Enterprise Networking Market Grew at just 2.9% YoY in 2Q22 Due to Equipment Shortages: IDC

As per IDC, India’s networking market which includes Ethernet Switch, Routers, and WLAN segments has witnessed a 2.9 percent year-over-year (YoY) growth in terms of vendor revenues during 2Q22 (Apr-Jun).

The analyst firms said that vendors continue to battle chip shortages which extends the lead times. Though the delays are rationalizing in the wireless segment, the shortages in the switching segment continue to worsen, specifically in the access and distribution layer. This shortage has led to growth in the DC switching segment compared to the non-DC switching during 2Q22. In fact, high input costs driven by semiconductor demand, logistics, and fluctuating currency have resulted in the prices of network equipment significantly increasing over the last few quarters. However, vendors have at least two-quarters of backlogs to clear in the coming months.

Switching business in India had a 6.4 percent YoY growth by vendor revenue during 2Q22. Non-DC switching declined by 2.9 percent YoY owing to the shortage of equipment in the access and distribution layer. DC switching market grew at a YoY growth rate of 19.8 percent owing to the pent-up demand that has started to come in post-pandemic. Services, manufacturing, finance, and telecom are key industries that contributed to the switching business.

India’s router market declined 13.4 percent YoY by vendor revenues during 2Q22. Having mentioned that there was a sequential increase of 13.7 percent quarter-over-quarter (QoQ). Service providers contributed 62.3 percent of router revenues and were majorly responsible for the category to decline. However, we expect telecommunications vendors to incur CAPEX ahead of the 5G rollouts in India which in turn would grow SP router deployments in India in the coming quarters. Enterprise router business grew by 16.3 percent YoY with investments aimed at regular refreshes and SD-WAN deployments. Services, finance, and government are the key verticals for routing, apart from telecommunications.

The WLAN segment witnessed a strong growth of 19.2 percent YoY by vendor revenue owing to the growth exhibited by the enterprise wireless segment. While segments like services were spending even during the pandemic, demand from verticals like education, retail, and hospitality, have started to spend on wireless infrastructure. There has also been a significant uptake in cloud-managed wireless over the last four quarters. Within enterprise-class WLAN, Wi-Fi 6 (AX) continued to dominate the market with a 70 percent share by vendor revenue.

Despite offices opening in most parts of the country, consumer gateway routers continue to grow at a steady pace of 5.7 percent YoY owing to the trend of hybrid work. However, the growth was marginal (0.4 percent) from a QoQ perspective. IDC expects the gateway router market to have a temporary spike in demand over the next 2 quarters with the festival season in India around the corner.

According to IDC’s Worldwide Quarterly Ethernet Switch Tracker, the 2Q22 Ethernet Switch market in India stood at $157 million (by vendor revenue) registering a strong YoY growth of 6.4 percent. DC switching segment contributed to the growth with a YoY growth of 19.8 percent. Non-DC on the other hand declined by 2.9 percent owing to the chip shortages that vendors are facing primarily in the low-end switching that includes PoE switches. Services, manufacturing, finance, and telecom were key business verticals for switching during 2Q22.

Cisco continued to lead the Ethernet Switch market with a 51.1 percent share during 2Q22, followed by Arista and Hewlett Packard Enterprise (HPE).

The India Router market in 2Q22 stood at $70.2 million (by vendor revenue) with a YoY decline of 13.4 percent. Telecom service providers going slow on router investments is the main reason behind the decline. Service Provider deployments declined by YoY 25.0 percent during 2Q22. This decline is expected to be temporary and telecom vendors to commence CAPEX ahead of 5G rollouts.

Enterprise router investments grew by a YoY growth of 16.3 percent. The investments were focused on regular router refreshes and deployments aimed at SD-WAN implementation. Services, finance, and government were key investment verticals, apart from telecom.

Cisco leads the router market with a 62.6 percent market share in 2Q22 followed by Juniper and Nokia.

The Indian WLAN market had a strong YoY growth of 19.2 percent by vendor revenue during 2Q22 majorly driven by the enterprise wireless segment. The market stood at $59.9.

Enterprise-class WLAN grew by 29.4 percent by vendor revenue. The chip shortage is easing out in the WLAN segment compared to switching. Vendors are currently focused on clearing the backlogs as much as they could before CY 2022. Services continued to be the top spending vertical. Verticals like education, retail, hospitality, etc. have started to gain significant traction. Wi-Fi 6 continued to dominate WLAN revenues with a 70 percent share by vendor revenues. Despite the growth of Wi-Fi 6, older generations of wireless i.e., AC Wave 2 continue to have market demand owing to the cost-effectiveness.

The consumer gateway router business grew by 5.7 percent YoY by vendor revenue. The trend of hybrid work is largely propelling the growth of consumer gateway routers. Having mentioned that, the QoQ growth remained flat at 0.4 percent.

With a market share of 28.6 percent, TP-Link was the market leader in the WLAN segment during 2Q22. Within the enterprise-class WLAN segment, Cisco was the market leader with 28.2 percent market share followed by HPE with 12.5 percent.

The Ethernet Switch, Router, and WLAN market are expected to grow in single digits CAGR for 2021–2026. Increased adoption of emerging technologies such as cloud, IoT, mobility, etc. would drive incremental revenues. In addition, large investments are expected for 5G rollouts in the next couple of years.