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.

We recently completed our 1Q 2021 Network Security and Data Center Appliance report that spans the Network Security and Application Security & Delivery Markets.  A year since the arrival of the Covid-19 pandemic and the ensuing weakness in both markets, the worst of the recent market weakness appears behind.  Our data suggests enterprises are fueling growth in both markets due to five reasons:

• Improved confidence in the macro-economic outlook: A year since the arrival of the Covid-19 pandemic, the worst appears behind us, and the light of the end of the dark tunnel is growing brighter. Vaccination rates are increasing–albeit for some countries and regions not fast enough–and the lifting of lockdowns is leading to increased economic activity. This, in turn, is being accelerated by economic stimuli by central governments.
• Increased spending on technologies to support hybrid work: Although governments are scaling back shelter-at-home mandates, we see a growing number of enterprises embracing hybrid work as a long-term strategy. Hybrid work–time split between the corporate office and the home–is expected to be part of the new post-pandemic normal.
• Increased spending on technologies that enabled the Internet-based application infrastructure: The pandemic forced business to be conducted online instead of in person. While some enterprises had completed the multi-year journey toward full digitalization by the time the pandemic arrived, many had not. Even with pandemic subsiding, we anticipate continued investment in digitalization efforts by the many enterprises still mid-journey.
• Need for greater capacity: As the size of Ethernet pipes–now 400GbE readily available –and global data in transit continues to grow, it drives upgrades of network security and application infrastructure.
• Seeking state-of-the-art security to thwart latest threats: Security breaches and attacks continue unabated, as evident in the recent spate of high-profile ransomware attacks at Colonial Pipeline, the largest pipeline system for refined oil products in the U.S., and JBS Foods, the world’s largest meat producer.

The Network Security market, which includes the Firewall, Secure Web Gateway (SWG), and Email Security technology segments, continued its rebound by growing 8% year-over-year (Y/Y) in 1Q 2021. Meanwhile, the Application Security & Delivery market, which includes Web Application Firewall (WAF), and Application Delivery Controller (ADC) technology segments, rose 17% Y/Y.

 

 

Additional key takeaways from the 1Q 2021 report period include:

• Revenue growth in both the Network Security and Application Security & Delivery markets could have been more robust if not for the ongoing global semiconductor crunch. Our analysis showed a low, single-digit impact in the physical appliance portion of these markets in 1Q 2021.
• Firewalls had a good quarter by historical standards with double-digit Y/Y growth. Growth was broad-based, with both virtual and all physical appliance sub-segments (Low End, Midrange, and High End) gaining ground.
• SWGs were up double-digit Y/Y as enterprises prioritized moving away from legacy VPNs and embracing cloud-based security solutions that promise better flexibility, control, and threat visibility.
• Email security rose by single-digit Y/Y based on the continued spread of malware primarily via email.
• WAF revenue grew by double-digit Y/Y driven by the continued priority placed on securing Internet-facing applications.
• ADCs rose by high single-digits Y/Y after spending most of 2020 in low, single-digit growth.
• Overall, we adjusted our forecast for 2021 and now project that the sum of the Network Security and Application Delivery & Security markets will hit double-digit Y/Y growth instead of single-digit Y/Y growth.

To learn more about the Dell’Oro Group Network Security and Data Center Appliances market report, please click here or email us at dgsales@delloro.com for report subscription information.

Today, Huawei presented an update on its CloudCampus business which is thriving. A message that resonated with me was how people embracing digital services and applications triggers the need for equipment with more intelligence and bandwidth. For example, the widespread adoption of mobile application-based financial transactions instead of credit card-based transactions requires big infrastructure changes with financial institutions. People in China are spearheading new technology adoption and in particular, with mobile applications. New technology adoption is the Chinese culture. This was particularly evident to me in a coffee shop in Shenzhen about a year ago. It was late afternoon in the business district and the shop was bustling with people seeking a caffeine lift. There must have been over 50 people—not one of them paid with cash or a credit card—all paid with their mobile phone. I have not seen that level of adoption in other regions of the world—yet.

Within enterprise networks, Huawei is seeing strong demand for upgrades to Wi-Fi 6 as enterprises move to large-scale deployment. Demand is from several vertical industries: manufacturing seeks automated optical inspection to increase production yields; agriculture seeks automation for stocktaking, feeding, and cleaning robots; universities and general commerce businesses are adding sensors creating smart campuses, smart buildings. Interruption-free and consistent service across heterogeneous Wi-Fi networks is also driving network upgrades.

In 2020, the adoption of Wi-Fi 6 in China climbed to just over 40% of overall Wireless LAN market sales, compared to just over 30% for all regions excluding China. We have been meeting (virtually) with many companies in the Wireless LAN market in the past few weeks and have learned that since January, similar to Huawei, others are seeing gigantic demand for Wi-Fi 6 and that demand for older technologies are “falling off a cliff”.

I question whether massive government spending in many countries could be bringing a multi-year technology transformation such as what “The New Deal” brought in public works (bridges, highways, sewage systems, buildings, etc.) after the Great Depression? If yes, Wi-Fi will certainly be a winning technology.