2Q18 saw record setting shipments for both 25 Gbps and 100 Gbps port shipments. In the Data Center Ethernet Switch market, 100 Gbps is now the largest contributor to revenue, surpassing 10 Gbps. This is an important milestone as 40 Gbps was never able to exceed 10 Gbps, nor ever able to break the $1B a quarter milestone. This ends an almost ten year run for 10 Gbps being the dominant technology in the data center.
Strength in 25/100 Gbps was broad based in 2Q18. Besides record setting shipments into the US hyperscalers, Chinese’s Cloud providers demand was robust for the first time and enterprise demand continued to ramp.
What is coming next is more exciting. In the past few months multiple switch ASICs vendors began sampling and shipping next generation 12.8 Tbps fabrics based on 56 Gbps SERDES. Some hyperscalers are deploying this as 200 Gbps ports while others are waiting to deploy 400 Gbps later this year. A year from now, 400 Gbps will set records in port shipments and revenue compared to previous technologies. We expect formal vendor announcements to lag white box shipments by several quarters indicating that formal announcements by traditional OEMs will begin at the end of 2018.
In 2Q18, Cloud equipment CAPEX grew so significantly that the spend on exclusively DC equipment was higher than total CAPEX just two years ago. This is an unprecedented investment in networking, compute, and storage and these same cloud hyperscalers are currently investing in 400 Gbps. Simply put, CAPEX and networking spend will be larger in the 400 Gbps ramp compared to the 100 Gbps ramp. At the same time, server utilization and new Artificial Intelligence (AI) and Machine Learning (ML) workloads are increasing bandwidth demand and making the need for a very robust network more important to Cloud design in the coming several years. These trends will help drive Cloud server connectivity from today’s 25 Gbps to 100 Gbps over the next few years. The time for each Ethernet upgrade cycle is compressing, which can cause some pressure on suppliers in the short term, but is an overall positive to the Ethernet market as the installed base has multiple reasons to upgrade their networking infrastructure over the next two years.
Significant progress is being made throughout the 400 Gbps supply chain, as not only are optics suppliers ramping, but the ecosystem is quickly moving toward 112 Gbps SERDES as well as chip disaggregation. 400 Gbps will quickly transform from 8X56 Gbps SERDES to 4X112 Gbps SERDES with some hyerscalers already planning for 800 Gbps port speeds. We expect hyperscalers to take advantage of future 112 Gbps SERDES for server access (NICs and cables) as it will be a key building block for several generations of networking products.