Telecoms Analyst Firm Forecasts Multi Billion Dollar Growth in Key Supplier Sectors

Outlook Good for of LTE Macro and Small Cell RAN, Ethernet Switches, Security Appliances, and Optical

During the last week, California-based Dell’Oro Group released several reports indicating growth in key WAN equipment sectors.

The biggest winner, if forecasts hold true, would be vendors in the Layer 2-3 Ethernet Switch market, which Dell’Oro analysts estimate will exceed $25 billion in 2019. Continued adoption of Software Defined Netowrking (SDN) architectures and Cloud deployments will drive sales of white box switching, software, and 100 Gigabit Ethernet equipment, according to the report.

“Data center switching will evolve rapidly through the rest of the decade and will drive most of the growth in the Ethernet Switch market.  Already we see these changes causing vendors to significantly increase the number of products they offer,” said Alan Weckel, Vice President of Ethernet Switch market research at Dell’Oro Group.  “Towards the end of the decade, we expect data center switching growth to be driven exclusively by the Cloud, with the enterprise market declining slowly.  The Cloud will help spur the adoption of Software Defined Networking (SDN) that is another key driver in the evolution from an enterprise-driven to a Cloud-dominated Ethernet Switching market.  The Cloud’s need to scale, be flexible, and differentiate are ultimately all governed by what can be achieved in software,” stated Weckel.

The Ethernet Switch 5-Year Forecast Report also indicates that 25 Gigabit Ethernet will be a major driver for growth in data center switching and will help propel 100 Gigabit Ethernet volumes, with Enterprises adopting a different class of switch to support 25 Gigabit Ethernet compared with switches used in the Cloud.  The report also indicates software will transform how Ethernet switches are consumed by customers.

In a separate report released last week, Dell’Oro predicts that sales of equipment for LTE Macro and Small Cell RAN will exceed $24 billion 2019. The report, which cites Ericsson, Huawei, and Nokia as the top LTE Macro and Small Cell RAN vendors in the third quarter of 2014, said this anticipated strong growth in LTE and small cells is expected to nearly offset declining spending on 2G and 3G technologies.

“Although WCDMA will likely remain the dominant end-user technology even through the end of this forecast period, it is clear at this point that the success of LTE has impacted both service providers’ WCDMA/LTE rollout strategies, and the overall 3G market,” explained Stefan Pongratz, Dell’Oro Group Analyst. “Service providers are realizing that there is more to LTE than the theoretical performance difference between HSPA+ and LTE Release 8, and as a result, more service providers are revisiting their overall MBB strategies. Initially the strategy shift would be mostly confined to advanced markets. But with the cost of terminals coming down, the phenomenon that transpired in many advanced markets will likely be replicated in other markets as well, impacting WCDMA macro and small cell deployments,” continued Pongratz.

Other Mobile RAN 5-year Forecast Report highlights:

•             Top LTE Macro/Small Cell vendors in 3Q14 by revenue: Ericsson, Huawei, Nokia

•             Total RAN market—macro and small cell—expected to grow at a strong pace in 2014, decline in 2015 and 2016 before stabilizing

•             LTE RAN market expected to double by 2019 from 2013 levels

•             WCDMA RAN market expected to be cut in half between 2013 and 2019.

Some of the most growth for telecom equipment vendors, according to another recent report from Dell’Oro, will occur in the Network Security Appliance (NSA) market, which analysts predict to exceed $11 billion in 2019, driven by virtual appliance revenue growth. If the estimates in this report hold true, the sector will have tripled in the next five years.

“Virtual appliances can provide greater flexibility, allowing for a more “customized” security approach through software configuration and scripting. In addition, co-operation between virtualization and security solution vendors has increased considerably, resulting in virtual security appliances that are directly integrated with hypervisors, such as VMware and Hyper-V,” said Casey Quillin, Director of Data Center Appliance Market Research at Dell’Oro Group. “Looking to the future, virtual security appliances will be an attractive option for software-defined networking (SDN) and network functions virtualization (NFV) initiatives, that promise to enable network programmability and the automation of hardware configurations,” Quillin explained.

The Dell’Oro Group Data Center Appliance 5-Year Forecast Report includes manufacturers’ revenue, unit shipments, and average selling price projections for NSA, Application Delivery Controller and WAN Optimization Appliance markets. The report also includes NSA segmentation based on threat type – Content Security, Firewall – Enterprise, Firewall – SMB, IDS and IPS, and VPN and SSL.

In a fourth report released last week, Dell’Oro Group forecasts the optical packet-transport equipment market to reach $10 Billion by 2019, an average annual rate of 14.

“The previous generation of optical equipment was defined by its transport capacity,” said Jimmy Yu, Vice President of Optical Transport Market Research at Dell’Oro Group.  “However, I think the next generation will be defined by its adaptability and openness. Service providers need these types of features in order to move to a software defined network architecture or carrier SDN, as well as to enable network elasticity and operational cost savings.  The right optical network elements, starting with optical packet-transport, will help service providers to realize the benefits of carrier SDN,” added Mr. Yu.

Optical Packet-Transport systems unite optical switch functions with WDM optics, thereby enhancing WDM systems functionality beyond high capacity throughput to include bandwidth management, protection and restoration.  As equipment manufacturers add open control interfaces, optical packet-transport equipment can be an excellent network element to undertake requests from an SDN controller for network changes, service turn-up and turn-down.