Data Center Networking Market

Market Overview

The global data center networking market size was valued at USD 26.31 billion in 2022. It is estimated to reach USD 44.52 billion by 2031, growing at a CAGR of 6.02% during the forecast period (2023–2031). 

Technological advancements have resulted in the installation of high-end networking solutions for supporting high-bandwidth data traffic, and the requirement for virtualization of networking infrastructure has resulted in the adoption of Software Defined Networking (SDN), thereby contributing to market growth.

Data centers consist of IT infrastructure, such as servers and storage and network infrastructure, to process and store user data. Data center networking integrates various networking tools, including switching, routing, load balancing, analytics, etc., to make storing and processing data and applications easier. These infrastructures are essential for the transmission of data traffic with high quality.

Modern data center networking architectures use full-stack networking and security virtualization solutions that enable centralized management and granular security controls while supporting a rich set of data services connecting anything from VMs, containers, and bare metal applications. The most cutting-edge data center networking technologies link and safeguard everything in a company's environment while constantly adapting to users' and applications' changing needs. They provide vital services for apps and data, such as automation, dependable operations, and micro-segmented security.

Market Dynamics

Global Data Center Networking Market Drivers

Growth in Software-Defined Networking Adoption

Software-defined networking (SDN) in a data center is a key component for decoupling the control from the program and attaching it to a software-based controller. SDN can be installed in network formats such as flexible and vendor-neutral, which is beneficial for data center operators, network operators, and end-users. The adoption of SDN is gaining traction across several locations. The implementation of Software-Defined Networking (SDN) presents advantageous economic outcomes for operators of data centers.

SDN adoption can also help data center customers regarding network security. SDN enables customers to divide the network between the end user and the data center to deploy different network security settings for data traffic. Several customers across the market have started adopting software-defined networking to virtualize their operations. For instance, Isbank, a private bank based in Turkey, has adopted Huawei's software-defined data center networking solution to support its growing business needs. Thus, the growth in software-defined networking adoption is boosting market expansion.

Growing Adoption of Big Data and IoT Solutions

Implementing 5G networks for mobile devices will aid the exponential growth of IoT and big data analytics during the forecast period. Due to technological advancements in data centers, facilities are getting automated, and data center operators are likely to procure highly advanced network infrastructure. The global market is witnessing growth due to the widespread use of digitalization worldwide. The implementation of the Internet of Things (IoT) has the potential to promote the effective management and monitoring of data centers, enabling operators to perform these tasks remotely without requiring their physical presence at the facility.

The deployment of IoT requires the deployment of network architecture with low latency and low-security risks. The requirement of network infrastructure for IoT deployment varies from industry to industry. For instance, the manufacturing industry requires continuous architecture monitoring to reduce the chance of loss of critical data. Therefore, the overall demand for network infrastructure will also grow with the adoption of high-end technology.

Global Data Center Networking Market Restraint

Lack of Skilled Data Center Professionals

The lack of a skilled workforce is one of the major restraints in the market, as this limits investments by organizations in specific locations across the globe. It limits data center construction, development, design, and operation. Similarly, many regions face a shortage of skilled employees in constructing and designing data centers. Moreover, the core skills required to build data centers, including design and engineering, are scarce across regions, restricting market growth.

Global Data Center Networking Market Opportunities

Growing Adoption of AI and ML

The application of AI in data centers will enable data center operators to reduce their OPEX. For instance, AI will reduce the workforce required in workload management and the burden on IT teams. Adopting artificial intelligence and machine learning will increase the demand for software-defined networking solutions. Adopting AI in data centers has also led data center operators to adopt solutions such as network virtualization to increase the speed and efficiency of the network architecture.

Furthermore, AI can keep monitoring the network traffic through machine learning and identify anomalies in the data traffic and congestions in the network. The usage of AI can enhance data center infrastructure and will increase the demand for the installation of new technology switches and other network infrastructure. Demanding computing power applications such as AI require fast interconnection infrastructure that can quickly transfer information, so the need for ethernet switches with a higher number of ports will increase. Therefore, the growing adoption of AI and ML in data center networking will provide opportunities for market growth.

Regional Analysis

Based on region, the global data center networking market is bifurcated into North America, Latin America, Western Europe, Nordics, Central and Eastern Europe, the Middle East, Africa, and Asia-Pacific.

North America Dominates the Global Market

North America is the most significant global data center networking market shareholder and is anticipated to exhibit a CAGR of 2.61% during the forecast period. The North American data center market is the most grown globally in terms of factors such as data center developments, adoption of innovative technology, and innovations in the market. The region is a key driver and acts as an incumbent for any new technological innovation in the data center space. The North American data center market is driven by factors such as the deployment of 5G services across most locations and most regional organizations' adoption of technologies such as IoT, big data, and artificial intelligence. In addition, the North American market witnessed substantial investments from cloud service providers. Cloud operators customize servers in collaboration with the OCP platform. Therefore, cloud service providers majorly design their network infrastructure to improve the performance and flexibility of data center facilities.

Asia-Pacific is estimated to exhibit a CAGR of 8.79% over the forecast period. Countries like South Korea and Japan were some early adopters of 5G in the region, and operators are still actively working toward expanding coverage there. China is expected to become one of the biggest markets for 5G, wherein it is expected that by 2024, the country will account for over one-third of worldwide 5G connections. Telecommunication providers in countries like Malaysia and India are also targeting the commercial launch of 5G by 2022. According to the June 2021 Ericsson Mobility Report, Australia witnessed the adoption of a combination of 5G FDD GHz and TDD with a spectrum range of 2.1 GHz and 3.5 GHz, respectively, with carrier aggregation technique.

In addition, digitalization is driving the demand for cloud-based services in Asia-Pacific. Adopting advanced technological solutions that include IoT, big data, and AI increases the demand for cloud services across verticals. The presence of some of the largest cloud service providers in Asia-Pacific will create opportunities for data center operators to develop network infrastructure.

The Central and Eastern European market is boosted by the rapid expansion in cloud, IoT, AI, and ML, driving investments from data center service providers. In Central and Eastern Europe, data traffic increases workloads on network infrastructure, both on the Internet and data center networks. Internally, an increase in data traffic necessitated using a 10 GBE switch configuration on the top of the rack, with higher-capacity switches deployed in aggregation and core layers. Global cloud operators such as Google, Microsoft, Oracle, and Amazon Web Services are expanding their presence in Central and Eastern Europe. For instance, in April 2021, Google opened its Poland cloud region. Oracle signed a Memorandum of Understanding (MoU) with the Serbian government to develop a cloud region in the country.

In Latin America, the data center network market is expected to grow during the projection period as the market has witnessed investments from telecom and colocation data center operators. It is expected that the adoption of switches and routers will replace traditional network infrastructure in data centers. As the market is witnessing investments in edge data centers, the demand for switches and routers will likely increase during the forecast period.

The Brazilian market is witnessing investments from various telecom operators, and the country is developing a robust 5G network, so more edge data centers are likely to be deployed in the country. In Brazil, the growing internet penetration is driving the demand for advanced network infrastructure, such as 10/25 GbE switch configurations on the top of the rack, with switches of 40 GbE capacity being deployed in the aggregation and core layers. 10/25 GbE switches are expected to experience a high growth rate during the forecast period.

Segmental Analysis

The global data center networking market is segmented by industry and product.

Based on industry, the global data center networking market is bifurcated into BFSI, government, cloud, IT and telecom, and other industry sectors. 

The cloud sector segment dominates the global market and is projected to exhibit a CAGR of 6.24% over the forecast period. The data center network cloud market has been witnessing several investments in data centers. The demand for storing and processing data on cloud platforms is growing with the need for secure data storage and processing. Operators in the cloud sector are also innovating their infrastructure to offer advanced services to their customers. Operators in the sector are developing or collaborating with data centers across the globe to increase the availability of their services to more customers and to increase connectivity. This is leading to an increase in demand for network infrastructure by these operators, leading to an increase in the overall investments and revenue in the market. Growing investments by cloud service providers in developing edge data centers will open opportunities for network infrastructure providers.

The growing developments of data centers by governments worldwide fuel the network infrastructure market. Governments across the globe are shifting to cloud platforms for data processing and storage. Governments are also developing their own on-premise data centers across several developing nations. This increases the demand for secure, reliable, and advanced data processing and transfer networking infrastructure. The US is the leading market in terms of government data center operations. However, increasing OPEX has led to significant consolidation of data centers, thereby prompting government agencies to move to the private cloud environment operated by leading cloud services providers like AWS, Google, and Microsoft. In addition, government agencies across the globe are building their own on-premise, private cloud infrastructure. Government policies such as data localization have resulted in investments by governments in developing data centers.

Based on product, the global data center networking market is segmented into ethernet switches, routers, storage networking, and other network infrastructure. 

The Ethernet switches segment owns the market and is predicted to expand at a CAGR of 5.80% over the forecast period. Datacenter ethernet switches are a major component of networking infrastructure, and installing ethernet switches in places such as the top of the rack, aggregation, and core are among the major steps in commissioning. These Ethernet switches for data centers are offered under different capacity ranges between 1 GbE and 400 GbE. These switches are mainly designed for large enterprise facilities and cloud service providers' facilities. The need for high-capacity switch ports has increased considerably within and between data centers over the last few years, both from the perspective of transmission speed and the number of connections. This includes the adoption of 200/400 GbE ethernet switch ports.

In addition, most market players are innovating their products with Ethernet switches that support 100, 200, and 400 GbE capacity. This market trend of high-capacity switch ports will continue. The implementation of this equipment is expected to enhance operational efficiency and reduce the latency of data centers.

Storage networking based on fiber channel technology is a high-speed network infrastructure that aids the storage system with block-level network access. The storage area network helps transfer much data with low latency across enterprise facilities. Storage area network infrastructure is deployed to support mission-critical and performance-sensitive applications, including data centers. Companies such as NetApp, IBM, VMware, Arista Networks, Lenovo, Hewlett Packard Enterprise, Dell Technologies, Pure Storage, and others offer storage area network solutions.

Storage networking solutions are also majorly adopted by enterprise and small business organizations as they help in less spending on infrastructure by joining storage infrastructure with networking architecture. The growing adoption of this solution has increased its offerings, especially by cloud service providers, as it offers customers complete control over the location and security of their data.

Recent Developments

• April 2023-Rai Way introduced Rai Way Edge, a new network of interconnected data centers in Italy. Rai Way Edge is a carrier-neutral participant connected to Italy's major national fiber optic networks. Utilizing its nationwide network of data centers enables businesses to satisfy the rising demand for digital transformation.
• August 2023- Google Cloud introduced Cross-Cloud Network, an open and programmable global cloud networking platform. The Cross-Cloud Network service is a combination of new and existing technology from Google and its partners, and it is designed to help enterprises operate across multiple clouds.