Best Wishes for 2023! We would like to kick off the new year by reflecting on our 2022 predictions and sharing what we believe 2023 might have in store for us.
First looking back at our 2022 prediction blog, we have anticipated the following for 2022:
- Data center switch market spotlight will continue to shine in 2022 if supply permits
- 200/400 Gbps adoption to accelerate beyond Google and Amazon
- 800 Gbps shipments may debut at Google
- Silicon diversity will become more pronounced
- AI-driven workloads to continue to shape data center network infrastructure
On our first prediction, 2022 was indeed a record year for data center switch sales as manufacturers’ ability to navigate supply challenges was remarkable.
On our second and third predictions, 200/400 Gbps shipments are estimated to have nearly tripled in 2022, driven by ongoing deployment at Google and Amazon as well as an accelerated adoption from Microsoft and Meta. We also started to report early 800 Gbps deployments at Google.
On our fourth prediction, needless to say that supply constraints have actually accelerated the need for silicon diversity. Latest entrants to the merchant silicon market such as Cisco, Intel (Barefoot), and Marvell (Innovium) have started to gain network footprint at the hyperscalers. Xsight Labs is another start-up trying to take a bite out of hyperscalers’ network spending.
On our fifth prediction, we believe that we barely started to scratch the surface in terms of the sea of innovation, disruption, and opportunities that AI workloads will bring to market.
Now with 2022 in the rearview mirror, most of the trends mentioned above will remain in focus and we will continue to explore them. Additionally, I would like to highlight other trends that have been overshadowed in 2022 and we believe it’s time to bring them back in the spotlight in 2023.
2023 Poised for Another Year of Strong Double-digit Growth and Record-Breaking Revenues
Despite all the concerns about the macroeconomic situation and a tough comparison with the year-ago period, we expect data center switch sales to grow double-digits and reach an all-time high in 2023. Most of this growth will be driven by the Cloud segment, most notably the hyperscalers, whose spending is usually less impacted by short-term macro-conditions. In the meantime, we expect spending from enterprises to be sluggish, as it was the case during prior market downturns.
In addition to this discrepancy in spending across various customer segments, we also expect a variance in market performance between the first and second halves of the year.
In the first half, we expect two tailwinds to drive revenue growth. We anticipate a strong backlog carried over from 2022. We also expect to see improvement in the supply situation that will help fulfill that backlog.
In the second half of 2023, we believe improving supply, combined with macroeconomic headwinds, will put a break on the panic-purchasing behavior that resulted in the outstanding booking growth rates experienced so far in the market. We, therefore, expect a significant slowdown in orders followed shortly thereafter by a slowdown in revenues, as most of the backlog would have been fulfilled in the first half of the year.
1) 200/400 Gbps Shipments to Nearly Double in 2023
2023 will mark a third major milestone in the adoption of 200/400 Gbps. The first one was marked by the early adoption spearheaded by Google and Amazon back in 2019/2020 time frame. The second milestone was marked by the deployment at Meta and Microsoft in 2021/2022 time frame. The third milestone is anticipated to happen in 2023 and will be marked by an accelerated adoption from Chinese Cloud Service Providers (SPs) and other Tier 2/3 Cloud SPs. This adoption by a wider set of customers, together with ongoing deployment at the hyperscalers, is expected to propel nearly triple-digit growth in 200/400 Gbps port shipments in 2023.
2) 800 Gbps Deployments May Start to Expand Beyond Google in 2023
The availability of 25.6T-based switch systems stimulated the 800 Gbps adoption at Google in 2022. With the availability of 51.2T-based switches, currently slated for the end of 2023, we expect other hyperscalers to implement those switch systems in the form of 64 ports of 800 Gbps ports. Of course, this prediction is contingent on the timing of volume availability of 800 Gbps optics.
3) SONiC is Ready for Prime Time
Over the prior years, we have witnessed an increased interest in the SONiC ecosystem but unfortunately, this interest has been hindered by persistent challenges, mostly related to the supportability aspect.
Tier 2/3 Cloud SPs as well as enterprises have limited financial and engineering resources, compared to hyperscalers, and may not be able to manage the full lifecycle of a project like SONiC.
To address the supportability issues, we have witnessed several offers from various incumbents but with the additional rise of new start-ups such as Aviz Networks and Hedgehog, we expect increased adoption of SONiC over the coming years.
We currently predict that by 2026, nearly 10% of the switches deployed in enterprise networks will be running SONIC. We plan to provide an updated SONiC forecast in our upcoming 5-year data center switch forecast report.
4) AI-driven Workloads Will Take Center Stage in terms of Spending from Customers as well as Investments from the Ecosystem
This trend will not be unique for 2023 but rather expected to continue for the foreseeable future. Dell’Oro Group projects that half of the spending on servers by 2026 will be on accelerated compute nodes for AI/ML applications. However, AI/ML workloads have a unique set of requirements in terms of latency, bandwidth, and power consumption, just to name a few. We expect AI/ML workloads to drive a significant amount of innovations across different areas: servers, storage, networking, and physical infrastructure, each of which we track at Dell’Oro Group as part of our research coverage. To answer those requirements, innovations; at a system level as well as a component level; will be needed. These innovations will be brought to market by incumbent vendors but more importantly by new entrants which we expect will enjoy a significant amount of funding. As industry analysts, we will be very excited to watch what kind of new product introductions and new network topologies will be announced in 2023.
Watch This Video:
What’s next for Data Center Switch market in 2023?