Cloud provider switch sales as focus shifts to AI

According to a recently published report from Dell’Oro Group, the trusted source for market information about the telecommunications, security, networks, and data center industries, global sales of Data Center Switches was up 7 percent, following seven consecutive quarters of double-digit growth. What’s also remarkable is that, for the first time in more than three years, spending from Cloud Service Providers (SPs) was flat and did not contribute to market growth.

“Data center switch sales have maintained robust performance, reaching near-record levels in 3Q 2023,” said Sameh Boujelbene, Vice President at Dell’Oro Group. “However, despite such a strong level of sales, the market growth started to exhibit signs of slowdown compared to previous quarters, particularly evident in the Cloud SP segment where spending remained flat compared to the year-ago period. Concurrently, spending from large enterprises surged by strong double-digits. While Cloud SPs seem to be shifting spending away from traditional front-end networks supporting general-purpose servers to focus more on Artificial Intelligence (AI) infrastructure, the slowdown in Cloud SPs spending during the quarter is also the result of ongoing digestion of existing capacity. We anticipate this digestion will impact various segments to varying degrees and timelines, aligning with the sequence in which they got their demand and orders fulfilled. In other words, customers who received their orders early on are the first to enter a digestion cycle,” added Boujelbene.

Additional highlights from the 3Q 2023 Ethernet Switch – Data Center Report:

• For the second consecutive quarter, Arista, Cisco, and HPE captured most of the revenue growth and were able to gain revenue share during the quarter.
• Geographically, sales growth was broad-based across all regions, except China which declined 12 percent.
• Further fueled by AI applications, shipments of 200 Gbps, 400 Gbps, and 800 Gbps switches constituted approximately 25 percent of the revenue and over 20 percent of the total shipments. Although Amazon, Google, Meta, and Microsoft continue to drive the majority of deployments, we observed an increasing number of shipments directed toward Tier 2/3 Cloud Service Providers and Large Enterprises.

Dell’Oro