The global market for campus switching is expected to have a robust 2023, according to research from the Dell’Oro Group. The analyst firm anticipates revenue growth of nearly, though not quite, 10 percent. That comes on top of double-digit revenue growth in 2022.
Two factors are driving this growth: a backlog of orders from previous years in which supply chain constraints pinched production, and the ability of vendors to get equipment out of the door faster than expected now that those constraints are loosening.
“In the first half of the year, the market performed above expectations,” said Sameh Boujelbene, VP at Dell’Oro, in an interview. This prompted Dell’Oro to revise its revenue expectations higher for 2023.
And while the backlog has started to decline it’s still high–two or three times the normal level, according to Boujelbene. That backlog represents demand, which has raised confidence among equipment vendors of a robust 2023.
In addition to high demand, vendors are also able to charge higher prices. Boujelbene says that switch revenues are climbing faster than port counts, an indication that vendors are simply getting more money per port. One reason is customers are buying more switches that support Power over Ethernet (PoE), which are pricier than non-PoE gear. Customers are also upgrading to 2.5G and 5G switches for campus WLANs, which cost more than switches with 1G ports.
Correction Ahead?
While 2023 looks robust, Dell’Oro anticipates a correction may be on the horizon. “Spending on campus switching for the past four years has been way above the average, and you can’t sustain that,” said Boujelbene. As backlogs decline and customers digest the capacity they have on hand, revenue growth is likely to slow. “The question is will it be a low or high single digit correction,” she said.
That said, looking out over the next five years, Dell’Oro expects the campus switch sales to reach $100 billion by 2027. The drivers mentioned above–PoE and the need for higher bandwidth per port–will continue to drive investment for the long term.
