Datacenter switching surged in Q1, but it won't last forever

Supply and demand are in for a switcheroo, analyst tells El Reg

Cloud service providers drove the datacenter switching market to its fifth consecutive quarter of year-over-year growth, but it won’t last forever, Dell’Oro Group analyst Sameh Boujelbene told The Register.

While switch vendors managed to shrug off ongoing supply chain challenges in Q1 to collectively grow 16 percent over the prior year, Boujelbene said at some future point supply will once again exceed demand.

"As you take into consideration the lead times, you can project comfortably some growth in the market this year and maybe early 2023 based on demand. All you have to worry about is supply," Boujelbene said. "Unfortunately, at some point we have to start thinking about demand."

As a result, she expects network vendors to invest heavily in research and development over the next year and a half. "The only way we can keep that demand high is to bring new things to the market, to bring new products, new features, and to increase the rate of innovation."

And while Dell'Oro reported shipments of 400Gbit/sec switches exceeded 800,000 ports in 2022's first quarter – a number the research firm expects to ramp up over the next year – higher port speeds alone won't be enough. Customers are looking for improved manageability, security, visibility, and AI/ML functionality, Boujelbene explained.

Some recent examples include enhancements to Juniper's Apstra intent-based networking and Mist AI operations suites, which CEO Rami Rahim claims will fully automate networking by 2027. Arista last week unveiled a pair of low-latency switches with integrated AMD Xilinx FPGAS that target high-frequency traders.

For now, demand for switches continues to outstrip supply, and this provides greater visibility into the market, as vendors rack up a healthy backlog of orders, Boujelbene explained. According to Dell'Oro, cloud service providers drove nearly 70 percent of switch growth during the quarter, with Arista, H3C, Juniper, and Ruijie being the biggest beneficiaries of this growth.

But while cloud dominated shipments in Q1, Boujelbene noted that demand remains strong across all verticals as customers scramble to get their orders in, knowing it could be six months or longer before they get their hardware.

That's not to say networking vendors are entirely helpless. Early last month, Arista announced a $4.3 billion initiative to shore up its supply chain and keep lead times for critical components in check. ®

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