Last week’s 2021 OCP (Open Compute Project) Global Summit marked its tenth anniversary. Fittingly, the vendor and partnership announcements were significant.

Meta (formerly known as Facebook) once again dominated the show’s headlines with product, architecture, and partnership announcements that will have a far-reaching impact on switch vendors and component suppliers. As the fourth-largest cloud service provider (SP), Meta accounts for a significant portion of total network and IT spend. Thus, the supplier ecosystem always pays close attention to upcoming changes in Meta’s data center architecture or procurement strategy.

Meta continues co-development efforts with Arista with the minipack 2 chassis design

Historically, Meta has mostly used white-box vendors in its Top of Rack (ToR) applications, running Meta’s home-grown Network Operating System (NOS) called the FBOSS, whereas in the leaf, spine, and data center Interconnect (DCI) layers, this cloud SP has mostly deployed Arista’s switches with Arista’ EOS. There has been, however, a recent concern that this relationship is in decline, as Meta’s spending with Arista has been weak in recent quarters. Some thought that white-box suppliers are muscling in on Arista’s share. However, based on multiple industry checks, we, at Dell’Oro Group, thought the softness in Meta’s contribution to Arista’s revenue was due to an interim pause in Meta’s data center capex spend.

Arista is expected to ship its recently announced 7388X5 switch to Meta in 2H21. This chassis is compliant with the minipack2 design and will support both Meta’s FBOSS and Arista’s EOS. We expect that Meta will run mostly the latter.

Meta partners with Cisco on Wedge400C for Top of Rack applications

In December 2019, Cisco announced its entry into the routing and switching merchant silicon market by allowing its latest Silicon One chips to be consumed both internally, in Cisco’s systems like Cisco 8000, and externally by customers who want to use the chip to build their own systems. The goal of this development is to help win a new footprint at the major cloud SPs, where Cisco has been losing share to white-box switch vendors. For some time, Cisco has alluded to its strong, early traction at the hyperscalers with its Silicon One chips. Yet this was the first major public announcement highlighting the new switch chip footprint at one of the top-four Cloud SPs—Meta.

Silicon diversity at large Cloud SPs networks has been a theme over the past few years, fueled by the need to put pressure on Broadcom, which has dominated the merchant silicon space to date. The increased number of viable merchant silicon suppliers—such as Cisco and Marvell/Innovium—along with industry-wide supply constraints—have further accelerated this trend.

The new Wedge400C switch is expected to be deployed in the ToR layer at Meta’s data center network, using Cisco’s Silicon One chips inside a white-box switch supplied mostly by Celestica and running Meta’s FBOSS.

How big is this opportunity for Cisco and what does it mean?

Based on our estimates as well as industry checks, we estimate the size of this opportunity will represent only less than $50 M in 2022. This move, however, will be very strategic for the firm, as we expect Cisco to penetrate other data center network tiers (leaf, spine, and DCI), where we anticipate expansion will accelerate when Meta starts to adopt some form of co-packaged optics. When this occurs, it will be crucial to dual-source network chips as well as optics. Optics represents a much greater opportunity for Cisco because it accounts for more than half of the networking spend at 200 Gbps speeds and higher.

For more details, insights on cloud service providers’ data center network design, and the list of suppliers, please contact us at dgsales@delloro.com

Tsunami of Spending Floods Education and Government Verticals

Dell’Oro Group published an update to the Wireless LAN market 5-Year Forecast report in July 2021. We lifted our forecast and resumed our pre-pandemic outlook that spending on Enterprise-class WLAN equipment over the next five years will approximate $40 B worldwide, resulting in a CAGR of high single digits.

Governments around the world are injecting enormous amounts of cash into advancing network technology in their education systems and improving Internet access to their citizens. Enterprise WLAN equipment just happens to be in the sweet spot. Manufacturers are in the right place, at the right time, particularly those with established relationships in the education and government vertical industries.

Enterprise-class WLAN equipment has been flying off the shelf for the past three quarters. All industry participants from systems manufacturers, to component manufacturers to network integrators that we have interviewed indicated bookings are stronger than supply. Demand is being fueled by an influx of fiscal stimulus from governments of many countries, which we have estimated to approximate $1 B. We reckon there has been some spending from a few large enterprises, but we have yet to see a recovery in spending from broad-based private enterprises of all sizes, and all vertical industries.

We are modeling this phenomenon of extraordinary levels of government spending to abate over the next year, however, we question whether we are entering an Eisenhower-like era of technology infrastructure buildout which could span a decade. Additional initiatives could surface particularly if existing projects are successful, and more countries may also launch initiatives, not wanting to be left behind. We are watching for announcements of government technology or digitization initiatives.

We previously predicted a surge in sales in 2022 with the arrival of Wi-Fi 6E products, but users are not waiting, they are spending now. We learned that many government-funded projects have deadlines, and therefore users are deploying products available now. Ergo, the surge appears to be happening in 2021 rather than 2022.

Wi-Fi 6E and Wi-Fi 7 Low-End Access Points Accelerate Adoption

We model a more rapid penetration rate of both Wi-Fi 6E and Wi-Fi 7 because we expect lower-end products to come to market sooner than higher-end. This is a change, as previous technology transitions were led with high-end products, not low-end. Lower-end products dominate market volume and that may translate into a faster return on investment for both semiconductor and system manufacturers. Additionally, the performance advances with 6 GHz spectrum even with a lower-end access point, could delight most users.

Cloud-managed and Premises-managed Network Applications to Lift Sales

Sales of WLAN network management equipment (named controllers), and specialty applications such as troubleshooting, and location finding/tracing have been approximately the same level for the past 10 years, while overall WLAN market sales have about doubled, and access point unit volumes have quadrupled. Manufacturers have been developing new features and selling them separately from the management hardware, as subscription licenses. This has been intensely competitive, providing a way for manufacturers to differentiate and rapidly bring new capabilities to market. As in many intensely competitive markets, we’ve recently seen declines in license prices, resulting in a flurry of activity which portends 2021 to be a year of change. We are optimistic that manufacturers will be rewarded with higher revenues as they develop applications reducing customer pain points.

To learn more about the Wireless LAN market, or if you need to access the full report, please contact us at 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.be (Wi-Fi 7), 802.11ax (Wi-Fi 6 and 6E separately reported), 802.11ac (Wi-Fi 5) Wave 1 vs. Wave 2, 802.11n, and historic IEEE 802.11 standards. It includes forecasts for regions of the world and for Cloud-managed vs. Premises-managed. To purchase these reports, please contact us by email at dgsales@delloro.com.

Power-over-Ethernet ports are forecast to compose nearly 50% of campus switch ports by 2025

Since issuing our January 2021 five-year forecast report, we have published actual shipment and revenue data for 2020 and the first quarter of 2021. (Note that vendors did not report full-year 2020 financial results until after our January 2021 report was published.) 2020 revenue came in below the revenue forecast published in our January 2021 report. Nonetheless, we have raised our 2021 forecast from 2% growth to 3% growth.

Our more optimistic 2021 outlook is prompted by strong market performance that has so far exceeded our expectations. (1Q21 revenue was up 4% Y/Y in contrast with our flat-market forecast.) Although some of the growth in 1Q21 might have been reflective of pent-up demand, it came mostly from the public sector, while the private sector has not recovered yet, paving the way for more growth in the remainder of the year and potentially next year.  Funding around the world lifted public sector performance in 1Q21 and is expected to continue to stimulate market growth for many quarters – and possibly years – to come.

Last but not least, projected growth in 2021 will be propelled by ongoing improved macroeconomic outlooks. Recent GDP reports indicate that economists at the world’s leading banks have raised their growth projections for both 2021 and 2022.

Looking beyond, we expect the market to continue to grow in 2022, exceeding its 2019 pre-pandemic revenue level. In 2022, we expect growth to accelerate from 2021, due to pent-up demand from the verticals most greatly affected by the pandemic.

Despite the potential downside impact from COVID-19, such as work from home and further cannibalization from WLAN, we expect the pandemic to bring some upside impact, including:

• Accelerated pace of digital transformation initiatives. Although the majority of IoT devices will be wireless, some devices – such as security cameras, industrial lighting, and some sensors – are expected to remain on wired Ethernet.
• Greater share of higher-priced PoE devices. We expect IoT devices to drive an increased share of higher-priced PoE ports. We currently project PoE ports to compose nearly half of all ports by 2025. We expect this trend to help boost market average selling prices (ASPs).
• Accelerated pace of the campus switch refresh cycle. We expect the adoption of digital transformation to accelerate the pace of the campus switch refresh cycle. In order to enable digital transformation, the network must undergo numerous changes. Automation, security, visibility, and analytics/intelligence are added functionalities that IT managers need for the new digital era.

In our campus switch five-year forecast report, we explore the methodology used to quantify the pandemic’s upside and downside risks. Additionally, our interviews with end-users, system integrators, and VARs revealed an increased interest in Network as a Service (NaaS) during the pandemic. We expect this interest will persist after the pandemic ends.

To access the full report for revenue, units, pricing, and relevant segmentation, including regions and vertical markets, please contact us at dgsales@delloro.com

About the Report The Dell’Oro Group Ethernet Switch – Campus Five-Year Forecast Report offers a complete overview of Ethernet switches built and optimized for deployment outside the data center to connect users and things to Local Area Networks. The report provides tables covering manufacturers’ revenue, average selling prices, and port/unit shipments by Ethernet and Gigabit speed (Fast and 2.5, 5.0, 25, 10, 40, 50, and 100 Gigabit Ethernet). Regional breakouts and Power Over Ethernet (PoE) are also included.