When the boundaries begin to blur, where do routers and switches go?

In the past few years, we have increasingly seen routing functions added to switch ASICs. Data shows that Ethernet switch shipments are growing year by year, while the router market is stagnant, and the boundaries between routers and switches are gradually blurring.

IDC ranks switching and routing data, including by bandwidth type and by vendor, to help analyze overall market trends.

The figure below shows the data from IDC statistics. Since 2015, when the data began to be publicly released, the switching business has grown year by year, while the routing business has remained almost flat.

Bandwidth sales of all Layer 2 and Layer 3 Ethernet switching equipment, including fixed ports and module machinery, increased just 0.1 percentage point year-over-year to $7.32 billion through September. Enterprise and service provider routing revenues above Layer 3 increased 0.8 percentage point year-over-year to $3.74 billion. While this is better than the decline in server revenue and shipments during the same period, such meager growth is not something to get excited about.

Behind these tepid revenue trends, we can see that the transition to 100 Gb/s Ethernet switching is underway, in part because high-end Ethernet ASICs include routing functions, eliminating some of the need for Ethernet. It is difficult to say how much of the Ethernet switching revenue is driven by routing functions, but it is certainly growing.

As of now, there is still a long way to go to 100 Gb/s, and it will take several years for the cost of switches and long-distance cable transceivers to drop enough to meet the demand for bandwidth. The overall Ethernet switch market may have been flat this quarter, but the number of ports in 100 Gb/s equipment increased by 57.2% to 5.6 million ports, and the revenue generated by these switches increased by 32.8% to $1.44 billion, accounting for almost one-fifth of total Ethernet switch revenue. Sales of switches supporting 25 Gb/s and 50 Gb/s speeds increased by 69.3% to $463.4 million, and the number of ports increased by 68% to 4.4 million ports. Sales of 40 Gb/s equipment are gradually declining, and sales of 10 Gb/s Ethernet switches fell by 8.7% to $1.93 billion, but their port count increased by 8.7% (thanks in large part to enterprise data centers) to 18.3 million, so the average port fee decreased slightly, down about 15% year-on-year.

Here's a look at Ethernet switch sales in the third quarter:

If you do the math on the IDC data, you get the average cost per Gb/s of peak bandwidth that each port carries on the band. The cost per bit for 100 Gb/s and 25/50 Gb/s equipment is much lower than the cost per bit for slower equipment. The 1 Gb/s Ethernet market is primarily for small and medium-sized enterprises and campus markets, and is not particularly interesting in the data center because it is nearly 5 times more expensive per bit than 100 Gb/s equipment.

In terms of vendor market share, companies are very loyal to one or two switch vendors. It took Arista and Huawei 10 years to surpass Juniper as the second largest revenue source behind Cisco Systems, which has seen revenue decline in recent quarters but still dominates the market. IDC did not provide vendor breakdowns until recently, so it did not see the decline of Juniper's revenue and the rise of Huawei and Arista.

There are many other suppliers compared to the top five, and they are also growing their revenues, which is a testament to the diversity of the Ethernet switch market. We suspect that ODMs have a significant share of the "Others" category, but don't know how much.

All of this data shows that even more important than the data center switch is the database.