Market Report: Ethernet Switch
Key Issue: What is a switch ?
A switch is a networking device used to connect multiple devices together on a computer network. Switches operate at the data link layer (layer 2) and use packet switching to forward data to the intended destination device.
Before switches, hubs were commonly used to connect multiple devices on a network. However, hubs simply broadcast all data to every connected device, while switches intelligently direct data only to the intended recipient, providing better performance and security.
According to market research, The switch market is a substantial and rapidly growing segment of the broader networking industry. In 2023, the global Ethernet switch market was valued at $44.2 billion, reflecting a robust 20.1% year-over-year increase. This growth was driven by varying trends across the market's key segments.
Some of the early pioneers in the switch market include Kalpana, which was founded in 1989 and acquired by Cisco in 1994. Cisco went on to become the dominant player, although it has faced increasing competition from Arista Networks, Juniper Networks and others in recent years. IDC and Gartner track market share closely in their reports.
Key Issue: Why is Ethernet the dominate standard ?
Before Ethernet became the dominant standard, several other networking technologies were used. Some of the main alternatives to Ethernet in the past include:
Token Ring
Developed by IBM in the 1980s, Token Ring was a popular LAN technology that used a token-passing mechanism to control access to the network. It was used primarily in IBM-centric environments.
FDDI (Fiber Distributed Data Interface)
FDDI was a standard for data transmission on fiber optic lines in a local area network. It provided a high-speed alternative to Ethernet and Token Ring, with speeds up to 100 Mbps.
ATM (Asynchronous Transfer Mode)
ATM was designed for high-speed networking, supporting data, voice, and video. It was used primarily in telecommunications networks and in some LAN environments.
ARCNET (Attached Resource Computer NETwork)
ARCNET was a widely used network protocol in the 1980s for office automation tasks. It was relatively inexpensive and easy to implement.
AppleTalk
This was a proprietary suite of networking protocols developed by Apple Inc. for their Macintosh computers. It was the primary protocol used by Apple devices through the 1980s and 1990s.
DECnet
Developed by Digital Equipment Corporation, DECnet was a suite of network protocols used in the 1970s and 1980s. It was widely used in DEC's own computing environments.
Most of these technologies have largely been replaced by Ethernet and IP-based networking due to Ethernet's superior speed, scalability, and lower cost. However, some of these technologies, like ATM, are still used in certain niche applications.
In addition, newer technologies like InfiniBand are used in high-performance computing environments as an alternative to Ethernet. But for general office and data center networking, Ethernet remains the dominant standard.
Market Size and Growth Trends
The switch market is a substantial and rapidly growing segment of the broader networking industry. In 2023, the global Ethernet switch market was valued at $44.2 billion, reflecting a robust 20.1% year-over-year increase. This growth was driven by varying trends across the market's key segments.
The data center portion of the Ethernet switch market accounted for $18.3 billion, or 41.5% of the total market revenues in 2023, growing at a healthy 13.6% rate. This acceleration was largely driven by enterprises and service providers investing in higher-speed Ethernet switches, such as 200/400 GbE models, to support the proliferation of AI workloads in their data centers.
Meanwhile, the non-data center segment of the Ethernet switch market saw even stronger growth, expanding 25.2% in 2023 to reach $25.9 billion. This segment, which includes switches deployed in enterprise campus and branch locations, benefited from improved component availability, allowing vendors to fulfill backlogged product orders.
Looking beyond just Ethernet switches, the wider switches market, encompassing various specialized switch types, was estimated at $9.74 billion in 2022 and is projected to grow at a CAGR of around 3.3% from 2023 to 2030, reaching $13.85 billion by the end of the decade.
The Ethernet switch market as a whole is expected to maintain its strong momentum in the coming years. Industry analysts forecast the Ethernet switch market to reach $26.0 billion by 2032, growing at a CAGR of over 4.5% from 2023 to 2032. The data center switch segment, in particular, is projected to see even more rapid growth, with a CAGR of over 12.8% from 2023 to 2036, potentially surpassing $28.8 billion by 2036.
These growth projections underscore the critical role that switching technologies will continue to play in supporting the ever-increasing demands of modern computing, networking, and data center infrastructures, driven by the proliferation of cloud computing, the rise of high-bandwidth applications, and the ongoing digital transformation across industries.
Key Issue: Why is Ethernet the dominate standard ?
Ethernet defines a set of rules or standards that govern how data is transmitted over LAN and other computer networks. It specifies how network devices format and transmit data so that devices can communicate with one another, regardless of manufacturer.
Ethernet has become the de facto standard for switches and networking equipment for several reasons:
Interoperability: Ethernet standards ensure that equipment from different vendors can work together seamlessly. This is crucial for building multi-vendor networks.
Scalability: Ethernet has evolved to support speeds from 10 Mbps to 400 Gbps and beyond. This allows networks to scale to meet increasing bandwidth demands.
Cost-effectiveness: Due to its widespread adoption, Ethernet equipment is mass-produced, leading to lower costs compared to other networking technologies.
Reliability: Ethernet has proven to be a reliable networking technology, with mechanisms for error checking and recovery.
Ease of installation and maintenance: Ethernet uses simple twisted-pair cabling (for speeds up to 10 Gbps) which is easy to install and maintain compared to other cabling types.
Distance: Ethernet can support transmission distances up to 100 meters over twisted-pair cable, which is sufficient for most office environments. For longer distances, fiber optic Ethernet is used.
Evolution: Ethernet standards have consistently evolved to incorporate new features and speeds, ensuring its continued relevance.
In essence, Ethernet's interoperability, scalability, cost-effectiveness, and reliability have made it the dominant networking technology, and the default choice for implementing switches and other networking equipment in most computer networks today.
Networking Standards Wars: The Rise of Ethernet
The networking industry has witnessed a long-standing battle among various standards, each vying to become the de facto choice for local area networks (LANs) and beyond. At the heart of this competition was the struggle to establish the most suitable combination of interoperability, scalability, cost-effectiveness, and reliability - the key factors that would ultimately determine the winning standard.
Ethernet's Ascent to Dominance
Ethernet, first introduced in the 1980s, emerged as the clear victor in this standards war. Its ability to seamlessly balance the critical requirements of interoperability, scalability, cost-effectiveness, and reliability proved to be the decisive factor in its widespread adoption.
Interoperability
Ethernet's adherence to open standards ensured that equipment from different vendors could communicate effortlessly, enabling the construction of multi-vendor networks. This vendor-neutral approach was a significant advantage over more proprietary technologies.
Scalability
Ethernet's evolutionary path, from 10 Mbps to 100 Mbps, 1 Gbps, and beyond, allowed it to keep pace with the ever-increasing bandwidth demands of modern computing and networking. Its ability to scale to higher speeds without compromising the underlying architecture was a key differentiator.
Cost-Effectiveness
Due to Ethernet's widespread adoption and mass production, the associated equipment and infrastructure became highly cost-effective, making it accessible to a broad range of organizations and users.
Reliability
Ethernet's proven track record, combined with its built-in mechanisms for error checking and recovery, contributed to its reputation for reliable performance, a crucial factor for mission-critical networking applications.
The Unique Capabilities of Alternative Standards
While Ethernet emerged as the dominant standard, the alternative networking technologies that competed during the standards wars possessed unique capabilities that Ethernet did not initially possess:
Token Ring: Offered a deterministic access mechanism, ensuring fair and prioritized access to the network, which was particularly useful for time-sensitive applications.
FDDI (Fiber Distributed Data Interface): Provided a fault-tolerant dual-ring topology, enhancing network reliability and redundancy, especially in environments that required high availability.
ATM (Asynchronous Transfer Mode): Introduced quality of service (QoS) mechanisms, enabling the integration of voice, video, and data traffic on the same network, with guaranteed performance levels.
Despite these unique capabilities, Ethernet's overall strengths in interoperability, scalability, cost-effectiveness, and reliability ultimately led to its widespread adoption, as it gradually incorporated many of the features that were once exclusive to its competitors.
Bottom Line
The networking industry's standards war was won by Ethernet due to its ability to strike an optimal balance among the key factors of interoperability, scalability, cost-effectiveness, and reliability. While competing standards like Token Ring, FDDI, and ATM offered unique capabilities such as deterministic access, fault-tolerance, and QoS, Ethernet's versatility and adaptability allowed it to eventually incorporate many of these features while maintaining its advantages.
Ethernet's adherence to open standards, enabling seamless multi-vendor interoperability, was a significant edge over proprietary technologies. Its evolutionary path, scaling from 10 Mbps to ever-increasing speeds, allowed it to keep pace with growing bandwidth demands. Moreover, Ethernet's widespread adoption and mass production made it highly cost-effective, accessible to a broad range of organizations. Coupled with its proven reliability, featuring built-in error-checking mechanisms, Ethernet emerged as the clear winner, becoming the de facto standard for local area networking and beyond.
While alternative standards possessed unique capabilities, Ethernet's overall strengths in the critical areas of interoperability, scalability, cost-effectiveness, and reliability ultimately led to its domination of the networking landscape. This story underscores the importance of striking the right balance among these key factors in determining the success of technology standards.
Vendor Landscape and Market Share
The switch market is dominated by a few key players, each with their own strengths and positioning within the industry. Here is a comprehensive overview of the major vendors and their market share performance:
Cisco Systems
Cisco is the clear market leader, accounting for 43.7% of the total Ethernet switch market in 2023.
Cisco's non-data center Ethernet switch revenues made up 69.5% of its total
In the router market, Cisco holds a 35.7% market share.
Arista Networks
Arista is the second largest Ethernet switch vendor, capturing 11.1% market share in 2023.
The company's Ethernet switch revenues grew an impressive 35.2% in 2023.
Arista's switch business is heavily weighted towards the data center segment, accounting for 91.4% of its Ethernet switch revenues.
Huawei
Huawei holds 9.4% market share in the Ethernet switch market, with its revenues increasing 10.6% in 2023.
In the combined service provider and enterprise router market, Huawei has a 29.2% share.
HPE
HPE accounts for 9.4% of the Ethernet switch market, with its revenues growing 67.6% in 2023 and 50.8% in Q4.
The majority, 89.6%, of HPE's Ethernet switch revenues come from the non-data center segment.
H3C
H3C holds a 4.2% share of the Ethernet switch market.
In the router market, H3C has a 2.0% share.
This vendor landscape highlights the dominance of Cisco, which maintains a strong lead in both the Ethernet switch and router markets. However, competitors like Arista, Huawei, HPE, and H3C are carving out their own niches and capturing notable market share, particularly in specialized segments like data center switching and non-data center environments.
The shifting market dynamics, driven by factors such as the rise of AI and evolving customer demands, will likely continue to shape the competitive landscape in the years to come, as vendors strive to meet the ever-changing needs of the networking industry.