A data center switch is a high-performance switch used primarily by large enterprises and cloud providers that rely heavily on virtualization. It can be deployed across the entire data center or attached to a two-tier or one-tier flat grid or fabric architecture.
According to a new report recently released by market research firm Reportlinker, global data center switches are worth $14.4 billion and will reach $19.8 billion by 2027, at a compound annual growth rate (CAGR) of 5.4 percent.
The data center switch market is highly competitive, with a mix of players. In terms of market share, few of the top players in this space currently dominate the market. These companies follow a range of strategies, including expansions, acquisitions, joint ventures, and partnerships, and have been able to strengthen their position in the business. The key market players in the global data center switch market include Cisco, Jupiter Networks, Dell EMC, Arista Networks, ZTE, Hewlett Packard Enterprise, Mellanox, Huawei, Extreme Networks, and others.
Key highlights of the report include.
The increasing adoption of new technologies such as cloud computing technologies, data localization and 5G and IoT has led to a surge in global data center investments.
Data centers are rapidly becoming mainstream due to the changing needs of organizations of all sizes, the endless growth of millions of connected devices, and the rapidly growing daily volume of data generated via the Internet.
In addition, more computational processing and decision making operations are required to unlock the full potential of AI technology. Depending on performance, capacity and cost considerations, the future location of AI processing and data is likely to move primarily from the cloud to on-premise data centers to the edge of the network. Connected devices, smart industries and connected cars are expected to create huge opportunities for edge computing, thus becoming a driver for new data centers and impacting the research market.
The new crown epidemic is driving the growth of teleworking, which has increased the demand for data centers. The increase in data traffic has impacted the market as the use of cloud services has expanded. The increase in data traffic from OTT platforms during the New Crown epidemic has led to rapid expansion of this market.
The new crown epidemic has impacted the data center construction supply chain. Data center site construction was impacted due to the lockdown, which led to delays in project completion and caused a decline in sales in hard-hit industries (e.g., hospitality and entertainment), affecting construction activity.
The rapid adoption of cloud-based business operations is helping to drive the acquisition of data management capabilities for enterprises to handle the massive amounts of data being generated. With the growth of multi-cloud computing, the shift from traditional local physical servers to virtual network-based data centers has driven the growth of global data centers and the increasing demand for data center switching equipment.
Power continues to be one of the biggest cost drivers for today's data centers. According to the International Energy Agency (IEA), 1% of the world's electricity is used by data centers, and by 2025, data centers will consume 1/5 of the world's electricity supply. Most of the energy demand comes from powering servers, which in turn generate heat and need to be cooled. This cooling again consumes a lot of energy.
According to Reportlinker, the key global data center switch market trends today are as follows.
Core switches have the largest market share. Core switches need to be prioritized higher than the other two switches. This is because core switches handle a much larger workload than access and distribution switches. Companies with larger market shares (such as Amazon and Microsoft), are currently developing new data centers. Due to the growth of data centers, the demand for core switches will grow significantly.
The growing traffic management is creating new growth opportunities for core switches. For example, in 2020 to handle high traffic while maintaining streaming service quality, Netflix decided to remove the highest bandwidth streams and reduce traffic by 25%.
The growing traffic must be handled efficiently, reliably, and with low and predictable latency. However, since vPC (virtual-port-channel) can only provide two active parallel uplinks, bandwidth becomes a constraint in a three-tier data center architecture. Another problem with the three-tier design is that server-to-server latency can vary depending on the communication path used. For example, Cisco has introduced a new data center design called the Clos network-based spine lobe architecture to address these constraints. This design has been shown to provide high-bandwidth, low-latency, non-blocking server-to-server connections.
North America is increasingly adopting cloud computing technologies. For example, in February 2022, Meta Platform Inc. (Facebook Inc.) announced its intention to expand its data center market by investing $800 million in a hyperscale campus in Idaho, U.S. By expanding data center capacity, IT infrastructure will be improved. The demand for data center networking components such as switches and routers will be a key component of the hyperscale infrastructure.
The data center switch market will show growth as hyperscale IT infrastructure providers adopt high-performance core switches for fast data transfer.
According to real estate experts CBRE, data center leasing in the top 7 U.S. markets is 31% higher in 2021 than in 2019 and 50% higher than in 2020, with a slight decline due to the epidemic. Northern Virginia is the largest market, accounting for more than 60% of the total new data center space in the country.
Most demand for hosted data centers comes from cloud providers and social media companies. However, the adoption of new technologies such as self-driving car technology, 5G infrastructure, virtual reality communities, and blockchain technology are also driving the market.
In recent years, Atlanta has emerged as another key market for data center development, with vendors launching new projects targeting the enterprise market. in April 2021, QTS Data Centers submitted plans for a 1.1 million square foot data center in Atlanta. Under the plan, QTS will develop 2.3 million square feet of mixed-use development on approximately 36 acres of land, including data center space, office, retail and residential sites. These developments are driving the demand for data center switching products in these regions.
Enterprises in North America have begun to see hyperconvergence as a more viable alternative to traditional data centers because it reduces data center complexity and increases scalability by combining storage, compute and networking into a single system. The popularity of hyper-converged infrastructure platforms is driving the data center market.
In February 2022, Corscale, a new data center development platform created by Patrally Group with its capital partner USAA Real Estate, entered the Northern Virginia market. The company's first project is Gainesville Crossing, a 300 MW development in Prince William County that will feature five data centers optimized for hyperscale customers.
The region has also witnessed high penetration and intense launches of 200GbE and 400GbE switch ports in recent years. In March 2021, for example, Hewlett Packard Enterprise (HPE) introduced the 32-port 200GbE SN3700M switch, which is purpose-built for modern data centers. The switch features a 50G PAM-4-based Spectrum-2 ASIC with up to 12.8Tb/s of bi-directional switching capacity and a breakthrough 8.33Bpps packet processing rate.
