Worldwide Datacenter Network 2014-2018

6/2/2014 Worldwide Datacenter Network20142018 Forecast and Analysis
http://infoview.all.alcatel-lucent.com/pubs/idc/HTML/248757.htm 1/34
IDC Research Document
Worldwide Datacenter Network 20142018 Forecast and Analysis
Study #248757 | May 2014 | by Brad Casemore, Petr Jirovsky, Rohit Mehra
| Document | Document at a Glance | Table of Contents List of Tables List of Figures Attachments |
IDC Opinion
Although growth in the worldwide datacenter network market decelerated sharply from11.6% in 2012 to just 1.5% in 2013
primarily due to daunting macroeconomic headwinds in the EMEA region as well as lesser macroeconomic issues in the
United States and some emerging markets IDC sees reasons for guarded optimismas we look ahead through 2018. In
fact, 2014 already is shaping up as a year of recovery in the datacenter network market, with year-to-year growth forecast to
reach 5.4%, resulting in a market worth nearly $11.7 billion. Like the larger enterprise network market of which it is an
integral part, datacenter network support the expanding requirements of virtualization, cloud, and mobility, with big data and
enterprise-oriented social networking also growing as demand drivers. Increasingly, these market drivers will result in new,
software-based approaches to automated network provisioning, network programmability, and network virtualization. IDC
also notes the following:
Growing application traffic involving data, voice, video, mobile applications, social networking, and data fromthe
Internet of Things (IoT) will increase datacenter networking bandwidth demands and continue to drive the adoption
of 10GbE switches at the access layer while motivating adoption of 40/100GbE at the core/aggregation layers.
Flatter, scale-out networks are proliferating not only in hyperscale datacenters but also in enterprises pursuing private
cloud and data analytics.
In This Study
This IDC study provides a five-year forecast for the worldwide datacenter network market. Data for 20142018 is forecast,
while data for 2013 is actual. Actual data fromIDC's Worldwide Datacenter Network QView for 20082013, where
applicable, is provided for historical context. This study includes revenue derived fromsales of Ethernet switches (Layer 23),
application delivery controllers (ADCs) (aka Layer 47 switches), WAN optimization, Fibre Channel switches, and
InfiniBand switches.
Methodology
The quantitative data provided in this analysis of the datacenter network market is derived fromIDC's ongoing research into
datacenter networking trends, technologies, and adjacent IT markets. Specifically, IDC's Worldwide Datacenter Network
QView, as well as regional enterprise networks trackers, was used as primary data sources. IDC utilized primary and
secondary sources of information to develop the forecast models and to analyze the relevant technological trends cited in this
study.
Primary sources of information include surveys of United States and foreign-based datacenter networking vendors. Vendors
were asked to supply port and unit shipment and revenue data segmented by formfactor, speed, layer, price band, and
geographic sales distribution. Data was validated through comparison with sales by relevant channel resellers, vendors'
financial statements, component manufacturers, and IDC's models of datacenter networking companies.
IDC's market forecast models are based on historical indicators of vendor performance and prevailing market trends in both
datacenter networking and adjacent IT markets. Input fromvendors, users, user organizations, selected distributors, original
equipment manufacturers (OEMs), and value-added resellers (VARs), as well as demand-side survey data and
macroeconomic forecasts, is incorporated to refine the forecast and ensure the quantitative linkage between shipment data
and market trends.
All revenue is manufacturing revenue. For comparison of revenue in which currencies other than the U.S. dollar were
involved, average quarterly or yearly exchange rates are used in converting foreign currency to the U.S. dollar (if calculations
are done at the worldwide level). Regions such as Asia/Pacific and Western Europe already supply data converted to U.S.
currency.
Data presented in this document represents IDC's latest view of the datacenter network market and may differ from
previously reported estimates. The technologies included in the datacenter network market are Ethernet switches (Layer 2
3), Layer 47 switches, WAN application delivery, Fibre Channel switches, and InfiniBand switches.
Note: All numbers in this document may not be exact due to rounding.
Situation Overview
IDC posits that the 20142018 forecast period will be characterized by the overarching imperative for datacenter networks
to better adapt to and accommodate business-critical application workloads. More to the point, datacenter networks will
have to increasingly adapt to virtualized workloads and to the ongoing enterprise transition to private and hybrid clouds.
Pressure will mount on datacenter networks to not only provide increased bandwidth but also deliver the agility and dynamism
necessary to accommodate shifting traffic patterns (with more east-west traffic associated with server-to-server flows, as
opposed to the traditional north-south traffic associated with client/server computing) and to serve requirements for enhanced
automation, programmability, and integration with cloud orchestration systems.
The worldwide datacenter network market made up of Layer 23 switching, ADCs (Layer 47 switching), WAN
optimization, Fibre Channel, and InfiniBand switching experienced lackluster growth of just 1.5% in 2013 after growing
11.6% in 2012. The datacenter network market was worth nearly $11.1 billion in 2013. IDC estimates that in 2014, the
datacenter network market will bounce back, expanding 5.4% to reach nearly $11.7 billion. In 2015, the datacenter network
market will grow at a comparable 5.2% to reach nearly $12.3 billion. Throughout the five-year forecast period, ending in
2018, the CAGR will be about 4.3%. Obviously, some technology segments of the datacenter network market (Layer 23
switching, ADCs, and WAN optimization) will see better growth than other segments (Fibre Channel switches and InfiniBand
switches, both of which will see negative growth).
The underlying trends driving datacenter network upgrades and contributing to market growth include the following:
A greater number and variety of mobile devices and applications, resulting in a continuing profusion of data that is then
processed, analyzed, and stored, are driving a need for increased bandwidth throughout the enterprise network,
including the datacenter.
Datacenter virtualization is compelling the network to become more automated and programmable for purposes of
provisioning, management, and orchestration. What's more, virtualization means that datacenter network traffic
increasingly moves east-west within servers, fromserver to server, and between server racks rather than in the
north-south traffic patterns associated with client/server computing and n-tier application architectures.
The continuing growth of cloud computing, the private and hybrid clouds extending out formenterprises as well as the
public cloud, will provide further impetus for new architectural and operational approaches to datacenter networking.
While early adoption of software-defined networking (SDN) took place in the datacenters of large cloud service
providers and hyperscale Web companies such as Google and Facebook, the need for SDN arose because those
companies required a datacenter network that was more agile, automated, and programmable than traditional
networks. As enterprises increasingly virtualize and adopt cloud computing, they will run up against the limitations of
traditional networks and will seek solutions fromarchitectural approaches such as SDN and network virtualization.
They also will adopt a top-down, application-driven model in which policy engines articulate and convey the
requirements of business applications to underlying infrastructure, including the network.
Buyers of datacenter networks still need networks that offer requisite bandwidth, latency, performance, scalability, and
security. Increasingly, though, critical emphasis is being placed on capabilities such as automated provisioning,
programmatic management, integration with cloud orchestration systems, and the ability to support server-side
datacenter automation tools. The composition of network buyers are changing, too, as server, virtualization, and
programming teams have more influence in defining the infrastructure that supports business-critical workloads.
Amid changing requirements occasioned by virtualization and cloud, IDC foresees growth in the number of enterprises
that will adopt integrated (converged) infrastructure and integrated systems. Rather than buying best-of-breed products
for compute, storage, and networking, these customers will find appeal in integrated systems that tightly conjoin
compute, storage, and networking as a pool of IT assets that can be rapidly deployed and easily configured. This
approach might be similarly described as aggregated infrastructure. An alternative approach that offers similar benefits
has arisen in the formof the software defining environment (SDE) or software-defined datacenter (SDDC). Unlike the
aggregated approach of converged systems/infrastructure, the SDE/SDDC model features disaggregation, in which
software-based policy and orchestration determines how pools of infrastructure (compute, network, storage) are
dynamically allocated based on application requirements. The SDE/SDDC approach will also gain enterprise and cloud
adherents during the forecast period.
Worldwide Datacenter Network Share by Vendor
As in past years, Cisco Systems dominated the worldwide datacenter network market in 2013, claiming nearly $5.6 billion
(more than 50%) of an overall revenue pie worth $11.07 billion. Cisco's extensive datacenter networking portfolio and strong
incumbent presence in a broad range of enterprise and service provider accounts have enabled the company to maintain its
market leadership. Brocade Communications again retained second spot in datacenter networking, with revenue of about
$1.4 billion. F5 Networks, the ADC market leader, notched $735 million in revenue in 2013, with Citrix Systems, the runner-
up vendor in ADCs, collecting about $401 million fromdatacenter networking. HP followed with datacenter networking
revenue of $334 million, and Juniper was next with datacenter networking revenue of $285 million (see Figure 1).
Figure 1 - Worldwide Datacenter Network Revenue Share by Vendor, 2013

Source: IDC, 2014
Future Outlook
Forecast and Assumptions
IDC forecasts a CAGR of about 4.3% for the worldwide datacenter network market through 2018. In 2013, the datacenter
network market was worth nearly $11.1 billion, and IDC estimates it will reach $13.7 billion in 2018.
The rate of growth will be far fromscintillating, but it will nonetheless persist steadily through the next several years. One
consideration is that datacenter networking is entering a period of potential disruption and significant change. The market will
be impacted by technological shifts and new IT operational models, all occasioned by the march of virtualization and the
enterprise adoption of private and hybrid cloud computing.
This will mean software increasingly will push into datacenter networking, augmenting established hardware-based markets
such as Layer 23 switching with software-based technologies such as overlays for network virtualization, software-agnostic
switching (network disaggregation), and other software-based products and technologies. As these software-based elements
of the datacenter network market come into their own, they will contribute to growth of the market, even though those
technologies have not been accounted for in this particular forecast.
As for the product categories that are addressed in this forecast, virtualization and cloud will still provide sufficient market
impetus to maintain positive growth. The segment of the datacenter network market that will experience the strongest growth
through the forecast period will be Layer 23 switching, which continues to represent the dominant technology segment of the
overall market.
Worldwide Datacenter Network by Technology
As in past years, Layer 23 switching continues to claimthe largest chunk of the worldwide datacenter network market. In
2013, Layer 23 switching represented revenue of nearly $7.3 billion. IDC forecasts that the Layer 23 switching market will
grow 8.3% in 2014 to reach $7.9 billion, followed by growth of 7.7% in 2015, when the market is expected to be worth
$8.5 billion. For the entire forecast period, a CAGR of 6.7% will drive the Layer 23 switching market to reach more than
$10 billion in 2018. Other salient market findings include:
As noted previously, in terms of revenue generation, Layer 23 switching remains the prevalent (even dominant)
datacenter networking technology, representing a nearly $7.3 billion market segment in 2013, approximately 65% of
the entire datacenter network market worldwide. Through 2018, the segment will grow at a CAGR of 6.7% to be
worth more than $10 billion. Also exhibiting growth rates through 2018 will be ADCs and WAN optimization. Valued
at slightly more than $1.6 billion in 2013, the ADC market will expand to almost $2 billion in 2018, whereas WAN
optimization will grow froma $349-million market segment in 2013 to reach $459 million in 2018.
Through the five-year forecast period, Layer 23 switching will experience the highest CAGR of 6.7% of all datacenter
networking technologies. WAN optimization will expand at a CAGR of 5.7% during the forecast period, with ADCs
(Layer 47 switching) growing at a CAGR of 4.2%.
Revenue attributable to 10GbE switching in the datacenter first surpassed 1GbE switching revenue back in 2010. Since
then, 10GbE switching has grown more dominant froma revenue perspective. That said, revenue from40/100GbE
switches will close the gap toward the end of the forecast period. In 2013, 10GbE datacenter switches accounted for
revenue of $5.4 billion. Growth for that bandwidth category will continue until 2015 before turning flat and then
moderately negative in 2017 and 2018. Meanwhile, 40/100GbE growth will kick into higher gear in 2014, growing
from$585 million in 2013 to nearly $1.2 billion in 2014. In 2018, 40/100GbE datacenter switching will be worth $4.3
billion.
ADCs were worth about $1.6 billion in 2013. IDC forecasts that this segment will reach nearly $1.7 billion in 2014,
growing in successive years to total nearly $2 billion in 2018. Although virtualization and network virtualization will
result in an increasing percentage of virtualized ADCs, the ADC market will not virtualize as aggressively as the WAN
optimization market during the forecast period.
In a year marked by negative growth for the segment, WAN optimization claimed revenue of $349 million in 2013.
IDC expects a rebound for WAN optimization in 2014, with growth of 6.4% resulting in revenue of $371 million.
Growth should be sustained throughout the forecast period by enterprise cloud adoption, hybrid WAN environments,
and datacenter-to-datacenter optimizations. IDC forecasts that the WAN optimization market will be worth $459
million in 2018.
Fibre Channel switching went into negative growth in 2013, when the technology accounted for nearly $1.8 billion in
revenue. Although the decline of Fibre Channel long has been predicted, the technology only now is entering a period
of protracted decline. Negative growth will continue and be accentuated throughout the forecast period, with the Fibre
Channel switching market ultimately recording revenue of about $1.2 billion in 2018.
InfiniBand switching is another market that has entered a period of protracted decline. Long a preserve of high-
performance computing environments, InfiniBand, like many technologies before it, is likely to be displaced by
successive iterations of Ethernet. The InfiniBand switching market was worth just $111 million in 2013 and will
generate about $77 million in 2018.
Table 1 shows the historical and forecast market sizes for worldwide datacenter network by technology type.
Table 1 - Worldwide Datacenter Network Revenue by Technology Type, 20082018 ($M)

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2013
2018
CAGR
(%)

Layer 23
switching

5,093.8

4,200.3

5,754.6

6,127.1

6,856.5

7,252.4

7,851.7

8,453.7

9,006.9

9,562.2

10,012.5

6.7

Growth
(%)

NA

-17.5

37.0

6.5

11.9

5.8

8.3

7.7

6.5

6.2

4.7

ADCs
(Layer 47
switching)

1,115.7

926.0

1,209.7

1,414.5

1,619.4

1,600.3

1,667.8

1,744.3

1,821.6

1,895.5

1,964.0

4.2

Growth
(%)

NA

-17.0

30.6

16.9

14.5

-1.2

4.2

4.6

4.4

4.1

3.6

WAN
optimization

289.1

263.1

310.9

340.2

363.1

348.6

370.8

393.3

417.9

441.1

459.1

5.7

Growth
(%)

NA

-9.0

18.2

9.4

6.7

-4.0

6.4

6.1

6.2

5.6

4.1

Fibre
Channel
switching

1,763.6

1,617.5

1,764.8

1,778.4

1,868.9

1,757.9

1,675.0

1,583.8

1,475.1

1,347.8

1,182.0

-7.6

Growth
(%)

NA

-8.3

9.1

0.8

5.1

-5.9

-4.7

-5.4

-6.9

-8.6

-12.3

InfiniBand
switching

119.6

99.9

124.5

114.9

202.5

111.0

100.5

94.9

89.6

84.1

76.9

-7.1

Growth
(%)

NA

-16.4

24.6

-7.7

76.2

-45.2

-9.5

-5.6

-5.5

-6.1

-8.6

Total

8,381.8

7,106.9

9,164.4

9,775.1

10,910.4

11,070.2

11,665.8

12,270.0

12,811.1

13,330.8

13,694.4

4.3

Growth
(%)

NA

-15.2

29.0

6.7

11.6

1.5

5.4

5.2

4.4

4.1

2.7

Note: See Table 4 for top 3 assumptions and Table 5 for key forecast assumptions.
Source: IDC, 2014

Worldwide Datacenter Network by Region
As in past years, North America accounted for the greatest share of worldwide datacenter network revenue, worth
more than $5.4 billion in 2013 (see Table 2). The North American market grew just 2.3% in 2013, but it still outpaced
most other regions, with one exception. EMEA was the second-largest region by revenue in 2013, spending more than
$2.8 billion on datacenter networking in a flat year.
The fastest-growing geographic market in 2013 was Latin America, which grew at 6.8% in 2013, generating revenue
of $353 million. The slowest-growing region in 2013 was EMEA, which, as mentioned in the preceding bullet point,
was flat for the year.
The North American market will continue to represent the largest geographic region for sales of datacenter networking
throughout the forecast period. In 2018, North America will account for datacenter networking expenditures of about
$6.4 billion. EMEA will rank second, accounting for about nearly $3.7 billion of the overall market in 2018, followed
by Asia/Pacific (including Japan) (APJ) at $3.2 billion.
Table 2 - Worldwide Datacenter Network Revenue by Region, 20082018 ($M)

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2013
2018
CAGR
(%)

North
America

4,156.2

3,569.2

4,662.7

4,801.3

5,314.0

5,434.2

5,755.5

6,000.6

6,135.8

6,294.0

6,435.1

3.4

Growth
(%)

NA

-14.1

30.6

3.0

10.7

2.3

5.9

4.3

2.3

2.6

2.2

EMEA

2,364.2

1,963.1

2,513.6

2,622.7

2,843.1

2,841.1

2,963.9

3,137.9

3,334.5

3,519.9

3,651.2

5.1

Growth
(%)

NA

-17.0

28.0

4.3

8.4

-0.1

4.3

5.9

6.3

5.6

3.7

APJ

1,626.3

1,403.2

1,752.7

2,073.0

2,422.6

2,441.9

2,574.2

2,728.8

2,911.7

3,066.8

3,150.0

5.2

Growth
(%)

NA

-13.7

24.9

18.3

16.9

0.8

5.4

6.0

6.7

5.3

2.7

Latin
America

235.1

171.4

235.4

278.0

330.7

353.1

372.2

402.8

429.0

450.0

458.1

5.3

Growth
(%)

NA

-27.1

37.3

18.1

18.9

6.8

5.4

8.2

6.5

4.9

1.8

Total 8,381.8 7,106.9 9,164.4 9,775.1 10,910.4 11,070.2 11,665.8 12,270.0 12,811.1 13,330.8 13,694.4 4.3

Growth
(%)

NA

-15.2

29.0

6.7

11.6

1.5

5.4

5.2

4.4

4.1

2.7

Source: IDC, 2014

Worldwide Datacenter Network by Deployment
In 2013, as in previous years, the enterprise claimed the overwhelming majority of datacenter networking revenue at about
$9.7 billion (see Table 3). Service providers accounted for $1.4 billion.
With private cloud and public cloud growing in lockstep, IDC expects enterprise datacenter network (including Webscale
companies and cloud service providers) to record a CAGR of 4.6% during the forecast period, whereas the service provider
market will record a CAGR of 2.5%. In 2013, the service provider segment posted slightly negative growth, although it will
recover somewhat before its growth tapers toward the end of the forecast period. In 2018, enterprise datacenter network will
be worth about $12.1 billion; service provider datacenter network is expected to be worth more than $1.5 billion.
Table 3 - Worldwide Datacenter Network Revenue by Deployment, 20082018 ($M)

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2013
2018
CAGR
(%)

Service
provider

899.4

770.2

1,017.4

1,209.2

1,382.3

1,371.4

1,416.6

1,454.7

1,496.4

1,531.3

1,548.3

2.5

Growth
(%)

NA

-14.4

32.1

18.9

14.3

-0.8

3.3

2.7

2.9

2.3

1.1

Enterprise

7,482.4

6,336.8

8,147.1

8,565.9

9,528.1

9,698.8

10,249.2

10,815.3

11,314.7

11,799.5

12,146.1

4.6

Growth
(%)

NA

-15.3

28.6

5.1

11.2

1.8

5.7

5.5

4.6

4.3

2.9

Total

8,381.8

7,106.9

9,164.4

9,775.1

10,910.4

11,070.2

11,665.8

12,270.0

12,811.1

13,330.8

13,694.4

4.3

Growth
(%)

NA

-15.2

29.0

6.7

11.6

1.5

5.4

5.2

4.4

4.1

2.7

Source: IDC, 2014

The Ever-Growing Demand for More Bandwidth
Given the trends virtualization, cloud, mobility, big data, social media, and the Internet of Things volumes and varieties
of datacenter network traffic will continue to grow. As a result, there will be greater demand for higher-bandwidth switches.
Increasingly, Layer 23 datacenter switching growth will be driven by revenue fromsales of 40/100GbE switches. 10GbE
switch growth will plateau in 2016, topping out at about $6 billion in 2015. Conversely, 40/100GbE switching will grow
impressively throughout the forecast period, advancing from$585 million in 2013 to $4.3 billion in 2018 (see Figure 2).
Figure 2 - Worldwide Datacenter Ethernet Switch Revenue by Speed, 20082018

Source: IDC, 2014
Assumptions
Table 4 provides the top 3 assumptions behind the worldwide datacenter network market forecast for 20142018. Table 5
provides the key assumptions behind the forecasts outlined in this document.
Table 4 - Top 3 Assumptions for the Worldwide Datacenter Network Market, 20142018
Market
Force

IDC Assumption

Significance

Changes to This
Assumption That Could
Affect Current Forecast

Comments

IDC believes that growth in the virtual
machine software (VMS) market will
continue as organizations increasingly
deploy VMS as a means of decoupling
the application stack fromthe
Virtualization is forcing
a comprehensive
reassessment of
datacenter network
architectures,
technologies, tools,
A change in forecast to the
downside is possible if
server virtualization sets the
stage for hypervisor-based
vSwitches and network
virtualization to capture a
There is a line of
market causation
running from
server
virtualization to
cloud computing
and then to

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