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400 Gbps Upgrades Will Propel SP Router Market in 2023

The Service Provider (SP) Router market, like other infrastructure segments, finds itself being pushed and pulled by technology shifts and the swirling winds of the global macroeconomic environment. Here is what we learned in 2022 and what we expect to see in 2023.

Market review and outlook

After returning to growth in 2021, the SP Router Market continued its strong performance in 2022, despite a challenging macroeconomic environment. 2022 SP Router revenue grew 3%, as we had projected. For 2023, we expect growth to continue, although at a lower rate of 2% Y/Y. We anticipate macroeconomic conditions to worsen in 2023, so we believe the global demand for SP routers will be tempered as companies reset budgets, reduce operating expenses, and shift spending to protect their bottom lines.

Router demand driven by 400 Gbps technology

In 2022, we observed a significant shift towards 400 Gpbs-capable routers, driven by a global upgrade of IP backbones. 400 Gbps router port shipments grew by triple digits Y/Y, and we expect that momentum to continue in 2023.

IP backbone/Internet backbone network upgrades are driving the highest demand for 400 Gbps routers. The Internet backbone includes both Cloud and Telco SP networks and transports traffic from mobile and broadband service networks and cloud infrastructure. We expect that most 400 Gbps router ports will be deployed in IP backbone networks over the next five years.

Growth in 2022 was driven by SPs upgrading networks to gain the advantages of 400 Gbps technologies and expand their networks to accommodate growing traffic. Demand for network capacity was spurred by 5G RAN (Radio Access Networks), IoT, increasing numbers of broadband subscriptions, and Cloud-based video, music streaming, and gaming platforms.

5G RAN deployments are leading to a rapid expansion of mobile networks, with a two-fold effect. First, mobile SPs need to expand their mobile transport networks and are deploying 400 Gbps routers to do so. Second, 5G technology enables higher mobile internet connection speeds, which encourage mobile network customers to consume data-heavy media content and thus drive up traffic volumes on SP networks.

The Core Router segment saw growth decline slightly in 2022. We believe SPs postponed Core router purchases as they awaited the market launch of the newest ASICs. We expect segment growth to improve in 2023 when some of the top-five Core Router vendors launch their newest ASICs.

In 2022, the Edge Router and Aggregation Switch segment grew strongly, driven by the increasing adoption of Edge Router and line cards based on the newest ASICs, which support 400 Gbps connections. Telecom SP’s continued investments in 5G RAN, expansions of mobile transport capacity, and increasing residential broadband deployments contributed to growth in the combined Edge and Aggregation Switch segment. For 2023, we project segment growth to moderate, as we expect a slowdown in Mobile Backhaul and RAN built-outs in China.

IP mobile backhaul upgrades slowing down in China

The IP mobile backhaul market grew outside of China in 2022, as we had projected. Our preliminary 2022 estimates of IP mobile backhaul revenue for markets excluding China are for single-digit growth in North America and EMEA and double-digit growth in APAC excluding China. The China market declined slightly in 2022 but still accounted for about one-third of the global market.

The 2022 decline in mobile backhaul expansion in China resulted from a slowdown of 5G RAN buildouts as the two largest Chinese SPs near completion of their mobile backbone and IP transport networks.

For 2023, we project the decline in the IP mobile backhaul market in China to worsen, while investments move to SP Core and Metro networks. Outside of China, we expect the mobile backhaul market to grow at a lower rate than in 2022.