At the end of April, Nokia, a fairly new entrant to the data center switch space, made the groundbreaking announcement that the company will be supplying its 7250 IXR networking gear to Microsoft, the third-largest Cloud Service Provider (SP).
As I noted in my 2022 prediction blog published earlier this year, I have been anticipating a fair number of new switch vendor insertions at the large hyperscalers in 2022, as the 400 Gbps upgrade cycle starts to materialize outside of Google and Amazon. Silicon diversity would be one of the major reasons for these potential changes in the vendor landscape, as these hyperscalers need to keep pricing pressure on Broadcom, the dominant merchant silicon supplier to date. Supply challenges further accelerated the need for silicon diversity. However, what is intriguing is that Nokia’s 7250 IXR is based on Broadcom’s merchant silicon, not Nokia’s FP5 proprietary chips. So what will Nokia bring to the table?
What’s in it for Microsoft?
Although Nokia is a fairly new entrant in the data center switch space, the company is among the leading vendors in the router market and in several other Telecom SP segments. Clearly, Nokia has significant experience in systems design, which – as we learned from the company’s spokesperson – allowed it to achieve power savings at a system level. As a reminder, as network speeds move to 400 Gbps and beyond, power consumption becomes one of the most constraining factors that limits what Cloud SPs can build and deploy in their data centers. In fact, Microsoft already faced this challenge with its 400 Gbps deployment, as it had to wait for Broadcom’s Jericho 2C+ chips that consume less power than their prior generation of Jericho 2 counterparts.
Furthermore, Nokia has made significant contributions to the SONIC ecosystem. (SONIC is the open-source software built by Microsoft that runs in its data center networks.) We view this Microsoft data center win as a reward for the company’s contribution. In fact, this quid pro quo relationship expands well beyond the data center win into several other areas. For example, Nokia is also working with Microsoft on developing 4G LTE and 5G private wireless for the enterprise segment. This collaboration brings together Nokia’s virtualized radio access network (vRAN) and multi-access edge cloud (MEC) with the Azure Private Edge platform.
Additionally, Nokia has the potential to leverage its coherent optics technology; which the firm obtained with its Elenion acquisition to drive cost and power savings at a system level for data center interconnect (DCI) applications.
Last, but not least, although Nokia’s 7250 IXR is built on Broadcom’s silicon which does not satisfy the silicon diversity requirement, it will nonetheless provide Microsoft with another route to access Broadcom chips, which is critical in a supply-constrained environment.
Where will Nokia’s 7250 IXR be deployed?
The initial deployment of Nokia’s modular switches will occur in the spine, which Microsoft refers to as Tier 2, but may expand to DCI applications at a later stage. As a reminder, Microsoft has been deploying predominantly Arista in Spine/DCI but has also recently qualified Cisco (with its silicon one-based 8000 chassis). Nokia will also supply fixed form factors for Top-of-Rack (ToR) applications. It is worth noting that Microsoft has always had a multi-vendor strategy for its ToR applications, where volume is high but the margin is thin. So far, the company has deployed a mix of Cisco, Dell, and Mellanox (Nvidia).
What does this mean for incumbent vendors?
While we view this announcement as a major win for Nokia and as validation of its competitive positioning in the data center switch market, we believe that Microsoft will strive to keep its existing suppliers happy and provide them with enough motivation to compete for its business. Our interviews revealed that Arista is expected to remain the preferred supplier for spine/DCI applications at Microsoft during the 400 Gbps upgrade cycle. Additionally, we expect Microsoft to go through major expansion and upgrade activities this year and that its data center spending will be strong enough to benefit all vendors – incumbents as well as new entrants.
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