The global data center switch market was valued at USD 16.20 billion in 2023. It is estimated to reach USD 25.56 billion by 2032, growing at a CAGR of 5.2% during the forecast period (2024–2032). Several factors have contributed to the data center switch market's recent growth. The global data center switch market is primarily boosted by key market players introducing higher bandwidth switches. In addition, governments worldwide are also establishing localization laws, which augment the countries' development of local data centers, boosting global market expansion.
A data center switch is a network switch that is specifically designed for use in data centers. It is a critical component of a data center's network infrastructure and is responsible for connecting and managing the flow of data between servers, storage devices, and other network devices within the data center. Data Center Switches are intended to handle high-speed, high-bandwidth data transmission and are usually built with high-performance hardware and software to ensure dependable and efficient operation.
They are frequently used in tandem with other network devices, like routers and firewalls, to form a complete network infrastructure. Data Center Switches are distinguished by their high port density, high-speed interfaces, and advanced features like virtualization support, Quality of Service (QoS), and network virtualization. They are also designed to be highly scalable, allowing them to respond to changing network demands and support a diverse set of network protocols and applications.
Highlights
Data localization refers to restricting data flow from one country to another. Nowadays, governments of various nations enact localization laws requiring companies that collect sensitive consumer data to store and process it in data centers within the country's borders. Such data localization laws support the development of local data centers within the countries and result in increased investments in data centers, which in turn fuels the demand for data center switches.
For instance, the General Data Protection Regulation (GDPR) is a comprehensive data protection law implemented by the European Union. This law regulates the processing of personal data within the EU and is an important component of the EU's privacy and human rights law. While the EU does not currently have specific data localization requirements, the recent invalidation of Privacy Shield, an arrangement for European Union-United States data transfers, could mean the requirement of such laws.
The increased involvement of market participants in introducing higher bandwidth switches is likely to stimulate the global data switch market. For instance, Microsoft recently began selling 200/400 Gbps, and Google will soon deliver 800 Gbps. The introduction of 800Gbps optics, which offer a significantly lower cost per bit than two 400Gbps optics, is likely to increase the adoption of 800Gbps implementation. When the 100 G SerDes technology becomes available, the switch chip's capacity will increase significantly from 12.8Tbps to 25.6Tbps due to the lower cost of 800Gbps at the system level. Therefore, this trend is anticipated to drive the global market for data center switches.
Power consumption continues to be one of the primary factors contributing to the overall costs of data centers in the present era. As per the International Energy Agency, data centers consume 1% of all global electricity and 20% of the world's power supply by 2025. Most of this energy demand is caused by the servers, which generate heat and must be cooled. Again, this cooling consumes a great deal of energy.
As per the World Bank, energy prices are expected to rise over 50% in 2022 before easing in 2023 and 2024, primarily due to the Russia-Ukraine war, which has altered global trade, production, and consumption patterns. The rising energy costs might hamper the growth of the data center market, thereby dampening the demand for data center switches.
Increasing adoption of artificial intelligence (AI) in data centers is anticipated to create growth opportunities for data center switches over the forecast period in the global market. AI applies to mechanical and electrical data center equipment, including switches. This enables actionable insights and automation and saves operators money. It necessitates integrating conventional physics-based modeling techniques with cutting-edge machine learning (ML) techniques that utilize data from IoT sensor devices. Several firms are launching AI-powered data center switches to improve network operations. This subsequently creates numerous lucrative market opportunities.
In addition, the advent of 5G is anticipated to create a favorable environment for growth opportunities in the global market for data center switches over the forecast period. With the advent of 5G, novel applications such as industrial IoT process control, high-resolution cloud gaming, on-site augmented reality guidance for workers utilizing 5 G's super-high-speed, and machine-to-machine communication are on the rise. As a result of these applications, the rollout of 5G is likely to impact multiple industries, including virtualized networking and data center infrastructure. This is anticipated to generate demand for data center switches, thereby creating opportunities in the global market for data center switches.
| Study Period | 2020-2032 | CAGR | 5.2% |
| Historical Period | 2020-2022 | Forecast Period | 2024-2032 |
| Base Year | 2023 | Base Year Market Size | USD 16.20 billion |
| Forecast Year | 2032 | Forecast Year Market Size | USD 25.56 billion |
| Largest Market | North America | Fastest Growing Market | Europe |
North America Dominates the Global Market
Based on region, the global market is bifurcated into North America, Europe, Asia-Pacific, Latin America, and the Middle East and Africa.
North America holds the largest share of the global Data Center Switch market and is poised for substantial growth during the forecast period. This expansion is driven by the presence of major technology giants, strong demand for cloud computing services, and the early adoption of advanced data center technologies. According to the U.S. Department of Commerce's National Telecommunications and Information Administration (NTIA), the United States is the world's largest cloud computing market, with revenues projected to reach $163.5 billion by 2024.
The region's dominance can be attributed to several factors, including the proliferation of hyperscale data centers operated by companies such as Amazon Web Services (AWS), Microsoft, Google, and Facebook. These data centers necessitate high-performance and scalable network infrastructure, thereby driving the demand for advanced data center switches. The Data Center Science Center (DCSC) reports that the U.S. data center market is expected to grow at a CAGR of 6.7% between 2021 and 2026, further fueling the demand for data center switches.
Moreover, North America's robust investments in cybersecurity, cloud computing, and data analytics significantly contribute to the growth of the Data Center Switch market. The increased adoption of hyper-converged infrastructure platforms also drives demand for data centers in the region. A notable development is Corscale, a new data center platform by the Patrinely Group and USAA Real Estate, which entered the Northern Virginia market in February 2022. Its first project, Gainesville Crossing, is a 300-megawatt development in Prince William County featuring five hyperscale-optimized data centers. These factors are anticipated to stimulate substantial market expansion in North America.
The European region is developing at a significant pace. The presence of key countries like the UK and Germany is expected to boost regional market growth. The high cloud adoption rates among UK Businesses have led to a rise in the volume of data generation, resulting in an increase in data storage and processing requirements. In addition, numerous 'Smart City' initiatives around the UK, such as Manchester's Triangulum Project, Future City Glasgow, Bristol is Open, and Smart London Together, are accelerating the demand for data centers. In March 2022, Amazon Web Service announced it would spend EUR 1.8 billion (USD 2.37 billion) in the UK over the next two years on building and operating data centers. Such investments tend to expand the market of regional data center switches.
Germany is also Europe's second-largest data center colocation market, growing significantly in the last few years owing to the implementation of GDPR and the increased development of hyperscale data centers. For instance, in September 2021, Google announced plans to expand its operations in Germany with EUR 1 billion (USD 1.18 billion) worth of investments in new data centers in the country. The technology behemoth plans to expand its cloud region in Frankfurt at a new Google-owned facility in Hanau and launch a new region in Berlin-Brandenburg. Therefore, the factors above are expected to propel the market in the region.
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The global data center switch market is segmented by switch type.
Based on switch type, the global data center switch market is bifurcated into core switches, access switches, and distribution switches.
The core switches segment owns the highest market share over the forecast period. A core switch is the network switch that is installed at the network's backbone. These data switches are in charge of routing and data switching at the network's central layer. The data routed and switched by the core switch is transmitted to the network's lower layers, including the distribution and access layers. This implies that the efficacy of the entire network is contingent upon the data routed and switched by the core switch.
In addition, multiple data switches are typically utilized at the main layer of a network so that a large volume of data can be routed to the lower layers. Using multiple data switches at the central layer is also necessary to prevent the congestion of data packets. The congestion resulting from the high density of data packets at the distribution and access layers can potentially disrupt the functionality of the core layer. In hierarchical Ethernet networks, a selection of high-capacity core switches is essential. Increasing traffic management creates new expansion opportunities for core switches.
