Inside the Data Center
Whether it be virtual meetings, video streaming, social media or video games, we are consuming data around the clock. Our devices have clearly become faster, but the main reason we can enjoy more content at faster speeds is the growing network bandwidth from infrastructure upgrades. Data is stored in data centers, often across different servers and sometimes even in different data centers. This has led to an increase in the number of connections needed to access and deliver the growing amount of data we need. Data center link speeds have jumped from 25G to 100G and on to 400G to solve the bandwidth bottleneck. Reliability of connections is also crucial, as seen when Facebook and related apps went down for hours last year on a network glitch.
400G is the latest network infrastructure technology, and offers a four-fold increase in maximum data transfer speed over 100G. 400G solutions are ideal for high-volume telecom providers, large data centers and enterprises, as they can address massive data demand in a cost-efficient and reliable fashion by providing the same bandwidth in less physical space. According to Synergy Research, there are around 700 hyperscale data centers globally, and this is expected to exceed 1,000 by 2024. While hyperscale data center operators like Google and Amazon were the first to embrace and deploy 400G solutions, adoption is quickly rising as an increasing number of organizations look to solve network challenges. Yole forecasts the optical transceiver market to grow from US$9.6bn in 2020 to US$20.9bn in 2026, and 400G is expected to lead the growth with penetration to reach over 30% by 2025 based on Dell’Oro.
400G speeds allow carriers to respond seamlessly to bursts of high-traffic and mobile video streaming, while supporting the day-to-day bandwidth demands of the vibrant business enterprise. Demand for scalable high-bandwidth solutions is accelerating amid growth in cloud computing, artificial intelligence (AI) and 5G. We expect improved latency and data access reliability between data center and users to spur new applications like autonomous driving, smart factory and AR/VR. 800G networking is already poised to take off in 2025, and should help us keep up with the ever-expanding number of users, devices and applications. While many players are involved in the infrastructure upgrade cycle such as Juniper, CISCO and Nokia, we think Arista Networks is best positioned given strong customer focus and share gains.
Arista Networks
Arista Networks is a leading supplier of cloud networking solutions based in the US. It provides Ethernet switches, software and applications specifically for data center environments. Established in 2004, Arista has become one of the largest providers of networking equipment with over 7,000 cloud customers globally, which includes telecom operators, cloud service providers, large financial companies and high tech enterprises.
Over the years, Arista has evolved from a hardware company to a solution provider with software support. Arista offers a platform which allows for simplified and scalable integration of the physical network with add-on solutions from Arista ecosystem partners, including VMWare, Palo Alto Networks and Fortinet. The programmable architecture enables integration and enhances cloud business agility, which in turn allows customers to better manage, monitor and automate cloud workflows. This differentiated enterprise solution acts as a moat for Arista, and is expected to help increase its 52% addressable market to US$35bn by 2035.
Arista recently raised its forecast revenue growth to 30% for FY22, and expects a 100% increase in corporate campus sales next year to US$400mn; the outlook is bright with two of Arista’s largest customers investing heavily in the cloud. Specifically, Microsoft plans to spend US$27bn on Azure this year alone, and Meta looks to spend a bulk of its US$29-34bn capex this year on data centers, servers and network infrastructure in pursuit of metaverse and corporate market aspirations. Infrastructure upgrades to 400G mean increased demand for core components like switches, and we believe Arista’s simple and scalable solutions will help the company continue to gain share in a structurally growing data center market.
Please contact your NB representative with any questions or for additional information.
