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We are in the midst of an AI revolution. Enterprises recognize the need to harness this technology to propel their businesses forward. However, amidst what seems like unlimited potential, IT leaders can be at a loss as to what concrete steps to take next.

AI training and inference has been a major influence on data center investments over the past few quarters. Orders for Data Center Physical Infrastructure, accelerator server components, and high-capacity switch ports have grown along with hyperscaler cloud expansion; in some cases, this growth has offset declines caused by pandemic-related supply problems.

Meanwhile, enterprise investments in AI infrastructure are only just beginning. The unfolding trends, described in more detail below, point to the need to invest not just in data centers, but also in campus networking.

Local Area Networks Trends
  • The need for a higher-capacity, high-performance LAN is growing. By 2027, the percentage of APs shipped to enterprises with multi-gig ports will rise to over 60% of the total APs shipped, almost double the rate of 2022. The combined shipments of 2.5, 5 and 10 Gbps campus switch ports will grow by over 150% between 2022 and 2027, fueled by increasing traffic on the LAN and higher-capacity Access Points (AP).
  • Spending on software licenses delivering AI Operations (AIOps) enhancements for WLAN management is forecasted to grow to 20% of WLAN spending in 2027, increasing faster than the overall WLAN market. Vendors embracing AIOps are expected to elevate the frequency of feature updates, such that enterprises will have access to new features on a monthly or even weekly basis.
Enterprise Data Center Trends
  • Over the next five years, enterprises will increase adoption of Hybrid Cloud infrastructures. Mission-critical AI workloads will drive investments in accelerated computing for private data centers. Enterprises will also benefit from a consumption-oriented cost structure of the Public Cloud for AI workloads. Cloud service providers will offer a variety of AI-enabled applications to enterprises to increase efficiencies and shorten product development cycles.
  • Enterprises will invest in Edge Computing deployments for business to business and business to consumer applications such as virtual and augmented reality, smart manufacturing, and smart retail.
  • Dell’Oro Group predicts that in 2027, over a quarter of data center switch ports shipped to large enterprises will be 400 Gbps or higher, compared to 9% in 2022. The adoption of higher speed interfaces will be driven by AI and High-Performance Compute (HPC) applications.

The trends indicate that whether an enterprise will use predictive, generative, or conversational AI—IT architectures must adapt.  Where should leaders start investing, given that it is still early days? What overarching principles should guide the enterprise’s IT transformation?

Analysis of some recent network transformation projects and discussions with industry leaders have shown that certain common themes have been guiding investments. Two of these themes, discussed below, are helping enterprises prioritize investments to meet their IT needs today, while allowing them to prepare their networks and computing infrastructure for the future.

1. Focus on Experience

The best way for an enterprise to align IT investments to its core business strategy is to center requirements on its customers’, its employees’, or its users’ experiences. As the use of AI applications intensifies in enterprises, network performance is becoming critical in the pursuit of excellent user experience. IT organizations are adopting various strategies to ensure that their IT infrastructure is meeting users’ needs.

Many organizations are implementing a Wi-Fi First approach, deploying high-quality wireless connectivity across the entire footprint of an office space, even extending to outdoor spaces. This is particularly important for companies that have embraced a hybrid work model.

IT departments are able to prepare for the future by deploying software defined radios (SDR) on Wi-Fi APs. On the latest generations of Wi-Fi 6E and Wi-Fi 7 APs, SDRs can be reconfigured from operating in the 5 GHz band to operating in the new 6 GHz band. The decision to open a radio in the 6 GHz band can be made once there is a sufficient number of clients supporting the new frequency, resulting in increased throughput and reduced interference. SDRs are especially useful in countries that have regulations regarding use of the 6 GHz band that are expected to change in the future.

Because of the proliferation of Wi-Fi and IoT, enterprises must expand their campus backbone and switching capabilities. Dell’Oro Group predicts that in 2024, over 40% of WLAN APs will be shipped with a multi-gig port. The plethora of IoT devices has driven up the number of connections and increased demand for switch ports supporting Power over Ethernet (PoE). Higher grade, even optical, cables will all be necessary as network users rely more and more on quality network connectivity and data-rich applications.

With cutting-edge network and data center technologies available, enterprises can consider the ways in which latency improvements may enhance their operations. For example, in its September 2023 paper Get Ready for Wi-Fi 7, the Wireless Broadband Alliance (WBA) identified industrial uses cases for which more deterministic latency could be beneficial. Autonomous Mobile Robots and wireless industrial safety controls may become possible with the implementation of Stream Classification Service (SCS) in Wi-Fi 7. An IEEE task group has also demonstrated that Wi-Fi 7 using SCS QoS characteristics provides significant latency gains over previous technologies (Figure 1).

 

Figure 1 – Wi-Fi 7 SCS shows higher determinism for end to-end latency between 1-10 ms

Source: Dave Cavalcanti, Intel Corporation, for IEEE 802.11-22/634r0

 

Latency can be further reduced with the deployment of computing infrastructure in close proximity to the users of latency-sensitive applications. For geographically distributed enterprises, the management of multiple data centers can be complex.  In this case, data center orchestration and unified management applications become critical for deploying and configuring services and workflows across multiple data centers, without risking security or reliability.

At the same time, As IT experts design their infrastructure, they have an additional lever on which they can pull to enhance user experience: the deployment of application-aware systems. Traditionally, networking has followed the OSI model of communications, with each layer of the model being unaware of the communications occurring at the layer above. Application aware systems can make connection-level decisions based on information provided by the application operating at a higher level in the stack.

Videoconferencing is an application that can greatly benefit from application-aware networking. IT departments can collect data from end-user devices, videoconference applications, and network operations platforms. They can use Machine Learning (ML) to identify the source of network problems and propose resolution suggestions. Networking equipment schedulers can be enhanced to optimize video streams or improve performance for certain groups of users, for specific applications, or for special events. Enhancements to support the high bandwidth of today’s video applications will lay the groundwork for the next generation of applications using very high resolution and volumetric video.

As data from different domains – data center, network, and application – come together, the management of IT infrastructure becomes more powerful.  The power of unification becomes evident with the application of uniform security policy, faster resolution of problems and a broader high-performance connectivity.  These three factors are the underlying pillars of an exceptional user experience.

2. Automate to Increase Efficiency

Enterprises are only just beginning to develop strategic plans that include the benefits of AI applications. However, investments in AIOps can be made today, and will dramatically improve an organizations’ efficiency.

AIOps make use of advanced analytics and ML algorithms to support the complex tasks of network and data center operations, helping to increase data center storage efficiency, predict network performance issues, or even automatically suggest and apply fixes to problems.

The foundation of AIOps is accurate input data.  Network mapping ensures that all IT resources are identified, understood, and visualized, and that the relationships between them are captured, even as configurations change.  AI/ML algorithms applied to the combination of network mapping data and real-time usage metrics can automate a wide range of operations tasks –and may even lead the industry to the nirvana of network management: closed-loop, or fully automated, operations.

Figure 2 – Beneficial Features of AIOps and Advanced Management

Whereas full closed-loop automation remains a distant target for most organizations, AIOps applications are commercially available for both LAN and data center solutions. Enterprises using AI-based management are providing compelling insights into the benefits of AIOps. One company with which we spoke told us they have reduced their LAN trouble tickets by over 90%, and an AIOps application identified a configuration problem in the network that had been reducing user quality of experience for years.

Deploying advanced network management capabilities is critical because enterprises across the world are having trouble finding and keeping IT staff. Companies want to focus the employees that they do have on projects that are valuable to their core business objectives. Spending valuable hours just “keeping the lights on” can hamper the introduction of other innovative IT projects.

A journey of a thousand miles begins with just one step, and the path to an AI revolution begins with a high-performance network. Automation of network and data center management will be an early win for IT leaders—just one of the many revolutions that AI models are sure to bring.

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What the Numbers Say

The announcement that HPE plans to acquire Juniper Networks for almost $14 B surprised the industry. HPE has declared it wants to be a networking company. In the enterprise market, this means one thing – challenging Cisco – and according to HPE CEO Antonio Neri, he does business like he plays soccer. If he can’t be first, he’ll start a fight.

An analysis of the total enterprise market, defined as a sum of the Infrastructure Security, Enterprise Routing, WLAN, Campus Switch, and Enterprise Data Center Switch sales, reveals that a simple combination of Juniper’s and HPE’s Enterprise market share will not make much headway in taking on the market behemoth.

Source: Dell’Oro Group 3Q23 Reports

 

In addition, it is legitimate to question whether the acquisition would result in a straightforward addition of HPE’s and Juniper’s enterprise revenues. Given the overlap in product portfolios, the results of a combined entity will more likely be a complex algebraic formulation of the separate pieces. Whether the result is accretive depends on the strategy that the company leaders will take in each of the enterprise market segments, considering the strength of the two companies’ portfolios and market presence.

Market Share Ranking – Additive Scenario

Breaking down the total market into its five distinct pieces demonstrates Cisco’s dominance. Huawei makes multiple appearances on the leaderboard, but in North America is virtually absent.

Source: Dell’Oro Group 3Q23 Reports*

 

HPE is a significant player in the Wireless LAN (WLAN) and Campus Switch markets, whereas Juniper is not prominent in any of the five markets. However, just looking at the top three in each market does not reveal that Juniper outperforms HPE in revenue share of both the Network Security (Infrastructure Security) and Enterprise Data Center Switch markets.  In these areas, Juniper can offer HPE an expanded customer base and a more diverse range of products. At the end of this blog, we highlight recently published blogs that delve into the effects of the merger within the realms of the WLAN, Data Center Switch and Network Security markets.

Considering Juniper’s Enterprise Routing and Campus Switch revenues in the first three quarters of 2023, the combination with HPE’s results would have propelled the joint company to a higher share rank in both markets. In Campus Switch, a segment in which both companies have a strong showing, the combined revenues would have narrowly edged out Huawei for second place.

In the other enterprise markets, the substantial revenue advantage held by the top vendors means that the merging of Juniper and HPE wouldn’t have affected the combined company’s overall revenue ranking over the first three quarters of 2023.

Source: Dell’Oro Group 3Q23 Reports*

 

Product Overlaps – Worst Case

The most significant overlaps in enterprise portfolios between HPE and Juniper are in the WLAN, Campus Switch, and SD-WAN domains.

Where there is a clear overlap in product portfolio, gains may still be possible if the companies serve different market segments or geographies. HPE’s core strength is in the mid-market, whereas Juniper has made inroads with higher-end enterprises. Juniper’s Mist solution is managed from a vendor cloud, while HPE’s strength is with on-premises managed equipment.

However, both companies obtain significant revenue from the Higher Education and Retail verticals, increasing the risk of cannibalization. On a regional basis, Juniper is heavily weighted towards North America and would benefit enormously from expanding its reach to the rest of the world.

Our analysis of the two companies reveals that the maximum overlap in revenues in the first three quarters of 2023 was 24% of their combined revenues. The cost-cutting targets announced by Neri could compensate for the associated reduction in net income if this range of overlapping revenues were to evaporate once the acquisition occurs.

Source: Dell’Oro Group 3Q23 Reports*

 

Opportunities for future growth

The data shows that, in the total enterprise market, this acquisition is less about HPE purchasing market share and more about investing in future technological capabilities. The main question is whether the combined company will be able to capitalize on respective portfolio strengths and market segment differences to go beyond what each company could achieve individually.

HPE stands to gain AI assets and strong branding by purchasing Mist. In domains where Juniper’s technology is considered superior, it will benefit from HPE’s scale in go-to-market organizations, especially outside North America. However, once the acquisition is complete, judicious choices must be made, portfolio by portfolio, to ensure that one plus one does not equal less than two.

Despite the minimal impact the acquisition will have on short-term market share, buying into AI-driven technology is a smart move for HPE.  Juniper’s Mist brand for enterprises has been gaining steam and has been lauded publicly by CIOs evangelizing about the dramatic simplifications Mist’s AIOps has brought to their network operations. In North America, larger companies are coming around to adopting public cloud-based management of their networking equipment, opening the door to Mist.

Meanwhile, most incumbent vendors are turning their development efforts and marketing messages to AI. In addition, a new startup in the networking market, Nile, has been spawned by ex-Cisco executives and is positioning fully automated, AI-based networking technology. Any vendor not using AI in their offers will be left behind. This highlights a key risk HPE must now navigate. The acquisition announcement heavily emphasizing ‘Artificial Intelligence’ implies that the primary risk to customer confidence lies with the Aruba portfolio, which lacks AI flair.

Until the acquisition is complete, the two companies will continue to compete head-to-head. Because of the overlap of Juniper and HPE’s enterprise portfolios, customers can be forgiven for being concerned about the longevity of either company’s technology. Competitors such as Cisco, CommScope Ruckus, Huawei, Extreme, Fortinet, Palo Alto, and Nile will try to capitalize on customer confusion while HPE awaits regulatory approvals.

To read more on the HPE’s acquisition of Juniper, consult the following Dell’Oro blogs:

*data presented in this blog has been extracted from the following Dell’Oro Group reports:  Ethernet Switch – Campus 3Q23 Quarterly, Ethernet Switch – Data Center 3Q23 Quarterly, Network Security 3Q23 Quarterly, SASE & SD-WAN 3Q23 Quarterly, Wireless LAN 3Q23 Quarterly.

 

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In this annual forecast blog covering our network security and SASE/SD-WAN services, we explore a pressing question for 2024: Will 2024 be the year traditional firewalls and branch access routing die in favor of SASE? As we embark on a new year, it’s crucial to examine how these longstanding network security and connectivity pillars are expected to respond to the rapid advancements and growing adoption of SASE (which we see as the combination of SSE and SD-WAN). Let’s dissect how these adjacent markets are expected to behave in 2024 and influence each other to reveal a complex narrative of give and take.

Firewalls Won’t Die in 2024 but Will Continue to Take Some Body Blows

In 2024, the overall firewall market is set to experience a modest, low-single-digit growth, mirroring its performance in 2023. This steady yet subdued growth trajectory reflects the market’s resilience amidst evolving challenges and the shifting landscape of network security. For example, after weathering a significant 16% drop in 2023, the high-end firewall market is expected to rebound slightly with a single-digit increase in revenue. This recovery, although modest, signals a stabilizing trend under the influence of broader economic conditions and a restart of purchasing by service provider customers.

Conversely, the midrange firewall market anticipates a single-digit decline in 2024 after growing solidly in 2023. This downturn highlights a shift in the fortunes of a wider swath of the enterprise market, which is expected to return to earth after robust growth in the past couple of years. The low-end firewall segment, in contrast, is forecasted to see a marginal 1% growth. This limited increase points to the segment’s challenge in adapting to the growing preference for cloud-based alternatives and the evolving requirements of hybrid work environments.

On a brighter note, the virtual firewall market is poised for a significant surge, expecting a nearly 40% increase in revenue in 2024. With impressive growth, it will represent nearly 15% of the overall firewall market, underscoring the sector’s growing importance in a cloud-centric world and its adaptability to protect distributed, dynamic environments.

Despite the varied performance across these segments, the overall firewall market’s persistence in achieving low single-digit growth in 2024 suggests a continued relevance and necessity for firewalls in network security, albeit in an evolving role and form.

Access Routing Will Become a Shell of its Former Self in 2024 if Cisco Gets Their Way in the SD-WAN Market

Access routing, a mainstay in enterprise networks, is undergoing a dramatic transformation, largely influenced by Cisco’s strategic push towards SD-WAN. With the sunsetting of its successful ISR 4k access routers and the introduction of the Catalyst 8000 series, which are optimized for SD-WAN, Cisco is steering the market towards SD-WAN. This shift marks a significant pivot from traditional access routers to more agile, software-defined networking solutions.

The impact is stark: access router revenue is expected to drop by over 30% in 2024 to $1.4 billion. This seismic shift underscores the industry’s rapid adaptation to the changing needs of enterprise networks, favoring flexibility and cloud integration over traditional hardware-centric models. As SD-WAN gains prominence, it’s clear that access routing, as we know it, is on the brink of a fundamental change.

SASE Will Buck Market Uncertainty and Crack $10 B for the First Time

In 2024, the SASE market is expected to continue its upward trajectory, bucking broader market uncertainties and achieving a record-breaking milestone of $10 billion. This growth underscores the rising importance of SASE as a cornerstone in modern enterprise networking and security strategies. The surge in SASE’s popularity is driven by its ability to seamlessly combine SD-WAN networking with SSE security into an integrated service. This integration increasingly appeals to enterprises seeking efficient, streamlined, and secure network infrastructures, especially in an era of distributed workforces and cloud-centric IT models.

2024 will stand as a landmark year for SASE, not just in terms of technological adoption but also as a strategic response to the evolving needs of modern network environments. Reaching the $10 billion mark is a testament to its growing significance and the industry’s shift towards integrated, agile, and cloud-centric network solutions.

As we analyze the trajectories of firewalls, access routing, and SASE in 2024, it’s clear that we’re witnessing a period of significant transition in the enterprise network and security landscape. Traditional firewalls and access routing are being redefined and challenged by the rising tide of SASE, which offers a more integrated, flexible, and cloud-centric approach.

This evolution is not just about technological change; it reflects a deeper shift in how enterprises view and manage their networks in an increasingly cloud-dominated, hybrid work environment. While traditional solutions will not vanish overnight, their role and relevance are being reshaped in the face of these emerging paradigms.

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Happy New Year! We couldn’t hope for a more exciting start to the year than with the groundbreaking announcement that HPE has entered into a definitive agreement to acquire Juniper. In this blog, we delve into the potential impact of this acquisition on the market, along with additional predictions for what 2024 may have in store for us:

  1. The Campus Switch Market is on the Verge of a Correction in 2024

Right before the holidays, we published our 3Q23 reports which provided an overview of the market performance for the first nine months of 2023. Based on those results, the market is estimated to have grown strong double-digits in 2023, marking the third consecutive year of a very robust growth. As a reminder, the typical growth rate in the campus switch market, pre-pandemic, has been in the low-to-mid single digits. The outstanding performance in the last couple of years begs the question: where do we go from here? Based on our interviews with the vendors as well as value-added resellers (VARs) and system integrators (SIs), we believe the market is poised for a correction in 2024. We anticipate the demand in the market to slow down significantly as customers absorb and digest existing capacity. Additionally, conversations with key vendors indicate their anticipation of a return to normal backlog levels by the beginning of 2024. Once the backlog is restored to its typical state, sales performance will more accurately mirror organic market demand, eliminating the potential for backlog-driven inflation

2. HPE/Juniper acquisition Will create a Tectonic Shift in the Market

While the HPE/Juniper acquisition may not be finalized until the end of the year, we anticipate witnessing its impact on the market and competitive landscape throughout 2024. We foresee other vendors accelerating the pace of innovation and product introductions, anticipating potential synergies created by the combined HPE/Juniper entity, as explained in my HPE/Juniper blog. Additionally, we expect employees to transition between companies, fostering cross-pollination. Monitoring customer reactions will be crucial throughout the year. We believe the HPE/Juniper deal may further amplify the anticipated pause in market demand as customers will be seeking clarity on how the acquisition will impact future roadmaps.

3. AI capabilities will increasingly define the competitive landscape in the market

In the midst of intense competition and an expected slowdown in market demand, vendors find themselves compelled to enhance their offerings with AI capabilities. The addition of these AI capabilities brings several benefits, including product differentiation, increased demand for new use cases and applications, acceleration in product refresh cycles, and higher customer retention. However, it remains intriguing to observe vendors’ ability to effectively monetize these features. Furthermore, as customers weigh the options between on-premises and cloud-managed solutions, as well as subscription versus perpetual consumption models, we believe that AI features will play a pivotal role in influencing these choices. Customers are likely to opt for the model that allows them to benefit the most from these AI features.

For more detailed views and insights on the campus switch market, please contact us at dgsales@delloro.com

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Early last year, we predicted that the enterprise class WLAN revenues would surpass $10 B in 2023 and that sales would be weighted to the first half of the year, defying the usual seasonal patterns.  Although 4Q23 results have not yet been published, the first three quarters of the year indicate that 2023 is unfolding as we anticipated.

In the first half of 2023, manufacturers shipped more Access Points (AP) than any first half in history.  In the aftermath of the pandemic, a lack of components had created pent-up demand, just as businesses wanted to adapt their networks to accommodate hybrid work models.  With equipment in short supply, prices rose and were locked into orders awaiting fulfillment. Once the shortages were alleviated, unit shipments flooded into the channels and manufacturers recognized record revenues.

The good times showed signs of waning in 3Q23, as it became evident that the distribution channels were holding excess equipment, and enterprises needed time to deploy the high volumes of units that had shipped.  This led to a drop in unit shipments from manufacturers, with the blow to revenues softened by growth in average prices.

The party may be over, at least temporarily, for the WLAN market; but scratching the surface, there were a couple of gems in 2023 that point to longer-term expansion.

First, use of the new 6 GHz band for Wi-Fi expanded.  The spectrum was approved for unlicensed use in the US in 2020, but worldwide shipments of APs supporting the new band stayed below 3% until 2023.  In 3Q23, Wi-Fi 6E shipments rose to 10% of units shipped, representing almost a quarter of worldwide revenues.  Wi-Fi 6E shipments grew despite a lack of coordination by worldwide regulatory bodies regarding which portions, if any, of the 6 GHz band are allocated for unlicensed (Wi-Fi) use.  Then, as the cherry on the 6 GHz sundae, Wi-Fi 7 APs became commercially available for enterprises in 2023. The new standard (also known as 802.11be) promises higher throughput and lower latencies and will operate in 6 GHz where available, but it will also work in the legacy frequency bands.

Second, AIOps and network automation moved to the forefront of IT decision making.  Manufacturers introduced new AI-driven operations features for troubleshooting and recommending configuration changes.  Startup Wi-Fi vendors marketed services based on fully automated network operations. Enterprises who deployed AIOps began reporting a dramatic reduction in network trouble tickets.  In 2023, the automation of network operations became a paragon of AI’s value proposition to enterprises.

This context leads us to the following predictions for the WLAN market in 2024:

  1. The WLAN digestion period will take hold and continue well into 2024

It will take several quarters for the excess WLAN equipment to clear itself from the distribution channels and enterprises’ inventories.  In addition, some enterprises are concerned about the economic context and are elongating their decision-making.  We project an overall contraction in WLAN revenues in 2024, especially given the record high sales that occurred in 2023.

  1. Wi-Fi 6E adoption will begin to decline as the availability of Wi-Fi 7 expands

There are already 6 vendors selling Wi-Fi 7 APs to enterprises, and the rest of the major vendors are expected to introduce Wi-Fi 7 APs in 2024.  Over the course of 2024, vendors will ship more Wi-Fi 6E than Wi-Fi 7 APs. However, 2024 will be the year that Wi-Fi 7 establishes a hold on the market.  As a broader range of configurations becomes available, sales of Wi-Fi 7 will begin to displace sales of Wi-Fi 6E.  Wi-Fi 7 adoption is expected to grow significantly over the next few years, representing 45% of the Indoor APs shipped in 2027.

  1. Software revenues will dampen the effects of lower unit shipments

As WLAN management applications add features that enterprises value, enterprises are more likely to accept the associated recurring costs.  The results from 3Q23 showed an early indication that the market is entering into a digestion period:  unit shipments dropped by 14% year-over-year and AP revenues contracted by 10%.  Meanwhile, Controller & Licenses revenue grew by over 20%.  The recurring license fees paid by the installed base of users helped to grow this line item, even as unit shipments dropped. This phenomenon may soften the downturn, especially for the vendors who have managed to shift their customer base to a recurring model.

  1. Campus NaaS will gain traction as enterprises focus their priorities

In last year’s predictions, we indicated that some clarity was needed to define Campus Network as a Service (Campus NaaS) offers – many manufacturers were using the term NaaS to mean different things.  In our June 2023 report, we were able to broadly categorize the offers into three groups: Enabler, Turnkey, and Wi-Fi as a Utility.  Since then, more vendors have begun to offer LAN equipment and software in cloud consumption model, and the offers have begun to appeal to a broader set of enterprise verticals.  In 2024, the definition of Campus NaaS should become even crisper, and enterprises will begin to consider the service as a way to outsource their IT connectivity, allowing them to focus on their core business priorities.