The high-end Ethernet switch market is seeing increased demand from cloud providers and enterprises gearing up their data centers for AI operations. Concurrently, sales of high-end routers are on the decline as per the latest quarterly reports by IDC.

Year-on-year comparisons show a downturn in both the Ethernet switch and router markets in the second quarter; with Ethernet switch sales dropping by 14% and router sales by 31% from the same quarter in 2023. Despite these overall declines, certain segments witnessed growth. “The data center portion of the Ethernet switch market rose by 8%,” stated Brandon Butler, IDC’s senior research manager for enterprise networks. Notably, revenues for the top-speed Ethernet switches monitored by IDC – 200/400 GbE – saw a remarkable increase, doubling in revenue, an upshoot of 104% from the second quarter of 2023 to 2024, according to Butler.

In the data center market, there is a significant shift towards faster Ethernet switch speeds, driven by the needs of expanding AI workloads, Butler explained.

“AI, especially generative AI, is pushing the growth in data center Ethernet switching significantly,” mentioned Butler. The forecasts by the research firm indicate a potential escalation in the generative AI data center Ethernet switch market from $640 million in 2023 to beyond $9 billion by 2028, which translates to a 70% five-year compound annual growth rate, he added.

“This is further evidenced in the outsized growth in the highest speed Ethernet switches (200/400GbE +104% y/y in 2Q24),” Butler said. “The Generative AI Datacenter Ethernet Switch market is driven predominantly by hyperscale cloud providers building high-speed Ethernet switch capacity to support GenAI workloads now, but other cloud providers and enterprise deployments of Ethernet switching will contribute to the market’s growth going forward, too,” Butler said.

The non-data-center segment of the Ethernet switch market, which includes Ethernet switches typically deployed in enterprise campus and branch locations, declined 28.9% year over year, but increased 15.0% compared to the first quarter of 2024. The annualized decline was driven in part by challenging comparisons with the year-ago quarter, which had historically high revenues driven by product backlog outlays resulting from the market challenges of the pandemic.

“By comparison, the non-GenAI Datacenter Ethernet switch market will grow at a low single digit CAGR from 2023-2028. But the broader Datacenter Ethernet Switch market is a diverse market: On-prem traditional DC deployments will be declining, enterprise private clouds will grow moderately, and public cloud deployments (outside of GenAI) will continue to show solid growth,” Butler said.

Meanwhile, the enterprise router market is in a state of transition, as it is being subsumed to some degree into SD-WAN with its software and cloud-based deployments, according to Butler.

“The market for enterprise routers is anticipated to decline over the next five years, whereas the SD-WAN market is expected to experience an upward trend, growing at a CAGR of over 9% to eventually reach $8.1 billion by 2028,” Butler explained.

Butler also discussed various trends affecting the service provider (SP) routing market. “This year has seen a significant decrease in SP routing due to reduced spending by communications service providers, which has affected many areas of the SP networking markets, including SP Routing. We foresee this market weakening for a couple more quarters before it picks up again in 2025,” Butler remarked.

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