The high-end Ethernet switch market is experiencing growth due to cloud providers and enterprises gearing their data centers towards AI workloads. In contrast, sales of high-end routers are decreasing, as noted in IDC’s latest quarterly reports.
Year-on-year data reveals declines in both the Ethernet switch and router markets for the second quarter; the former saw a 14% decrease while the latter dropped by 31%, based on IDC’s figures. However, some areas did see growth, according to Brandon Butler, IDC’s senior research manager for enterprise networks. “For instance, the data center sector of the Ethernet switch market showed an 8% increase,” Butler remarked. More impressively, revenue for the top-tier Ethernet switches (200/400 GbE) that IDC monitors showed substantial growth, with a 104% increase from the second quarter of 2023 to the second quarter of 2024, Butler explained.
Within the data center segment, enterprises and service providers are focusing on improving Ethernet switch speeds to better handle the rapidly growing AI workloads, according to Butler.
“AI, specifically generative AI, is significantly propelling the demand in the data center Ethernet switching market,” noted Butler. He shared projections of this market expanding from $640 million in 2023 to over $9 billion by 2028, which translates to a 70% compound annual growth rate over five years.
“This is further evidenced in the outsized growth in the highest speed Ethernet switches (200/400GbE +104% y/y in 2Q24),” Butler said. “The Generative AI Datacenter Ethernet Switch market is driven predominantly by hyperscale cloud providers building high-speed Ethernet switch capacity to support GenAI workloads now, but other cloud providers and enterprise deployments of Ethernet switching will contribute to the market’s growth going forward, too,” Butler said.
The non-data-center segment of the Ethernet switch market, which includes Ethernet switches typically deployed in enterprise campus and branch locations, declined 28.9% year over year, but increased 15.0% compared to the first quarter of 2024. The annualized decline was driven in part by challenging comparisons with the year-ago quarter, which had historically high revenues driven by product backlog outlays resulting from the market challenges of the pandemic.
“By comparison, the non-GenAI Datacenter Ethernet switch market will grow at a low single digit CAGR from 2023-2028. But the broader Datacenter Ethernet Switch market is a diverse market: On-prem traditional DC deployments will be declining, enterprise private clouds will grow moderately, and public cloud deployments (outside of GenAI) will continue to show solid growth,” Butler said.
Meanwhile, the enterprise router market is in a state of transition, as it is being subsumed to some degree into SD-WAN with its software and cloud-based deployments, according to Butler.
“The SD-WAN market is anticipated to expand at a CAGR of over 9% and hit $8.1 billion by 2028, even as the enterprise router market shows a decline over the same period,” Butler explained.
“Several factors are influencing the service provider (SP) routing market,” Butler observed. “This year, SP routing has considerably declined due to reduced spending by communications service providers, which is affecting various SP networking markets, including SP Routing. The market is expected to stay subdued for the next couple of quarters before recovering in 2025,” he added.
