Why Ethernet Switches Are Dominating Data Centers: Market Trends & Future Outlook

Overview

Ethernet switches are a core device in Ethernet networks, forwarding frames based on MAC addresses. The article examines downstream demand, midstream ecosystem, and upstream chip market, and highlights three key trends shaping the industry.

1. Downstream – Data Center Drives Growth

Switches are divided into data‑center (including AI‑computing, enterprise, carrier) and campus segments. Data‑center demand is boosted by cloud computing, big data, IoT, and AI, pushing port speeds from 10‑100 Gbps to 100‑800 Gbps. Enterprise campus switches saw a 0.5 % decline in 2023, but are expected to recover in 2024 as Wi‑Fi 6 AP adoption stimulates demand.

2. Midstream – Brand Vendors & Manufacturing Services, White‑Box Decoupling

Global Ethernet switch equipment is projected to grow at a 3.2 % CAGR (2020‑2025). China’s market is expected to outpace the world with a 10.8 % CAGR. The ecosystem splits into brand owners and contract manufacturers. Brands outsource production to reduce cost and speed time‑to‑market, while OEMs focus on volume manufacturing and design services. In China, Huawei, H3C, and Ruijie hold 84 % of the market (2021).

Feature 1: Brand‑vendor vs. manufacturing‑service specialization creates a two‑tier structure.

Feature 2: White‑box, open‑architecture switches enable hardware‑software decoupling, allowing data‑center customers to load different functional modules on programmable ASICs.

3. Upstream – Ethernet Switch Chips

Switch ASICs account for about 40 % of a switch’s BOM cost. Global Ethernet switch‑chip market reached ¥368 billion in 2020 (CAGR 3.6 % 2016‑2020). China’s market was ¥125 billion, with ¥35 billion for internal use and ¥90 billion for commercial sales.

Feature 1: Data‑center demand will keep high‑speed (100 Gbps +) chips dominant.

Feature 2: Commercial chip makers (Broadcom, Marvell, Realtek, Nvidia, Intel, etc.) have higher scale, but self‑developed chips from carriers (Cisco, Huawei) pose competitive risk.

Feature 3: The chip market remains concentrated; Broadcom leads in hyperscale cloud and HPC segments, while domestic substitution is still limited.