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.

We’ve just wrapped up the 4Q20 reporting period for Dell’Oro Group’s Enterprise Network Equipment programs, which include Campus Switches, Enterprise Data Center Switches, SD-WAN & Enterprise Routers, Network Security, and Wireless LAN. Enterprises include businesses of all sizes as well as government, education, and research entities. The equipment tracked in these programs can be used for wired or wireless data communication in private and secure networks.

 

2020 Market Performance

Our reports suggest that the overall Enterprise Network Equipment market declined 2% year over year (Y/Y) for full-year 2020 to $48.5 B as a result of the COVID-19 pandemic. This is a significant departure from the 6% CAGR achieved from 2014 to 2019.

The decline was driven mostly by campus and data center switches. In the meantime, enterprise spending was up on both routers and security and it was flat on Wireless LAN. What’s interesting is that growth in routers and security was actually driven by software and subscription-based products (SD-WAN and virtual and SaaS security). Even within Wireless LAN, we saw growth in controllers and licenses. In the meantime, spending declined on hardware products (access routers, physical firewall, Wireless LAN access points, and Ethernet switches).

The softness in the total Enterprise Network Equipment market was more pronounced in the first half of the year. However, starting in 3Q20, spending on network equipment began to recover, as enterprises showed confidence investing for the future. Government stimulus around the world was also a major factor. Additionally, what caught our attention is the spread across various technologies of this increase in spending. We calculated that enterprises increased their spending on network equipment by about $400 M in 2H20 (compared to 2H19), about 70% of which was allocated to Wireless LAN.

 

2020 Vendor Landscape

 

From a vendor perspective, Huawei and Cisco composed about 50% of the Enterprise Network Equipment market in 2020; they were the only two vendors with more than 10% revenue share in the Enterprise Network Equipment market.

Cisco remained the market leader in all segments. However, the company saw revenue-share loss in 2020 due to high exposure to hardware-based products and low exposure to China, which outgrew the market during the pandemic.

In the meantime, Fortinet climbed to fifth place, displacing H3C. Fortinet has high exposure to the security market, while H3C has high exposure to the switching market. Since security performed better than switching in 2020, it helped Fortinet gain share and improve its ranking in 2020.

Top 9 Vendors	2019	2020
CISCO	44%	41%
HUAWEI	9%	10%
HPE ARUBA	5%	5%
PALO ALTO NETWORKS	4%	4%
FORTINET	3%	4%
H3C	3%	4%
JUNIPER	2%	2%
CHECK POINT	2%	2%
SYMANTEC / BLUE COAT	2%	2%

 

2021 Market Outlook

Dell’Oro analysts remain optimistic about the 2021 outlook and forecast 5% growth for the total Enterprise Network Equipment Market. This optimism is prompted by improving macro-economic conditions and business confidence as well as the ongoing government stimulus. Additionally, our interviews with end-users, system integrators, and value-added resellers (VARs) revealed that if a portion of the workforce returns to work by the end of 2021, spending on network infrastructure in preparation for such a development should start a few months in advance, perhaps as early as 2Q21 or 3Q21.

Dell’Oro Group Enterprise Network Equipment research programs consist of the following: Campus switches, Enterprise Data Center Switches, SD-WAN & Enterprise Routers, Network Security and Wireless LAN.

Related blogs for 5-year Forecast Jan 2021:

• Ethernet Switch—Campus
• Ethernet Switch—Data Center
• Network Security
• Wireless LAN 

In our latest forecast published in January 2021, revenue for the worldwide Ethernet controller and adapter market is projected to increase at a 3% compound annual growth rate (CAGR) from 2020 to 2025 to $2.7 billion.

This market is characterized by speed transitions. We project during our forecast horizon, the majority of the Cloud and Enterprise server market will upgrade port speeds from 10 Gbps to 25 Gbps, with a growth of 25 Gbps leveling by 2025. Newer technologies, Smart NICs and 100 Gbps Ethernet, and to a lesser extent, 50 Gbps, with CAGR growing strong double-digits by 2025, fueling market growth opportunities.

• As the Tier 1 Cloud service providers refresh their networks, we anticipate an upgrade in server connectivity to 100 Gbps, based on PAM-4 SerDes, for general-purpose workloads. High-end workloads such as high-performance computing, accelerated computing, and all-flash arrays, will also benefit with 100 Gbps connectivity across all customer types.
• Smart NICs, also referred to as data processing units (DPU), are also gaining traction, with numerous product introductions in 2020. Smart NICs are generally equipped with a programmable processor, such as an ARM-based SoC or FPGA; onboard memory and storage; operating system; and high-speed I/O, and offer various offload and security benefits. In 2020, the Top 4 US Cloud SPs comprised the vast majority share of the Smart NIC port shipments. By 2025, however, we expect Smart NICs to expand in customer segments outside of the Top 4 US Cloud, reaching a third of the Smart NIC port shipments. Due to the higher price premium of Smart NICs over that of traditional NICs, we anticipate that the impacts of Smart NICs on market revenue could be significant. We also predict that 100 Gbps will be the connectivity of choice for Smart NICs.
• While the growth of 25 Gbps will continue to moderate and reach maturity during our forecast horizon, 25 Gbps will likely be widely adopted and become the primary revenue contributor. We forecast 25 Gbps to comprise 38% of the cumulative market revenue by 2025.

We believe that these advances in server network connectivity will enable the major Cloud service providers to continue to scale their networks, and drive the adoption of bandwidth-hungry AI applications.

To learn more about the Ethernet Controller and Adapter market, or if you need to access the full report, please contact us at dgsales@delloro.com.

 

About the Report: The Dell’Oro Group Controller and Adapter 5-Year Forecast Report provides complete, in-depth analysis of the market with tables covering manufacturers’ revenue; average selling prices; and unit and port shipments by speed (1 Gbps, 10 Gbps, 25 Gbps, 40 Gbps, 50 Gbps, and 100 Gbps) for Ethernet and Fibre Channel Over Ethernet (FCoE) controllers and adapters. The report also covers Smart NIC and InfiniBand controllers and adapters. To purchase this report, please contact us at dgsales@delloro.com.