Arista steals data center switch crown from Cisco in Q4

  • Cisco was top dog for the full year, but Arista stole the top vendor crown for the first time ever in Q4

  • Arista’s ins with hyperscalers helped it unseat the longtime champ

  • Growth in the market is expected to slow this year before picking back up in 2025

Cisco has been sitting atop the data center Ethernet switch market for a long time, but that changed in Q4 2023 as Arista’s hyperscaler connections helped it steal the throne.

Dell’Oro Group VP Sameh Boujelbene told Silverlinings Arista was particularly helped by its very strong penetration with Microsoft and Meta, both of which “exhibited strong network spending in 2023.” It also got a leg up from increased penetration among Tier 2 and 3 cloud service providers and enterprise customers and reaped the benefits of growth in routing use cases outside the data center, she said.

To be clear, it was not a good quarter for the market as a whole. Boujelbene said sales in the quarter increased 3% year on year to just over $3.7 billion. While that might sound like a good thing, that level of growth is “anemic” compared to the rates posted in previous quarters.

For example, growth in Q3 2023 came in at 7% and in Q4 2022 the market posted 15% growth, according to Dell’Oro’s count. With that in mind, 3% sounds a whole lot more paltry.

Rocky road ahead

For all of 2023, the Ethernet data center switch market grew double digits to deliver more than $19 billion in revenue. And despite Arista’s Q4 coup, the top three vendors for the full year 2023 were Cisco, Arista and Huawei, in that order, Boujelbene said.

However, the Q4 slump was a preview of a slowdown that’s expected in 2024.

“Our projections for 2024 indicate a deceleration, with growth expected to halve compared to the previous year, before picking up pace once again in 2025,” Boujelbene said.

Indeed, Cisco CEO Chuck Robbins said during the company’s Q4 earnings call that customer inventory buildups remain high and are shrinking slower than originally expected.

“On the inventory digestion issue, I think I would say it's largely an enterprise and a service provider issue, and particularly the cloud providers, we think they've got probably in excess of 20- plus weeks of inventory that they're working through right now,” he said. “It's not shrinking as fast as we thought it would, which leads us to believe that this is going to extend through the end of 2024.”

New Street Research similarly predicted a “digestion” phase will last through 2024, but indicated demand from cloud providers remains strong.

Zooming out, New Street Research noted cloud capex is expected to grow nearly 25% in 2024 as revenues rebound across the market and hyperscalers invest in additional cloud and artificial intelligence infrastructure.

Arista CEO Jayshree Ullal said during a recent earnings call the company is expecting revenue growth of between 10% and 12% in 2024.

New Street’s team concluded “Arista is now facing tougher cloud compares but the outlook looks healthy, with a balanced growth profile across cloud, enterprise & campus, and AI supporting the next leg of growth.”