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“Given the strong bookings and unprecedented levels of backlogs, we expect the demand in the market to remain strong in 2022 but sales performance will be determined by the supply environment,” said Sameh Boujelbene, Senior Director at Dell’Oro Group. “However, as we look into 2023, concerns started to arise regarding the sustainability of the demand level in the market. Those concerns are fueled by increased macro-economic uncertainties, which, combined with potential improvements in the supply situation, may put a break on the panic purchasing behavior we are currently experiencing in the market.
“Although we may see some slowdown in revenue growth in 2023, due in part to a tough comparison with 2022, we expect the data center switch market to remain, for the most part, resilient to these macro-economic headwinds as the pandemic has amplified the importance of the network and accelerated digital transformation initiatives. Additionally, our interviews with value-added resellers and system integrators revealed that many vendors have implemented some sort of non-cancellation policy for their orders which should provide confidence in a strong revenue outlook, at least through the first half of next year.
“Another reason that underpins our optimism about the long-term health of the market is the portion of spending driven by Cloud Service Providers (SPs). Cloud SPs are projected to comprise 60 percent of the spending on data center switches by 2026 and to drive the adoption of 400 Gbps, 800 Gbps, and 1600 Gbps speeds,” added Boujelbene.
Additional highlights from the Ethernet Switch – Data Center 5-Year July 2022 Forecast Report:
The availability of 800 Gbps optics and 25.6 T chips propelled the adoption of 800 Gbps switch ports. This adoption was first spearheaded by Google. Other Cloud SPs such as Meta and Microsoft are expected to follow suit.
As Cloud SPs continue to migrate their networks to higher speeds, they will be making distinct choices in terms of chip capacity, switch radix, and network topology.
Co-packaged optics will start to ramp towards the end of our forecast horizon, but pluggable optics will continue to dominate.