Datacenter switching surged everywhere except Europe last quarter

Improving supply chains coupled with unrelenting demand from cloud service providers kept the datacenter switching market on a positive trajectory in Q3.

Datacenter switch revenues surged 20 percent year over year in the third quarter, the highest rate so far this year, a Dell'Oro Group report published on Friday found. That is, with the exception of Europe, the Middle East, and Africa (EMEA). 

While North America, China, and the Asia Pacific markets all plotted double-digit growth in the datacenter switching arena, EMEA saw switching revenues decline during the quarter. Much of this was the result of ongoing supply chain constraints in the region coupled with slowing demand in the face of strong macroeconomic headwinds and surging energy prices, Dell'Oro analyst Sameh Boujelbene told The Register.

Perhaps unsurprisingly, cloud and hyperscale customers drove the lion's share of growth in the datacenter switching market, pushing adoption of 200Gbps and 400Gbps networking equipment to nearly two million units. And despite only accounting for 10 percent of global shipments, 200Gbps and faster switches generated 20 percent of quarterly revenues in Q3, the report found.

Boujelbene expects 200Gbps and 400Gbps switches will continue to see healthy adoption among cloud providers and hyperscale customers in the new year, despite deteriorating economic conditions.

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While some cloud and hyperscalers have announced hiring freezes and layoffs in the face of slowing demand, many, including Amazon and Meta, have pushed ahead with datacenter expansions and infrastructure investments.

With that said, Boujelbene says the vast majority of switching sales continues to be for 25Gbps and 100Gbps equipment, which have become the bread and butter of enterprise networks in recent years. And this is unlikely to change anytime soon. Due to pricing parity with 40Gbps switching hardware, she explains that many enterprises have opted to future proof by buying 100Gbps switches and pairing them with slower, cheaper optics.

While revenues remained strong during Q3, Boujelbene emphasized that this is less a reflection of demand during the quarter and more so a side effect of the long backlogs on orders placed over the past year. Most of the revenues recognized this quarter can be attributed to sales made more than six months ago, she explained.

These backlogs are, of course, the direct result of the semiconductor shortage, which despite showing signs of improvement is far from over.

Boujelbene says lead times on switches have fallen considerably in recent months, from more than a year to 30-40 weeks. Looking ahead, she expects the backlog of orders to dissipate some time toward the middle of next year. ®