The data center switch market broke its fifth consecutive quarter of sales records in Q2 2023, with Cisco and Arista Networks positioned as the leading vendors.

According to a report from Dell'Oro Group, No. 1 Cisco increased its revenue share by two points, No. 2 Arista by four points and Hewlett Packard Enterprise (HPE) by one point in the second quarter.

While the two top vendors differ in revenue, they also diverge in terms of competitive positioning, Dell'Oro VP Analyst Sameh Boujelbene told SDxCentral.

Arista's focus is on cloud service providers, which represent more than half of the vendor's revenue, Boujelbene said. The networking company has also been attempting to "diversify its business" by dipping its feet into the enterprise market in recent years.

Cisco, on the other hand, finds most of its success in the enterprise and tier 2/tier 3 cloud service provider markets, "where they still maintain the leading position," Boujelbene said. In terms of the larger cloud service providers, Cisco has been "losing share to Arista and to white box vendors."

HPE is growing its share of the data center switch market with "new switch products, which are gaining traction" – like 10k switches introduced in partnership with AMD Pensando – but has yet to make it onto the analyst firm's top 6 vendors list.

Following Cisco and Arista in market share is Huawei at No. 3, H3C at No. 4, and Juniper Networks/Dell Technologies tied for No. 5, according to Dell'Oro.

Considering the recent surge in artificial intelligence (AI), the analyst firm noted that cloud service providers' investments in high-performance computing infrastructure has diverted significant amounts of budget from traditional front-end networks. Enterprise spending – for the first time in five years – was the main driver of the data center switch market's growth.

Enterprises' increased spending on data center switches is indicative of supply improvement. "Vendors are finally able to release more products and backlog to enterprise customers," she said.

The slowdown in traditional spending from cloud service providers is due to multiple factors: capacity digestion and the budget shifts from general purpose compute to AI-optimized infrastructure.

"Unfortunately," Boujelbene said, the uptick in AI infrastructure doesn't necessarily mean Ethernet networking will immediately see benefits – even though leading vendors like Cisco are convinced Ethernet fabrics are the best way to approach AI applications in distributed environments. "Most AI workloads are currently using either InfiniBand or some sort of other proprietary fabrics," she said.

The Ethernet switch market is still growing, despite the prevalence of Nvidia's proprietary InfiniBand technology. According to an IDC report, the Ethernet switch market grew 38.4% in Q2 2023, up 35.2% from the first half of 2022. Easing supply chain constraints and improved component availability are the main drivers of this growth.

That increase is particularly significant in the non-data center segment of the market, which saw 52.5% growth year over year, IDC reported.

Specifically, higher-speed segments of the data center Ethernet switch market were driven by hyperscaler cloud providers growing their data center network capacity as AI interest rises. Sales of 200 and 400 GbE switches increased 61.9% year over year, 100 GbE switch sales grew 18.5%, and 25/50 GbE switch sales grew 54.2%, according to IDC.

Lower-speed switches meant for deployment in enterprise campus or branch locations also saw growth in Q2, with 1 GbE switches growing 53.1% year over year. Meanwhile, 10 GbE switches grew 18.1% and 2.5/5 GbE switch revenue, or multigigabit Ethernet switches, grew 157.5% from Q2 2022.