Dell’Oro Group published an update to its Campus switch market five-year forecast report. The report shows that the campus switch market is expected to be profoundly impacted by the COVID19- pandemic and to decline at 1% CAGR from 2019 to 2024, compared to our prior January forecast of + 3% CAGR.

Analysis of market performance during the prior two recessions was a fundamental part of our forecast process, as we assessed the impact of the COVID-19 pandemic. However, it is very important to recognize how this pandemic-induced recession may differ from the prior two recessions, not only at a macro level but also from a technology perspective. COVID-19 will bring many changes to our lives and will impact the adoption of technology in different ways. Some of these changes may be short-term, but we believe a number of them will remain with us for the long term. In the report, we detail our view on the potential impact of the COVID-19 pandemic on the market, in terms of both upside and downside. We also explain how and why this recession may differ from the prior two recessions. Our view is the result of numerous interviews over the last three to four months with end-users, system integrators, VARs, and manufacturers. Below are some highlights:

Downside Impact from the COVID-19 Pandemic

• Although GDP outlooks are reflecting anticipation of a rebound in 2021, we expect the actual rebound in campus switch revenue to lag behind GDP recovery. This is the result of high exposure to verticals that are heavily impacted by the pandemic and may take years to recover (such as Healthcare, Higher Education, Hospitality, Logistics, Retail).
• Our interviews revealed consistent expectations among end-users, distributors, system integrators, and vendors that the portion of the remote workforce will increase following COVID19. However, it is still anyone’s guess as to what the degree will be and what the new normal will look like. Our models assume a 20% to 45% increase in the portion of remote workforce post-COVID.
• A more distributed workforce, working remotely either from home or from smaller distributed office spaces, will negatively impact the number as well as the type of switch ports needed in those campuses.
• Wireless LAN will become more favorable for user connectivity than wired Ethernet, as it supports features and services that help businesses comply with re-opening guidelines such as contact tracing, people counting, and other location-based services.

Upside Impact from the COVID-19 Pandemic

• The digital transformation is accelerating as businesses try to adapt and evolve. This, in turn, will expedite the pace of the campus switch refresh cycle. Automation, security, visibility, and analytics/intelligence are several added functionalities that IT managers need for the new digital era. We expect campus switch vendors to try to monetize those features, which may boost market average selling prices (ASPs) and help the market recover faster than currently projected.
• We forecast the higher-priced PoE ports to comprise about a third of the total campus switch ports by 2024. The increased portion of IoT devices connected to the network will drive an increased portion of the PoE ports.
• Adoption of subscription-based consumption models will become a theme during and after the pandemic. The conversion from Capex to Opex makes it much easier for companies to scale their costs down or up, according to the demand.

If you need to access the full report to obtain revenue, units, pricing, relevant segmentation including regions and vertical markets, etc., please contact us at dgsales@delloro.com

 

About the Report

The Dell’Oro Group Ethernet Switch – Campus 5-Year Forecast Report offers a complete overview of Ethernet switches built and optimized for deployment outside the data center, for the purpose of connecting users and things to the Local Area Networks. The report contains tables covering manufacturers’ revenue, average selling prices, and port/unit shipments by speed (Fast Ethernet, Gigabit Ethernet, 2.5 Gigabit Ethernet, 5.0 Gigabit Ethernet, 25 Gigabit Ethernet, 10 Gigabit Ethernet, 40 Gigabit Ethernet, 50 Gigabit Ethernet, 100 Gigabit Ethernet) plus regional breakouts.

The enterprise-class Wireless LAN (WLAN) market has enjoyed high single-digit revenue growth rates for the past several years. In 2019 sales decelerated as a result of broad-based economic uncertainty causing customers to delay expenditures. Customer hesitation correlated with rising trade war tensions and tariffs, Brexit, and economic slowdown in all macro-regions of the world. The pandemic emerging in 2020 amplified the deceleration.

COVID-19 Near-Term Impact on WLAN Market

As portrayed in the figure, Dell’Oro Group forecasts temporary near-term declines in the enterprise-class WLAN market until the COVID-19 virus passes. Specifically, Dell’Oro Group has lowered its forecast for 2020-2022 removing approximately $4 B from the enterprise-class WLAN market, as a result of a reduction in unit shipments as well as a shift to lower-priced, lower-featured units. For example, an access point suitable for remote worker setup is nowhere near the feature-richness as an access point suitable for a corporate office, a university auditorium, or a sports stadium. Access points suitable for remote workers/home deployments generally have a list price under $500 vs. between $1,000 and $2,000 for those suitable for corporate deployments.

Certainly, both unit volume and a return to a high portion of feature-rich, higher-end, higher-priced access points will lift WLAN market revenues, however, it is access points with 6 GHz capability that will truly catapult market revenues. Manufacturers cannot bring these access points to market fast enough!

Feedback from system integrators reveals that large enterprises from many vertical industries are eagerly awaiting Wi-Fi 6E products. We estimate a portion of users will postpone purchases to wait for Wi-Fi 6E and the number of users that will wait rises as product availability approaches. We expect enterprise-class Wi-Fi 6E access points to become widely available in 2022, and lift WLAN market sales to pre-COVID levels.

 

Wi-Fi 6E Strengthens WLAN Market Outlook

We assume that Wi-Fi 6E strengthens the outlook for the WLAN market, making the technology more competitive, and that access points will be higher-featured, as well as higher-priced. The advantage of being “first in”, or among the early adopters of Wi-Fi 6E technology is access to a massive amount of bandwidth with no other traffic—the high-end of the market, and the upper end of the midrange market would be willing to pay a significant premium which could span several years (i.e., the premium could last several years). While our forecast assumes 6E access points command a similar price premium that Wi-Fi 6 had vs. Wi-Fi 5, we believe the premium could be significantly higher because the benefits of the technology are so palpable.

Long-term, we predict the pandemic will permanently reduce the portion of the workforce that is present in the office full time. While the timing of the rebound will vary by region and by industry vertical, we expect an increase in the number of transient workers which will more likely connect to the enterprise LAN with a wireless rather than a wired connection. We anticipate a portion of the CAPEX previously allocated to wired LAN (i.e., Ethernet switches) will be reallocated to other technologies such as intelligence applications, security, WLAN, etc. Also, many vertical industries will find new use cases that will require low-latency, high-definition video transmission capabilities—enabled by Wi-Fi 6E.

To get a deeper insight of the WLAN market and access the full WLAN market July 2020 5-Year Forecast Report, please contact us: dgsales@delloro.com.

 

About the Report

The Dell’Oro Group Wireless LAN 5-Year Forecast Report offers a complete overview of the industry, covering Enterprise Outdoor and Indoor markets, with tables containing manufacturers’ revenue, average selling prices, and unit shipments by the following wireless standards: 802.11ax (separate reporting of  Wi-Fi 6 and 6 GHz), 802.11ac (Wi-Fi 5) Wave 1 vs. Wave 2, 802.11n (Wi-Fi 4), and historic IEEE 802.11 standards. It includes forecasts for regions of the world and for Cloud-managed vs. Premises-managed.

Related Videos to the WLAN Market Forecast:

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In just over half a year, COVID-19 has made its presence felt far and wide.  But it has been capricious.  The pandemic has caused severe illness for some individuals, while in others causing no symptoms. With 1Q20 squarely in the rear-view mirror, our data shows that the network security market experienced a similar phenomenon.  On the whole, the network security market paused in 1Q20 and registered small growth of just under 1% Y/Y.  But within the individual four product segments including Content Security, Application Delivery Controller, Firewall, and Intrusion Prevention Service, we track, 1Q20 played out very differently, with some seeing significant growth and others a marked deceleration:

The content security segment was the strongest as it accelerated to 16% Y/Y growth in 1Q20. Within this segment, we include secure web gateway products, which count remote access connectivity among its feature sets.  Before the pandemic, few enterprises were capable of supporting all employees as teleworkers.  There was no precedent.  With the pandemic turning most employees into full-time telecommuters’ virtually overnight, enterprises had to augment their remote connectivity infrastructure quickly.

Moving to a neutral segment, which experienced both growth and deceleration tension, was the application delivery controller (ADC) segment. While ADCs posted a modest revenue growth of 3% Y/Y in 1Q20, individual vendors experienced mixed results.  Some vendors saw overall revenue acceleration, while others hit headwinds.  There was no single factor that determined whether a vendor experienced tailwinds or headwinds.  There were at least three factors we identified, including uses cases serviced, market verticals sold into, and geo region exposure.

In the negative-neutral territory was the firewall segment, which experienced a marked deceleration in 1Q20 when compared to recent history. While still in the positive territory at 3% revenue growth Y/Y, it was not close to the high single or low double-digit growth we have typically seen.  The number of projects paused outnumbered the ones that went forward. In some instances, those that went ahead were reactionary projects caused by the pandemic.  For example, we heard from VARs and system integrators that small teleworker firewall appliances sold well and exhausted all available vendor inventory quickly.

Lastly, in negative territory was the intrusion detection service (IDS) and intrusion prevention service (IPS) segment with a Y/Y revenue decline of 4.2%. To be fair, the IDS and IPS market had already entered its twilight years before the pandemic’s arrival.  With IPS features in firewalls becoming good enough, the standalone IDS and IPS market has been under pressure for several years.  The pandemic added an extra layer of headwinds as remaining IDS/IPS projects got put on pause.

Looking at the rest of 2020, we expect it will continue to be a bumpy market, but cautiously optimistic that network security will be one of the first IT markets to bounce back.  Pandemic or not, IT security has been and will continue to be a top business imperative.  We do not see demand vanishing outright, but do see some continued project delays, as well as priority shifts between different product segments, as evidenced in 1Q20.  We are currently updating our 5-year forecasts, and in an upcoming blog will dig deeper into longer-term expectations.

To learn more about Dell’Oro Group Network Security and Data Center Appliances market research program, please check out the Network Security page for more information.

For several years now, we have been watching the SD-WAN market push through the growing pains and the ups and downs that new technologies typically encounter. As end users became more educated about SD-WAN technologies, use cases, vendors’ solutions, and the cost-benefit that solutions provided, the market grew at a remarkable rate.

In 2019, SD-WAN moved through the early adopter phase and expanded by more than 60% for the third consecutive year. Manufacturer’s revenue surpassed $1 billion, and 2020 was shaping up to be another solid year. Then the COVID-19 pandemic hit the world in an unprecedented manner, and cast a dark shadow on the SD-WAN market’s growth prospects.

How does the pandemic change the market’s potential?

We believe that the momentum of the SD-WAN market will be dampened over the near term, but there are a number of technological and business attributes that provide the basis for a positive long term outlook.

In the first quarter of 2020, the SD-WAN market grew by double-digits, but the growth rate decelerated considerably due to supply chain disruptions and end user purchase hesitations at the start of COVID-19. The lower growth rates will persist for some time, and we expect that over the next 12 months, some enterprises will defer plans to adopt SD-WAN, and severe financial distress will permanently eliminate deployment plans for others. However, over the longer term, we believe that SD-WAN is a compelling technology solution that many businesses will adopt despite the economic pressure resulting from the pandemic. At a high level, the SD-WAN market has these factors in its favor:

• SD-WAN sales should accelerate as macroeconomic conditions improve, but the flip side is that demand for legacy technologies such as standalone branch office routers will likely erode at a faster rate.
• SD-WAN is largely a software subscription-based business model whereby a vendors’ revenue is recognized on a recurring basis over multiple-year periods. As companies attain a critical mass of SD-WAN deployments, revenue streams are less susceptible to quarter-to-quarter fluctuations and more predictable.
• SD-WAN technologies are deployed by enterprises and by service providers, and the use cases for each are quite different: enterprises build infrastructure for internal business operations, and service providers construct infrastructure for revenue generating services. The SD-WAN market will benefit from the diverse demand and investment cycles the two customer sets.

But aren’t more people working from home?

In order to mitigate the spread of COVID-19, governments around the world have instituted lockdowns that force millions of people to work from home instead of travelling to their places of employment. These policies have both short term and long term effects on the SD-WAN market.

For the short term, some SD-WAN deployments will be delayed due to facilities being underutilized or inaccessible. Human and financial resources are being diverted to enable and support people’s ability to work from home. For the long term, we expect that a portion of the work force will continue to work from home rather than return to facilities, and that the number of existing work sites or branches will be reduced to align with the redistributed work force.

The workforce redistribution may present new opportunities for SD-WAN technologies. There is the possibility of a change in work facilities with an increase in smaller, less dense locations that creates additional demand for SD-WAN. Some people working from home may benefit from or perhaps require a SD-WAN solution. New technology and solution developments for work from home use cases will emerge, and these solutions may potentially reshape the reach and scope of SD-WAN solutions. To what extent these solutions are additive or substitutive to the SD-WAN market size is an open question that we will monitor closely.

Will all vendors gain from the market’s growth?

In 2017, Cisco and VMware plunked down more than $1 billon combined to acquire SD-WAN startups Viptela and VeloCloud, respectively. The acquisitions set the stage for the vendor landscape to consolidate around these two companies with deep pockets and several companies with best-of-breed SD-WAN solutions. Our market share research shows that the market opportunity is narrowing to a smaller set of vendors, with more than 75% of the 2019 market revenue concentrated amongst eight vendors.

Now the question is, will the COVID-19 pandemic accelerate SD-WAN vendor consolidation? To be clear, predicting the timing and players of consolidation is a fool’s errand, but we can point to some of the conditions and indicators that potentially accelerate the change in vendor landscape.

• There are more than 50 vendors touting SD-WAN technologies, and it is unlikely that the SD-WAN market will be large enough to sustain the number of vendors that currently offer solutions. The competition for end user mindshare and spending will be fierce.
• The global recession and ongoing macroeconomic uncertainties caused by the pandemic will place financial pressure on all SD-WAN vendors. Not all companies will have the resources to support ongoing business and technology developments required to remain competitive.
• In times of turbulent and unpredictable circumstances, the “flight to quality” becomes a common approach to technology investments. This type of conservative business decision making will drive demand to those vendors perceived to have strong and stable business models.
• Consolidation can occur in many forms. In addition to mergers and acquisitions, we expect some vendors to deemphasize, downsize, or terminate their SD-WAN solutions.

There is no doubt that the COVID-19 pandemic is disrupting the SD-WAN market in ways that were completely unexpected just six months ago. Because the SD-WAN market is a relatively young, it has the ability to adapt its technologies, solutions, and business models to this unprecedented disruption. We look forward to keeping you apprised of how this market evolves.