. Therefore, from that standpoint, there should be a little overlap in the customer base and more of cross-selling opportunities.

Cons:

Undoubtedly, a significant challenge arises from the substantial product overlap, evident across various domains such as data center switching, campus switching, WLAN, and security. Observing how HPE navigates the convergence of these diverse product lines will be intriguing. Ideally, the merged product portfolio should synergize to bolster the market share of the consolidated entities. Regrettably, history has shown that not all product integration and consolidation meet that desired outcome.

Today, the networking industry experienced a tectonic shift with HPE’s announcement that it has entered a definitive agreement to acquire Juniper for a cool $14 B. Juniper has long been known as a premier service provider router company, and, more recently, as darling in the enterprise networking space with the AI-powered MIST WLAN solutions. HPE has been in the networking industry even longer, going back to the 1980s, and most recently, a well-regarded enterprise networking player with Aruba campus solutions. However, both firms have a wider portfolio that spans the network security and SASE/SD-WAN technology landscape, which is my focus. Figure 1 below shows the technology segments I cover.

In this blog, I share some quick thoughts on what the merger may mean from the lens of the technologies I cover.

Key takeaways and my opinions on HPE’s acquisition of Juniper from the context of technologies I cover are:

The overlap between both is limited to SASE (Figure 2). Both have SD-WAN and SSE offerings to provide a single-vendor SASE solution:

The overlap in SASE should be straightforward to reconcile since HPE has a much larger business than Juniper. In 3Q23, HPE was the tenth largest SASE vendor by revenue and its business was nearly four times larger than Juniper’s SASE business (which occupied the 18th revenue position).
Outside of SASE, Juniper extends HPE’s reach into the DDoS, Firewall, Cloud Workload Security, and Distributed Cloud Networking markets.
My SWOT analysis

- - Strengths
    - Juniper brings a number of network security technology capabilities that HPE lacks.
    - Juniper’s reputation in the cloud and comms service provider space will help HPE’s overall credibility.
  - Weaknesses
    - Juniper’s network security market share is small compared to the big 3 of Cisco, Fortinet, and Palo Alto Networks
  - Opportunities
    - Quickly align behind Axis Security for SSE for both HPE and Juniper customers to accelerate uptake. Juniper’s SSE solution relies on OEM’ed technology.
    - Enable the total HPE salesforce to sell all Juniper products.
  - Threats
    - Bungle the SASE integration and fall further behind
    - HP/HPE has had a troubled past trying to sell network security. Juniper’s security business may further be marginalized.
    - HPE has had a checkered past with company acquisitions (Colubris wireless, 3Com/H3C networking, TippingPoint security). Aruba has been a bright star.

HPE has scheduled analyst briefings over the next several weeks to discuss today’s news. We keenly await to hear more, but until then, please feel free to reach out with any questions.

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