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About three years ago, Zscaler’s CEO Jay Chaudhry expressed a viewpoint in an SDxCentral article that distanced the company from the SD-WAN market. Chaudhry stated, “Network security is not really very meaningful. We decouple network access and application access with zero trust. We don’t put people on the network, we connect a person to a particular application or service. If you believe that network and security should be decoupled, there’s no reason for Zscaler to get into the SD-WAN space.” This stance highlighted a philosophy focused on securing direct application connections rather than managing the broader network layer.

Fast forward to last week’s Zscaler Zero Trust (ZT) SD-WAN announcement. Zscaler unveiled a strategic pivot that places them squarely into the SD-WAN space, indicating a significant expansion of their focus towards networking. By introducing new hardware appliances, the Z connector series, Zscaler targets small to medium-sized branches, aiming to blend zero trust security with SD-WAN capabilities. This move positions Zscaler as a competitor against existing SD-WAN behemoths like Cisco, departing from Chaudhry’s earlier assertions.

I had the opportunity to sit down with Zscaler this week for a briefing on the new Z connector appliance family encompassing three models: the ZT 400, ZT600, and ZT 800. The hardware appliances range in performance from 200Mbps to 1Gbps, which Zscaler stated was sufficient for small to medium branches. Zscaler admitted the need for higher throughput hardware and is actively investigating. Until faster hardware arrives, customers must rely on the VM-based software appliance (Zscaler Branch Connector) that can scale horizontally with 3rd-party load balancers.

A critical application of Zscaler’s strategy is enhancing IoT environments, with the appliances featuring IoT device discovery, yet, notably, they do not include Wi-Fi capabilities. Distinctively, Zscaler adopts a subscription-based model for its Z connector appliances, marking a departure from most of the industry’s standard practice of selling hardware solely through a capital expenditure (Capex) model. Details on the pricing remain confidential, with an announcement scheduled for this month (February) alongside the release of the Z connector software.

Zscaler’s SD-WAN strategy presents a streamlined, cloud-based alternative to complex traditional networking frameworks, emphasizing ease of management. The conversation underscored Zscaler’s potential to enhance or supplant current SD-WAN infrastructures. Yet, Zscaler recognizes its significant challenges in evolving into a hardware-centric enterprise. These challenges span the spectrum from regulatory compliance and establishing efficient distribution networks to ensuring next-day hardware replacement capabilities and bolstering support services. Additionally, Zscaler is focused on refining its SD-WAN solutions to enhance competitiveness and expand its offerings to support larger branch networks, necessitating integration with campus and Network Access Control (NAC) systems (in the vein of “Universal ZTNA”).

Adopting Zscaler Z-connector appliances positions Zscaler as a central network provider, managing secure application access via its Zero Trust Exchange and linking an enterprise’s operational integrity to its performance. This shift towards consuming a secure network as a service, akin to how cloud services for servers and storage are utilized, marks a significant change in enterprise networking that may feel foreign to some. Networking goes from hardware with blinking lights to an ephemeral service from the cloud. Despite this, it’s part of an industry-wide transformation, with other progressive vendors like Aryaka, Cato Networks, Cloudflare, and Versa Networks offering some or all their network services in a similar fashion.

This trend toward network as a service, the SASE framework, and multi-cloud networking are key pillars of my Distributed Cloud Network concept, which I discussed in my op-ed on SDxCentral. Collectively, these elements represent the future of enterprise networking, integrating new technology and consumption models into the broader, evolving landscape of enterprise IT strategies.

Zscaler’s evolution from sidestepping SD-WAN by exclusively relying on integrations with third-party SD-WAN vendors to now offering SD-WAN capabilities natively underscores the company’s adaptability and strategic growth. This shift highlights Zscaler’s responsiveness to changing market dynamics and marks a significant new chapter in its journey as a single-vendor SASE provider.

My SWOT analysis follows:

Strengths

  • Market-leading SSE with a strong security focus with zero trust architecture.
  • Simplified cloud management and deployment.
  • Targeted solutions for small to medium-sized branches.
  • Adoption of a modern subscription-based business model.

Weaknesses:

  • New entrant in the hardware-focused networking market.
  • Limited hardware portfolio breadth.
  • Pricing strategy not clearly defined.
  • Convincing established customers to switch from traditional vendors and approaches may pose challenges.
  • ZIA and ZPA are built on separate technology stacks and operate as distinct networks, unlike some newer SASE vendors that utilize a single network with a common technology stack. Having separate technology stacks/networks increases the risk of subpar networking performance and reliability.

Opportunities:

  • Rising demand for integrated security and networking solutions.
  • Shift towards service-oriented and cloud-based network management.
  • Opportunity to capture a niche market looking for simplified SD-WAN solutions.

Threats:

  • Competition from better-established SD-WAN vendors like Cisco, Fortinet, and Palo Alto Networks.
  • Resistance from customers loyal to traditional networking methods that rely on more of the security and networking smarts embedded in each SD-WAN device.
  • Need for continuous innovation in a rapidly changing SD-WAN and security landscape.
  • Newer SASE vendors offering a unified technology stack across functions may appeal to customers seeking streamlined solutions, posing a competitive threat to Zscaler’s dual-product approach.
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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.

Source: Dell’Oro Group 3Q23 Reports

 

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.

Source: Dell’Oro Group 3Q23 Reports*

 

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.

Source: Dell’Oro Group 3Q23 Reports*

 

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.

Source: Dell’Oro Group 3Q23 Reports*

 

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:

*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.

 

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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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Happy New Year! We couldn’t hope for a more exciting start to the year than with the groundbreaking announcement that HPE has entered into a definitive agreement to acquire Juniper. In this blog, we delve into the potential impact of this acquisition on the market, along with additional predictions for what 2024 may have in store for us:

  1. The Campus Switch Market is on the Verge of a Correction in 2024

Right before the holidays, we published our 3Q23 reports which provided an overview of the market performance for the first nine months of 2023. Based on those results, the market is estimated to have grown strong double-digits in 2023, marking the third consecutive year of a very robust growth. As a reminder, the typical growth rate in the campus switch market, pre-pandemic, has been in the low-to-mid single digits. The outstanding performance in the last couple of years begs the question: where do we go from here? Based on our interviews with the vendors as well as value-added resellers (VARs) and system integrators (SIs), we believe the market is poised for a correction in 2024. We anticipate the demand in the market to slow down significantly as customers absorb and digest existing capacity. Additionally, conversations with key vendors indicate their anticipation of a return to normal backlog levels by the beginning of 2024. Once the backlog is restored to its typical state, sales performance will more accurately mirror organic market demand, eliminating the potential for backlog-driven inflation

2. HPE/Juniper acquisition Will create a Tectonic Shift in the Market

While the HPE/Juniper acquisition may not be finalized until the end of the year, we anticipate witnessing its impact on the market and competitive landscape throughout 2024. We foresee other vendors accelerating the pace of innovation and product introductions, anticipating potential synergies created by the combined HPE/Juniper entity, as explained in my HPE/Juniper blog. Additionally, we expect employees to transition between companies, fostering cross-pollination. Monitoring customer reactions will be crucial throughout the year. We believe the HPE/Juniper deal may further amplify the anticipated pause in market demand as customers will be seeking clarity on how the acquisition will impact future roadmaps.

3. AI capabilities will increasingly define the competitive landscape in the market

In the midst of intense competition and an expected slowdown in market demand, vendors find themselves compelled to enhance their offerings with AI capabilities. The addition of these AI capabilities brings several benefits, including product differentiation, increased demand for new use cases and applications, acceleration in product refresh cycles, and higher customer retention. However, it remains intriguing to observe vendors’ ability to effectively monetize these features. Furthermore, as customers weigh the options between on-premises and cloud-managed solutions, as well as subscription versus perpetual consumption models, we believe that AI features will play a pivotal role in influencing these choices. Customers are likely to opt for the model that allows them to benefit the most from these AI features.

For more detailed views and insights on the campus switch market, please contact us at dgsales@delloro.com

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Early last year, we predicted that the enterprise class WLAN revenues would surpass $10 B in 2023 and that sales would be weighted to the first half of the year, defying the usual seasonal patterns.  Although 4Q23 results have not yet been published, the first three quarters of the year indicate that 2023 is unfolding as we anticipated.

In the first half of 2023, manufacturers shipped more Access Points (AP) than any first half in history.  In the aftermath of the pandemic, a lack of components had created pent-up demand, just as businesses wanted to adapt their networks to accommodate hybrid work models.  With equipment in short supply, prices rose and were locked into orders awaiting fulfillment. Once the shortages were alleviated, unit shipments flooded into the channels and manufacturers recognized record revenues.

The good times showed signs of waning in 3Q23, as it became evident that the distribution channels were holding excess equipment, and enterprises needed time to deploy the high volumes of units that had shipped.  This led to a drop in unit shipments from manufacturers, with the blow to revenues softened by growth in average prices.

The party may be over, at least temporarily, for the WLAN market; but scratching the surface, there were a couple of gems in 2023 that point to longer-term expansion.

First, use of the new 6 GHz band for Wi-Fi expanded.  The spectrum was approved for unlicensed use in the US in 2020, but worldwide shipments of APs supporting the new band stayed below 3% until 2023.  In 3Q23, Wi-Fi 6E shipments rose to 10% of units shipped, representing almost a quarter of worldwide revenues.  Wi-Fi 6E shipments grew despite a lack of coordination by worldwide regulatory bodies regarding which portions, if any, of the 6 GHz band are allocated for unlicensed (Wi-Fi) use.  Then, as the cherry on the 6 GHz sundae, Wi-Fi 7 APs became commercially available for enterprises in 2023. The new standard (also known as 802.11be) promises higher throughput and lower latencies and will operate in 6 GHz where available, but it will also work in the legacy frequency bands.

Second, AIOps and network automation moved to the forefront of IT decision making.  Manufacturers introduced new AI-driven operations features for troubleshooting and recommending configuration changes.  Startup Wi-Fi vendors marketed services based on fully automated network operations. Enterprises who deployed AIOps began reporting a dramatic reduction in network trouble tickets.  In 2023, the automation of network operations became a paragon of AI’s value proposition to enterprises.

This context leads us to the following predictions for the WLAN market in 2024:

  1. The WLAN digestion period will take hold and continue well into 2024

It will take several quarters for the excess WLAN equipment to clear itself from the distribution channels and enterprises’ inventories.  In addition, some enterprises are concerned about the economic context and are elongating their decision-making.  We project an overall contraction in WLAN revenues in 2024, especially given the record high sales that occurred in 2023.

  1. Wi-Fi 6E adoption will begin to decline as the availability of Wi-Fi 7 expands

There are already 6 vendors selling Wi-Fi 7 APs to enterprises, and the rest of the major vendors are expected to introduce Wi-Fi 7 APs in 2024.  Over the course of 2024, vendors will ship more Wi-Fi 6E than Wi-Fi 7 APs. However, 2024 will be the year that Wi-Fi 7 establishes a hold on the market.  As a broader range of configurations becomes available, sales of Wi-Fi 7 will begin to displace sales of Wi-Fi 6E.  Wi-Fi 7 adoption is expected to grow significantly over the next few years, representing 45% of the Indoor APs shipped in 2027.

  1. Software revenues will dampen the effects of lower unit shipments

As WLAN management applications add features that enterprises value, enterprises are more likely to accept the associated recurring costs.  The results from 3Q23 showed an early indication that the market is entering into a digestion period:  unit shipments dropped by 14% year-over-year and AP revenues contracted by 10%.  Meanwhile, Controller & Licenses revenue grew by over 20%.  The recurring license fees paid by the installed base of users helped to grow this line item, even as unit shipments dropped. This phenomenon may soften the downturn, especially for the vendors who have managed to shift their customer base to a recurring model.

  1. Campus NaaS will gain traction as enterprises focus their priorities

In last year’s predictions, we indicated that some clarity was needed to define Campus Network as a Service (Campus NaaS) offers – many manufacturers were using the term NaaS to mean different things.  In our June 2023 report, we were able to broadly categorize the offers into three groups: Enabler, Turnkey, and Wi-Fi as a Utility.  Since then, more vendors have begun to offer LAN equipment and software in cloud consumption model, and the offers have begun to appeal to a broader set of enterprise verticals.  In 2024, the definition of Campus NaaS should become even crisper, and enterprises will begin to consider the service as a way to outsource their IT connectivity, allowing them to focus on their core business priorities.