The campus switching market showed signs of recovery in the first quarter of 2021 after a difficult year hampered by the COVID-19 pandemic, a recent Dell’Oro Group report found.

While the market still has a way to go to return to pre-pandemic levels, it is trending in that direction said Sameh Boujelbene, senior director at Dell’Oro Group, in an interview with SDxCentral.

She attributed much of the improvements seen in the quarter to highly favorable comparisons on a year-over-year and sequential basis. “The first driver is, obviously, a favorable comparison because Q1 2020 was so bad,” she explained. And compared to the fourth quarter of 2020, the first quarter of 2021 benefited from several large deals that hadn’t been completed by the end of last year.

While the easy comparison is hard to ignore and certainly played a role, Boujelbene argued strong customer demand and improved macroeconomic conditions can’t be ignored either. “The bulk of the growth that we saw in Q1 2021 was driven by what we call the public sector, because this is the sector that benefitted the most from government spending,” she said.

The market and business confidence are improving as the world opens up and COVID-19 restrictions lift, she said, adding that this is evidenced by growing demand from industries like retail and hospitality, which were hit the hardest by the pandemic. “Those verticals started to recover, so that’s really promising,” Boujelbene said. “That’s 30% to 40% of the market.”

So while Q1 2021 has yet to recover to pre-pandemic levels, she expects pent-up demand to be the strongest in these verticals.

And in discussions with end users, Boujelbene added many customers plan to upgrade their networks now before employees return to the office en masse. “This is the opportunity of a lifetime for an IT manager where he can do upgrades in an empty offices,” she said.

Dell’Oro projects the campus switching market will continue to improve in the future quarters, but warns the global semiconductor shortage could slow that recovery.

“We don’t know if the supply chain will be able to satisfy demand,” Boujelbene said, adding that even if it can’t, that doesn’t necessarily spell doom for the market.

If lead times are 52 weeks, that means revenues and thereby growth won’t be recognized for another year, she said. “The demand will be there, that’s not going to disappear, but it's not going to happen in that particular quarter,” Boujelbene explained.

It’s also uncertain how much the availability of campus switching hardware could impact customer demand.

“Is it real demand? Or is it rush demand, i.e., people taking advanced orders because of the fear of the lead time,” Boujelbene said. “And quite frankly, I'm not sure. Because when I talked to some of the largest — really large — chip suppliers, and you know who, they don't know either.”

“It’s like the toilet paper phenomenon,” she said referencing the run on sanitary goods in the wake of COVID-19-related lockdown orders. “The minute that you communicate to customers that your … lead times are doubled, or sometimes tripled, then all your customers rush to place orders.”

Regardless, larger customers will benefit because they have more purchasing power than smaller customers, Boujelbene said.