At the beginning of each year, we analysts like to look backward and reflect on our predictions for the prior year to review what we got right and what we got wrong, and then look forward in order to predict how the new year may unfold and what technology trends may shape our forecast.
In reviewing my 2021 predictions, published a year ago, I’m delighted to report that the 2021 data center switch market unfolded pretty much in line with my expectations, with sales up high single-digit-to-double digits. Growth was broad-based across the Cloud segment (up by double digits) as well as the non-Cloud segment (up in the mid-single digits). Note that the growth in the non-Cloud segment was mostly driven by large enterprises (comprised mainly of the Fortune 2000 companies).
The Data Center Switch Market Spotlight Will Continue to Shine in 2022 if Supply Permits
We are currently projecting that the data center switch market will grow by double digits in 2022, with the Cloud segment growing almost at twice the rate of the non-Cloud. Although the panic purchasing behavior fueled by ongoing supply challenges is one of the major drivers for such a robust market forecast, there are also some fundamental catalysts behind the strong demand we expect to remain in the market. For the Cloud segment, we expect increased network spending propelled by the following:
- accelerated adoption of 200/400 Gbps at Microsoft and Facebook, as explained later in this blog
- expansion cycles at some of the large hyperscalers, further fueled by new AI (artificial intelligence) workloads
- ongoing pent-up demand at Tier 2/3 Cloud Service Providers (SPs)
As for the non-Cloud segment, we expect the demand to be fueled by an accelerated pace of digital transformation.
Despite our optimism, supply constraints may continue to threaten market performance. As a reminder, despite the robust sales growth witnessed last year, supply fell short of demand. Based on our interviews with system and component vendors, as well as some of the Value Added Resellers (VARs) and System Integrators (SI), we do not expect the supply situation to improve until the second half of this year.
200/400 Gbps adoption to Accelerate Beyond Google and Amazon
Although 2021 market performance was pretty much in line with our predictions, 200/400 Gbps shipments fell short of our expectations. 200/400 Gbps shipments have been so far consumed mostly by Google and Amazon, and we have been predicting that deployment at Microsoft and Meta (Formerly known as Facebook) should start to accelerate in 2H21. However, while shipments were on track with our predictions, recognition of the revenues from some of those shipments has been deferred due to a pending qualification cycle. Hence, we did not reflect these 200/400 Gbps deployment at Microsoft and Meta in our reports. We expect revenue from these shipments to be recognized this year, and project the 200/400 Gbps ports to more than double in 2022.
800 Gbps Shipments May Debut at Google
While 200/400 Gbps shipments have barely started to take off at Microsoft and Meta, we expect Google to deploy 800-Gbps this year. 800-Gbps deployment will be propelled by the availability of 800-Gbps optics, which provide significantly lower cost per bit than two discrete 400-Gbps optics (about 25–30% lower cost). Additionally, 800 Gbps enables lower cost per bit at a system level. With the availability of 100 G SerDes technology, switch chip capacity will essentially double, from 12.8 Tbps to 25.6 Tbps. 800 Gbps ports will allow those chips to be configured in 1 U fixed factor as 32 ports of 800 Gbps (with each port potentially configured as 2×400 Gbps or as 8×100 Gbps).
Silicon Diversity Will Become More Pronounced
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. We expect the increased number of viable merchant silicon suppliers such as Cisco and Marvell/Innovium—along with industry-wide supply constraints—to further accelerate this trend in 2022. As a reminder, in 2021, Marvell announced the acquisition of Innovium, giving the latter access to more engineering and financial resources, and at OCP 2021, Cisco announced that it will be supplying Meta with its Silicon One chips on the Wedge400C for Top of Rack applications.
AI-Driven Workloads to Continue to Shape Data Center Network Infrastructure
Dell’Oro Group projects that the spending on accelerated compute servers targeted to AI workloads will reach double-digit growth over the next five years, outpacing other data center infrastructure. However, AI applications are power- and bandwidth-hungry, and may require different ways to architect the network. We expect these requirements to drive faster adoption of high-speed networks and, in some cases, even some proprietary type of network architecture, which may not necessarily be Ethernet-based.
For more detailed view and insights on the data center switch market, please contact us at dgsales@delloro.com
