As I look to the future of the Wireless LAN (WLAN) market there are a few key trends that I’ll be watching for 2020:

• Wi-Fi 6 is racing ahead. We expect Wi-Fi 6 will rise significantly, particularly as vendors bring to market lower-priced 2×2 Wi-Fi 6 access points. Concurrently, we’ll pay close attention to Wi-Fi 6 access points driving the Campus adoption of NBASE-T (Ethernet 2.5 Gbps and 5.0 Gbps).
• Macroeconomic uncertainties impact near-term corporate spending. We expect 2020 to be a soft market for wireless LAN as short-term economic deterioration unfolds in many regions in the world. For example, in Europe Brexit is disrupting the general flow of business. Economists from the leading world banks have pulled down their GDP growth forecasts from 1.5% to 1.1% in 2020—a significant reduction. The good news is they predict a rebound in 2021. In the USA, according to the senior executives of wireless LAN manufacturers, large companies are delaying purchases as trade tensions create economic uncertainty. Economists forecast USA GDP growth to slow in 2020 to 1.8%, down from 2.3%.
• More Wi-Fi 6 deployment in China. Although government incentives for 5G in large public venues has dampened wireless LAN sales in China, we learned that in 2020 Wi-Fi 6 will be big, particularly with the manufacturing vertical industry. We’ll be watching for innovation and use cases of Wi-Fi 6 deployments within the manufacturing sector.
• 6 GHz turbo charging Wi-Fi 6. The availability of new unlicensed 6 GHz spectrum will increase the performance of Wi-Fi significantly. This will be the first time in over 20 years that additional mid-band spectrum has been made available to Wi-Fi, yet the use of Wi-Fi technology has increased on a massive scale. This is rocking the Wi-Fi market. The additional capacity would enable faster data throughput and lower latency—essentially turbo-charging Wi-Fi 6 and fortifying its competitiveness with cellular in the enterprise.

  The next hurdle to making 6 GHz available is managing the spectrum. The incumbents currently using the spectrum are asking that all Wi-Fi devices connect to an Automated Frequency Control System, whereas the Wi-Fi manufacturers are asking for all indoor and very low power devices not be required to connect. We will be watching with keen interest what rules the FCC structures for managing the 6 GHz spectrum, which may be in the March / April time frame.

Major changes the new decade may bring to the data center switching market

The start of the new year is forecasting time at Dell’Oro Group. Like clockwork, our analysts update their five-year forecasts for the respective markets they track. We review the prior year’s performance and its implications for the new year. We also review our notes from conferences and meetings, and the insights we gathered from our interviews with key decision makers and distinguished engineers in the industry, including system and component vendors, system integrators, Cloud service providers (SPs), Telco SPs, and large enterprises.

As the start of both a new year and a new decade, this is an especially exciting time to share with you the major trends we’ll be watching in 2020 and beyond:

1. Macroeconomic conditions will play an important role in shaping the demand environment in 2020. We expect that ongoing trade friction between the U.S. and China, combined with the U.S. presidential election, may create market uncertainty.
2. Macroeconomic headwinds, among other issues, will impact spending by Tier 2 and 3 Cloud SPs as well as large enterprises, which may rely temporarily on Tier 1 Public Cloud Providers to expand capacity during this period of uncertainty. However, we expect spending from large Tier 2 Cloud SPs as well as enterprises to accelerate once we move past these issues, as it will be more economical for them to build and operate their own data centers.
3. Due to the delay in high-volume availability of 400 Gbps optics, the 400 Gbps upgrade cycle (outside of Google and Amazon) will not start to materialize until late 2020/early 2021. Facebook is expected to start its speed upgrade cycle in late 2020 (driven by the availability of Broadcom’s Tomahawk 4 chips). In the meantime, Microsoft’s 400 Gbps story is now slated for early 2021, driven by the availability of 400 Gbps ZR optics for data center interconnect.
4. The 400 Gbps refresh cycle at Google and Amazon did not have an impact on the performance of any of the branded switch vendors, as these two Cloud SPs mostly deploy white box switches in their networks. However, when Facebook and Microsoft initiate their network upgrade cycles, all eyes will be on market-share gainers and market-share losers.
5. As China tries to develop its home-grown supply chain, we expect to see more advances over the next few years. In particular, we expect to see progress in switch silicon development, which will further fuel the competition in the space. Over the last few years, numerous emerging vendors have entered the merchant switch silicon market, not to mention Cisco’s latest announcement that it is willing to sell its chips to third parties. It will be interesting to watch which players will continue to be in business five years from now and which ones will run out of steam, as the market cannot support the current number of chip suppliers.
6. White box adoption has mostly been driven by a few large Cloud SPs. However, as this segment becomes increasingly crowded, we expect white box vendors to try to expand to Tier 2 Cloud SPs, large enterprises, and Telco SPs. We expect the next battle ground between white box and branded switch vendors to be large Tier 2 Cloud SPs, Telco SPs, and the high-end portion of the enterprise market. We predict that branded switch vendors will expand their offerings of disaggregated systems as an answer to the threat from white box vendors.
7. Optics will play an increasingly crucial role in the data center switch market. The availability of high-volume, low-cost optics has been and will remain the enabler of all speed transitions. Additionally, as network speed increases beyond 800 Gbps, pluggable optics will hit density and power issues. When this occurs, the industry will be forced to adopt alternative technologies, such as co-packaged optics (CPO). We expect such a transition to bring major disruptions to the supply chain as it will require a new business model. We further expect to see numerous acquisitions, consolidations, and partnerships among switch chip vendors, switch system vendors, and optical transceiver vendors. It will be interesting to watch which players will thrive and turn the transition into an opportunity to gain share in the market, and which players will fail navigating through the transition.
8. As adoption of 400 Gbps speeds and higher increases in the coming years, installation of DWDM optical modules into switches instead of DWDM transport systems for Data Center Interconnect (DCI) is expected to increase.
9. We expect the number of deployable use cases for data center switching products to continue to expand outside the data center, driven by improved merchant silicon as well as the improved capabilities of network operating systems (NOS) to take advantage of these advances in chip technologies.
10. We expect 100 Gbps SerDes technology to drive new ways for connect servers to Top of Rack (ToR) switches. 100 Gbps SerDes will be associated with a lot of channel loss, which makes it difficult for conventional Direct Attach Copper (DAC) to cover distances longer than 3m and to continue to be used for server-to-ToR connectivity.
11. We expect that machine learning and artificial intelligence applications may drive new ways to interconnect pools of resources (compute/storage/memory) inside the data center.

An increasing amount of publicity is shifting to user applications, and away from the network. Enabling the user to extract more value out of the network is the topic of acquisitions and new product launches. For example, Arista recently acquired Mojo Networks not for its wireless LAN technology, but for its ability to deploy network intelligence; Cisco launched greater levels of security and troubleshooting enabled by its new DNA licenses; Juniper acquired Mist Systems which boasts its cutting-edge location Wi-Fi services. Yet, a closer look at companies such as Alcatel-Lucent Enterprise (ALE) and Extreme Networks, we observe these folks have been laser-focused on user applications all along. Let’s first discuss ALE.

ALE recently celebrated its centennial with a conference including some 1,000 partners, as well as 100 industry members of the press and analysts. Enthusiasm and energy levels were high.

Here’s what I think is important:

ALE has a long-running subscription-based business. As the networking industry incorporates applications and network intelligence via subscription-based services, this experience on ALE’s part will be a definite asset. In 1919, ALE founder Aaron Weil launched a subscription-based private telephone business, “Téléphone Privé,” as a productivity enhancement tool targeting enterprises.

ALE’s near-term strategy will be to target select vertical industries focusing on applications specific to customer operations.  ALE’s focus on customer applications is the likely explanation as to why its customers place a high value on ALE’s products. For example, in Campus Ethernet Switching, we observed that ALE’s average prices for the past few years have been the third highest, well above many other larger vendors.  Figure 1 shows how ALE’s average sales price per port compares with that of the largest vendors in the most popular segment of the Campus Ethernet Switch market (Fixed Managed 1 Gbps switches). ALE senior management explained that the customer interaction process has included building custom applications by vertical industry. Whenever ALE could not on its own deliver the application, it brought in a partner that specialized in the operations of businesses in that particular vertical industry. This high-touch approach to service helps explain ALE’s ability to maintain high perceived value as reflected in its average prices.

ALE’s networking business (Campus Ethernet LAN in particular) was challenged in 2017 and 2018, which we attribute largely to Huawei’s expansion in Europe, the Middle East and Africa (EMEA), the region representing ALE’s stronghold. During the past two years, Huawei has run aggressive promotions with new channel partners it added in 2016.  As the honeymoon period for these engagements comes to a close, we suspect the longer-term relationships with its new partners will change. Looking at the Campus Ethernet market on worldwide units (port shipments) basis, the performance was flat during the past two years, with the exception of China-based vendors, as well as vendors such as Ubiquiti that are targeting the low end of the market. The challenges ALE experienced on a unit basis was similar to the experience of other Western vendors focusing on the high-end and midrange segments of the market.

Dell’Oro Group believes that enterprise campus networks are entering a refresh cycle that will enable users to run new applications (click here to learn more about Dell’Oro Group Ethernet Switch Campus Network market report). This refresh of the installed networks, which will unfold over the next several years, will be the most significant upgrade during the past two decades—and many will be seeking high value from their networks, not the cheapest price.