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Was Nokia's Microsoft switch deal win a reward for SONiC contributions?

Supply-chain constraints and code for network OS played a role, analyst tells El Reg

Nokia’s "significant" contributions to Microsoft's open-source SONiC project and ongoing supply-chain challenges undoubtedly played a role in the Windows giant's decision to deploy the Finns' network switches, despite their relative inexperience in the arena, Dell'Oro analyst Sameh Boujelbene told The Register.

The deal, announced in mid-April, will see Microsoft use Nokia's 400Gbit/sec 7250 IXR appliances as spine switches, alongside the Finnish biz's fixed form factor equipment for top-of-rack (ToR) applications.

At the time, Nokia touted the deal as recognition of its ability to meet and exceed Redmond's evolving datacenter requirements.

A win-win

The partnership came as no surprise to Boujelbene, who'd previously predicted a ramp in 400Gbit/sec switching, driven in large part by demand from hyperscalers and cloud builders.

For Nokia, the partnership is a significant win. While it is well versed in networking tech for telcos and similar service providers, it entered the datacenter switching market less than two years ago.

"Even though it's relatively small volume compared to Cisco, Nokia is still going from nothing to something," Boujelbene said. "It's really a validation that Nokia has really very competitive offers in datacenter switching."

Meanwhile for Microsoft, Nokia offers the IT goliath yet another source of high-performance switch silicon — Broadcom in the case of the 7250 IXER — and a means to mitigate ongoing supply-chain constraints.

Slipping lead times due to the global semiconductor shortage have dogged networking vendors in recent quarters. Arista this week said it would spend $4.3 billion – up from $2.8 billion in Q4, 2021 – to secure key components, many of which have lead times approaching the two-year mark.

According to Boujelbene, the deal isn't only about supply chain. It also allows Microsoft to maintain pricing pressure on other switch vendors. "Competition is always good and healthy," she said.

Another factor at play is Nokia's contributions to the Linux-based SONiC network operating system, which Microsoft began crafting years ago to run its datacenters and later publicly shared. Microsoft's strategy for SONiC is detailed in-depth, here.

"Nokia contributes a lot to SONiC, and Microsoft's mentality is we need to keep everyone happy so that they contribute to the SONiC community and so they compete to get our business," Boujelbene said.

Put another way, the deal is a reward intended to incentivize equipment suppliers' ongoing support of SONiC. Juniper springs to mind, for instance, as does Dell.

Nobody is ousting anyone

"I would say it was a very well calculated risk by Microsoft," Boujelbene said.

It should be noted that the win won't see Nokia oust Arista, which provides the lion's share of spine switches to Microsoft, Boujelbene said.

In addition to deploying Arista, and now Nokia, for spine switching, Microsoft also employs a mix of Cisco, Dell, and Mellanox (now Nvidia) hardware for ToR applications, Dell'Oro reports.

"We believe that Microsoft will strive to keep its existing suppliers happy and provide them with enough motivation to compete for its business," Boujelbene explained in a recent write-up.

While Nokia may only be a small piece of Microsoft's larger datacenter puzzle, Boujelbene expects the partnership could soon expand to datacenter interconnects. Here, Nokia's 2020 acquisition of optical networking outfit Elenion may give it a price and power efficiency advantage.

"That's a competitive advantage when you think about Nokia with their optics versus other standalone datacenter switching vendors who don't," Boujelbene said, adding that the right optics will be critical for enabling higher speeds while keeping power consumption and cost in check.

"As network speeds move to 400Gbit/sec and beyond, power consumption becomes one of the most constrained factors that limits what cloud [service providers] can build and deploy in their datacenters,” she wrote. ®

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