Dell’Oro published an update to the Data Center Capex 5-Year Forecast report in July 2021. Server spending is forecast to grow at a compound annual growth rate of 11 percent over five-year, comprising nearly half the data center capex by 2025.

The pandemic resulted in strong demand for computing and digital technologies due to a shift in enterprise and consumer behaviors. Current semiconductor foundry capacity is not adequate to meet the recent surge in global demand. The cost of servers and other data center equipment is projected to rise sharply in the near term partly due to the global semiconductor shortages. An increase of server average selling prices (ASPs) could approach the double-digit level that was observed in 2018, which was another period of tight supply and high demand. However, in the longer term, we anticipate that supply and demand dynamics could reach equilibrium and that technology transitions could drive market growth. We identify the following technology trends that shape our five-year forecast:

• CPU Refresh Cycles: Intel and AMD both have an aggressive roadmap to introduce new platform refreshes as the processor race heats up. Both the Intel Sapphire Rapids and AMD EPYC Genoa, expected in 2022, will pack more processor cores and memory channels, and support the latest interfaces such as CXL, DDR5, and PCIe Gen 5 that could enable denser server form-factors and new architectures.
• Accelerated Computing: A new class of accelerated servers densely packed with co-processors that are optimized for application-specific workloads, such as artificial intelligence and machine learning, is emerging. Some Cloud service providers such as Amazon and Google, have deployed accelerated servers using internally developed AI chips, while other Cloud service providers and enterprises have commonly deployed solutions based on GPUs and FPGAs. We estimate that attach rate of servers with accelerators to grow to 13 percent by 2025
• Edge Computing: Certain applications—such as cloud gaming, autonomous driving, and industrial automation—are latency-sensitive, requiring Multi-Access Edge Compute, or MEC, nodes to be situated at the network edge, where sensors are located. Unlike cloud computing, which has been replacing enterprise data centers, edge computing creates new market opportunities for novel use cases.

With the evolution of CPU platforms along with and proliferation of accelerated computing, we anticipate data centers will be better optimized to process application-specific workloads with fewer, but more powerful and denser servers, increasing the total available market through higher server ASPs. Edge computing, on the other hand, will increase the available market with greenfield deployment of servers distributed edge locations. To access the full Data Center Capex report, please contact us at dgsales@delloro.com.

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About the Report Dell’Oro Group’s Data Center Capex 5-Year Forecast Report details the data center infrastructure capital expenditures of each of the ten largest Cloud service providers, as well as the Rest-of-Cloud, Telco, and Enterprise customer segments. Allocation of the data center infrastructure capex for servers, storage systems, and other auxiliary data center equipment is provided. The report also discusses the market and technology trends that can shape the forecast.

800 Gbps adoption rate expected to be faster than 400 Gbps, composing more than 25% of data center switch ports by 2025

Since the onset of COVID-19, we have predicted that the data center switch market will be for the most part resilient to the effects of the pandemic and that it will quickly recover from its low, single-digit revenue decline in 2020. We continue to believe that the Ethernet switch data center market will return to growth in 2021 and be able to exceed its 2019 pre-pandemic revenue level.

Following are key takeaways from the July 2021 Five-Year Ethernet Switch Data Center forecast:

• • Our interviews with end-users and system and component vendors suggest that the pandemic has amplified the importance of the network and accelerated multi-year digital transformation projects. These trends are expected to bring major changes to data center networks and potentially generate additional market revenue.
  • Despite our optimism, our interviews with major vendors revealed that a number of them are already operating at full manufacturing capacity and that supply challenges will continue through the remainder of the year with a potentially more pronounced impact on market performance and the pricing environment. If this is true, our forecast may prove to be too high, as it doesn’t currently take into consideration the impact of these various supply issues.
  • Through our latest interviews with the large Cloud service providers (SPs), we have learned of a number of changes that may impact network architectures when they migrate to next-generation speeds. These changes will be driven by a limited power budget and new AI/ML applications, which may require different network topologies. These hyperscalers will make different choices in terms of network chips, switch radix, number of network tiers, and –ultimately – network speeds. We expect this diversity to increase when Cloud SPs build next-generation networks, as some will focus more on latency improvements while others will focus on power. Ultimately, however, all SPs will focus on cost reduction. Additional discussion about these possible changes and their associated effects may be found in our forecast report.
  • Optics have always played an important role in enabling speed migration on data center switches. With the transition to 400 Gbps and beyond, however, the role played by optics will become even more crucial for a number of reasons. First, because of their increased price, optics for 400 Gbps speeds and higher are expected to compose about 60% to 70% of network spending (compared with less than 50% for speeds lower than 400 Gbps). For this reason, some switch vendors are planning to use the optics opportunity to capture a higher portion of network spending. Second, optics may displace some dense wavelength division multiplexing (DWDM) transport systems for certain Data Center Interconnect (DCI) use cases. Last, but not least, while pluggable (as opposed to embedded) optics are currently the form factor of choice, they may potentially exhibit some thermal and density issues as we approach speeds of 1.6 Tbps and higher. All of these possible changes in optics and their corresponding impact on the data center switch market are addressed in greater detail in our report.

  • We predict that 800 Gbps adoption will be quick, surpassing 400 Gbps ports in 2024 (Figure). 800 Gbps deployments will be propelled by the availability of 100 Gbps SerDes and will not require 800 GE MAC. As a reminder, our forecast reflects port-switch capacity, regardless of how the port is configured. We expect early 800 Gbps ports to be used in breakout mode either as 8×100 Gbps or as 2×400 Gbps. (Breakout applications support many use cases, such as aggregation, shuffle, better fault tolerance, and bigger Radix.) The anticipated rapid adoption of 800 Gbps will be propelled by: 1) availability of 800 Gbps optics with a significantly lower cost per bit than two discrete 400 Gbps optics; and 2) lower cost per bit at a system level, as 800 Gbps will allow consuming 25.6 Tbps chips in a 1U form factor with 32 ports of 800 Gbps. These systems will have a better cost per bit than their equivalent 400 Gbps (which requires 2 U chassis to fit 64 ports). Since economics drive adoption, we believe that 800 Gbps will be more rapidly adopted than 400 Gbps.

To access the full report for details about revenue, units, pricing, speeds, regions, market segments, etc., please contact us at dgsales@delloro.com

 

About the Report The Dell’Oro Group Ethernet Switch – Data Center Five Year Forecast Report provides a comprehensive overview of market trends, including tables covering manufacturers’ revenue, port shipments, and average-selling prices for modular, fixed, and managed and unmanaged by port speed. We report on 1000 Mbps and the following Gbps port speeds: 10, 25, 40, 50, 100, 200, 400, and 800. We also provide forecasts by region and market segment, including Top-4 U.S. Cloud SPs, Top-3 Chinese Cloud SPs, Telco SPs, Rest of Cloud, Large Enterprises, and Rest of Enterprises.

In our latest Data Center Capex report published in June 2021, server spending, which accounts for more than 40% of the data center capex, is forecast to grow 8% in 2021. We anticipate growth to come mostly from an increase of server average selling price (ASP), as vendors pass on higher commodity pricing and supply chain costs to customers amid recent global semiconductor shortages. We predict demand on servers to strengthen in 2H 2021, as the major Cloud service providers ease out of a digestion cycle, and as enterprise spending unfreezes for certain sectors, which could further strain the supply chain.

We identify the following effects due to these ongoing supply chain constraints:

• Data center equipment—such as servers, storage systems, and Ethernet switches—contain critical components that may be supply constrained due to the recent shortages. Examples of such components include CPUs and GPUs, network processors, storage and Ethernet controllers, and DRAM and NAND chips. Passive components on the motherboard, such as capacitors and resistors, have longer lead times. While it is unclear how long the current component shortages will persist, there is an expectation in the industry that the backlog for components could be relieved by late 2021. Therefore, we have weighted capex towards the second half of this year and some of that capex rolling over into next year.
• As system vendors scramble to increase component purchases to meet immediate and future demand, the supply chain will continue to tighten, resulting in higher component and logistics costs that will eventually be passed to end-users in the form of higher system ASPs. For 2021, we forecast server ASP to approach double-digit growth. While server ASP grew by an unprecedented rate of 15% in 2018, also due to a high-demand and tight supply environment, we do not expect 2021 ASP increases to approach those of 2018. Consequently, system vendors could see a lift in their topline revenue from these ASP increases.
• Higher server ASPs could have several implications. First, given that the Cloud SPs purchase servers based on unit demand, higher server ASP could directly result in higher server capex. Second, given that enterprise IT budgets are usually fixed for the year, higher server ASP could translate to lower server unit purchases for the year. Thus, even though our 2021 server revenue forecast is relatively unchanged compared to our prior forecast, we have curtailed our projections for server unit growth.

In addition, we will watch out for other developments that could impact data center spending this year, such as, the Intel Ice Lake CPU ramp and delays to Sapphire Rapids, Cloud demand and enterprise recovery, the proliferation of AI, and more. To access the full Data Center Capex report, please contact us at dgsales@delloro.com.

In our latest forecast published in January 2021, the worldwide capex on data center infrastructure is projected to increase at a 7% compound annual growth rate (CAGR) from 2020 to 2025 to $278 billion.

We anticipate the growth of data center capex to vary depending on the customer segment. The Cloud will continue to gain share over enterprise/on-premise data center deployments, with COVID-19 accelerating Cloud adoption to some extent. Edge computing deployed over Telco networks could emerge near the tail end of the forecast period.

Among all the technology areas that we track, we forecast the cumulative revenue growth of servers to surpass that of other technology areas such as Ethernet switch, network security, optical transport, and router. Higher capex on servers will be driven by a combination of higher server unit demand from the Cloud and increasing server average selling prices (ASP). We identify some notable trends in server architecture that could have the effect of lifting server ASP for our forecast horizon.

 

The followings are some additional highlights from the Data Center Capex 5-Year Forecast January 2021 Report:

• CPU Refresh: New generation of servers are typically equipped with more memory, cores, storage, and faster I/O than the preceding generation. In 2018, server ASPs increased by 15%, partly due to the refresh of the Intel Xeon Scalable platform. We anticipate an uplift in ASP with Intel’s ramp of the Whitley server platform based on the 10 nm microarchitecture.
• Accelerated Computing: As the deployment of accelerated servers continues to grow, we expect that data centers will be better optimized to process AI and ML workloads with more powerful, denser, and costlier accelerated servers equipped with AI accelerator chips such as GPUs and FPGAs. Some of the Tier 1 Cloud service providers have deployed accelerated servers using internally developed AI chips. We estimate that the attach rate of servers with AI accelerators will reach double-digits by 2025.
• Smart NICs: These specialized network cards typically have an on-board programmable processor, and can be configured to offload the CPU of a specific network, storage, and security services and to provide flexibility for software-defined and converged networks. Smart NICs, which carry a 3 to 5X price premium compared to standard NICs, could further inflate server ASP if deployed at scale.

These advances to server architecture will correspondingly drive innovations in the data center, such as the need for more advanced cooling solutions, additional network capacity, etc. To learn more about Data Center Infrastructure and Server spending, or if you need to access the full report, please contact us at dgsales@delloro.com.

 

About the Report: Dell’Oro Group’s Data Center Capex 5-Year Forecast Report details the data center infrastructure capital expenditures of each of the ten largest Cloud service providers, as well as the Rest-of-Cloud, Telco, and Enterprise customer segments. Allocation of the data center infrastructure capex for servers, storage systems, and other auxiliary data center equipment is provided. The report also discusses the market and technology trends that can shape the forecast.