Enterprise Networks Infrastructure Archives

Turbulent is the best word to describe the worldwide Enterprise Network equipment market over the past few years. Enterprise Network manufacturer revenues hit a high of $72 B in 2023. However, by the end of 2023, signs of an impending market shift appeared.

To predict what will happen next, we look back over the past ten years to identify the overarching trends that are influencing this market, which is made up of manufacturer revenues from hardware and software purchased by enterprises for network connectivity and security purposes, divided into the five sub-markets shown in the figure below.

Over the five-year period from 2014 and 2019, the worldwide Enterprise Network market experienced a Compound Annual Growth Rate (CAGR) of 7%. Manufacturers such as Cisco, Huawei, HPE, Arista, Palo Alto Networks and Fortinet have managed to grow revenues–even as challengers, such as Juniper and Zscaler, gained market share.

Tracking of Secure Service Edge (SSE) and Web Application Firewalls (WAF) markets began in 2019, contributing to the significant growth of the Network Security market. While annual growth of Switch and WLAN slowed in 2019, the fundamentals of the Network Security (firewall, SSE, SWG, WAF, and ADC) and Branch Routing markets (SD-WAN and access routing) remained robust, pushing overall network equipment spending up to $48 B.

The Market Trajectory is Altered

Then, in 2020, the pandemic hit. Workers vacated their offices and network projects ground to a halt. The following year, with IT leaders besieged with demands for networking to support remote work, companies tried to get digital transformation initiatives back on track – just as vendors began to experience supply shortages. Equipment hardware lead times became long – but worst of all, unpredictable. They could be close to normal, or they could be twenty times longer than normal, depending on the type of equipment and the day that the orders were placed. Manufacturers began to accumulate large backlogs of orders. Equipment prices began to rise, keeping industry revenues growing despite the longer wait times for enterprises.

Near the end of 2022 and into early 2023, the tide began to change. As supply began to flow to the equipment vendors, they began to ship more networking equipment. Then, backlogs spiraled downward, and the market was flooded. Manufacturer revenues ballooned.

Since the end of 2022, Dell’Oro Group has been predicting a digestion period, or a pause in spending on some segments of the Enterprise Network market. This slowdown first appeared in Wireless LAN revenues in 3Q23, as the market contracted Y/Y for the first time since 2Q20. This was followed by Y/Y contractions in Branch Routing and Campus Switching in 4Q23. These contractions are expected to continue throughout most of 2024. During the period of supply constraints, many enterprises adjusted their ordering behavior, placing orders in 2022 for equipment they required in 2024. In addition, in times of scarcity, distribution companies ordered more equipment than they needed. Now that the deliveries have been made, working through the excess inventory will take time.

An Uneven Revenue Recovery

Supply constraints and rapid backorder fulfillment have created the roller coaster trajectory of the worldwide Enterprise Networking market. However, if we look more closely, we see that the peaks and troughs of each sub-market are not aligned.

Growth of Enterprise Data Center switching revenue, in particular, did not reach the same heights in 2023 as the other enterprise networking markets. However, revenue growth remained positive throughout the year, driven by large enterprises. The supply constraints for switches were resolved later than those for WLAN, and manufacturer backlogs have remained elevated for longer, leading to a continued stretch of Y/Y growth in revenues. Dell’Oro group is also projecting a digestion period for enterprise switching – although it is expected to be offset from that of WLAN and Branch Routing.

In contrast, the Network Security market stands out as the only market that has grown at least 5% every year for the last ten years. This consistent growth reflects the critical role of network security in enterprise strategies to mitigate cyber threats. Although the Y/Y expansion has been slowed somewhat by the enterprise digestion phenomenon, market expansion is anticipated again in 2024, whereas Dell’Oro Group expects all other segments to contract.

A Shift in IT Priorities

The continued importance of IT security to enterprises will cause a share shift in Enterprise Network revenues over the longer term. In 2023, spending on Network Security more than doubled from just five years ago. By 2028 Dell’Oro Group expects Network Security to account for an even larger portion of equipment sales. On the other hand, the switch market is more mature. Following the increasing penetration of Work From Home and Hybrid Work models, Enterprises’ adoption of Wi-Fi First strategies has grown, dampening the expansion of Campus Switch revenues in favor of WLAN. In addition, enterprises’ shift to cloud computing has slowed the growth of Enterprise Data Center Switch spending.

Looking forward to the anticipated CAGR of the worldwide Enterprise Network market, Dell’Oro Group has a word of warning for industry observers. Using the elevated 2023 revenues as a baseline is sure to make future CAGR calculations look anemic. Taking an average over 2021 to 2023, smoothing out the supply release tsunami, allows us to predict that cumulative growth rates should return to pre-pandemic levels over the next five years.

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.

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.

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.

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.

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.

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:

HPE to acquire Juniper – WLAN market impacts (Siân Morgan)
HPE Contributes better ‘Networking for AI’, Juniper Contributes better ‘AI for Networking’ (Sameh Boujelbene)
HPE Acquires Juniper: What does this mean for its Network Security and SASE/SD-WAN aspirations? (Mauricio Sanchez)

*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.

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.

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:

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

Contact Us