Dell'Oro: 200/400Gbps Upgrade Cycle Will Accelerate In 2021

- Dec 23, 2020-

The Q320 report just released by Dell'Oro shows that in the third quarter of 2020, the global data center switch market increased by 1% year-on-year, while the previous forecast was a decline of 7%. The driving force was mainly from non-cloud sectors (including telecom service providers and Large enterprises, etc.). At the same time, the cloud sector performed flat as expected.


The growth in demand from large enterprises (including Fortune 2000 companies, which account for about half of non-cloud sector revenue) has driven the recovery of non-cloud businesses. Dell'Oro has always predicted that this area will return to growth, because it is more economical for these larger companies to build and manage their own private data centers than to use public clouds. However, due to the improvement of the macro economy, loose policies and the injection of government funds (which helped the public sector), the market's recovery exceeded analyst expectations.


In addition, driven by some 5G projects, the telecom service provider sector recovered in the third quarter, especially in the Asia-Pacific region. The telecommunications service provider sector in Europe and North America also grew. Despite this, Dell'Oro predicts that the demand for the telecom service provider sector will remain unstable. As for other corporate parts (except large enterprises), the analysts continue to see a downward trend, and this trend is not expected to be reversed due to continued migration to the public cloud.



The market will continue to improve in the rest of 2020


Looking forward to the fourth quarter of 2020, Dell'Oro expects that the large corporate sector will continue to drive market recovery.

As for the cloud segment, analysts expect Tier 1 and Tier 2/3 cloud service provider segments to continue to perform differently in the fourth quarter. For some reasons, the network spending of some Tier 1 (such as Facebook and Microsoft) and some Tier 2/3 cloud service providers in the United States will remain weak for the rest of this year. In the Chinese market, as the pace of digital transformation accelerates and the potential of the Chinese cloud market is discovered, the expenditures of Chinese cloud service providers will continue to grow and offset the weakness in other regions.


Dell'Oro predicts that in 2020, the market will only drop by a single digit, which is better than the previously expected decline in the median single digit. Among them, the cloud sector will grow in low single digits, while the recovery of the non-cloud sector in the second half of the year partially offsets the weakness in the first half of the year. Analysts' forecasts have been adjusted from the previous high single digit decline to a mid-single digit decline.


The data center switch market will grow at a high single-digit rate in 2021

Looking forward to 2021, Dell'Oro expects data center switch revenue to grow at a high single-digit rate. As the macro economy improves, large companies will promote the continued recovery of the non-cloud sector. For the cloud sector, analysts predict that network spending will achieve double-digit growth, driven mainly by cloud service providers other than Google and Amazon to accelerate the adoption of 200/400Gbps.


The 200/400Gbps upgrade cycle will accelerate in 2021

So far, most of the 400Gbps deployments on the market have been promoted by Google and Amazon. The availability of high-capacity, low-cost 400Gbps optical devices has always been the main limitation for the adoption of this technology. In addition, the specific use cases of some large cloud service providers require switching chips of appropriate density, power, and buffer size to achieve the transition. According to Dell'Oro's interviews with major chip suppliers and optical transceiver suppliers, with the adoption of Facebook in early 2021 and Microsoft in the second half of 2021, the 200/400Gbps upgrade cycle will accelerate.


Dell'Oro said that despite their optimistic outlook, they will not be surprised if the market continues to show volatility next year. Due to the rise in unemployment and bankruptcy rates, the level of market uncertainty is still relatively high, which may affect business information and inhibit the network spending of large enterprises and even some Tier 2/3 cloud service providers.

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