Analysis of the current scale of China's switch industry in 2019

1、 Switch Industry Overview

A switch is a device that provides an exclusive electrical signal path for any two network nodes, characterized by high cost performance, high flexibility, relative simplicity, and ease of implementation. There are various types of switches, which can be divided into different types according to different classification methods. According to network composition, switches can be mainly divided into access layer switches, aggregation layer switches, and core layer switches.

Source: Public data compilation

The biggest difference compared to routers is that switches occur at the second layer (data link layer) of the OSI reference model and can connect many hosts, each with its own IP address; Routing occurs at the third layer, the network layer, where an IP address is typically assigned to multiple hosts, which only exhibit one IP address externally.

Source: Public data compilation

Relevant report: "China Switch Industry Development Trend Forecast and Investment Strategy Consulting Report for 2020-2025" issued by Huajing Industry Research Institute

2、 Development Status of Switch Industry

With the rapid growth of global data traffic and the demand for network equipment, the global switch market has developed rapidly. In 2018, the global switch market size was approximately $30 billion, an increase of approximately 9.1% compared to 2017.

Source: Public data compilation

In recent years, China's Internet construction has flourished, and the data traffic of domestic communication networks has grown rapidly year by year. In 2018, China's mobile Internet access traffic reached 71.1 billion GB, with an average monthly mobile Internet access traffic of 4.42 GB per household. Driven by users and traffic, the demand for network equipment represented by switches continues to rise.

Source: Ministry of Industry and Information Technology, Huajing Industry Research Institute

The growth of the switch market size mainly comes from data centers, benefiting from the construction of a large number of data centers in China. The continuous deepening of informatization has further driven the development of the Chinese switch market. The scale of the switch market in China has shown a trend of annual growth. In 2018, the scale of the enterprise level switch market in China reached 2.74 billion US dollars, an increase of 3.8% compared to 2017.

Source: Public data compilation

3、 Market Structure of Switch Industry

Currently, the main players in the global switch market include Cisco, Huawei, Aristar, Hewlett Packard, Ziguang Holdings (New Sanhua), Juniper, and others. In 2018, the top six companies collectively accounted for about 77.6% of the market share, with Cisco taking a leading position with a market share of 49.6%, while the domestic company Huawei has a market share of 8.6%, ranking second in the world.

Source: Public data compilation

In the domestic switch market, driven by policy factors, domestic enterprises have a leading advantage. Currently, the first echelons in the industry mainly include Xinhuasan, Huawei, Cisco, Ruijie, etc. In recent years, the market share of domestic leading enterprises has shown a significant upward trend. In 2018, the market shares of Xinhuasan and Huawei were 33.2% and 39.87%, respectively, accounting for 73.07% of the domestic market, compared to 54.40% in 2014.

Source: Public data compilation

White box switches, also known as white label switches, have a more significant cost advantage compared to traditional black box switches. The white box switch industry chain mainly includes chips, hardware, commercial software, and open source software, among which chips belong to proprietary fields. Representative manufacturers in the industry include Broadcom, Cavium, and Shengke.

Composition of White Label Switches and Related Manufacturers

Source: Public data compilation

4、 Development Trend of Switch Industry

Nowadays, the speed of local area networks has significantly improved, and Gigabit Ethernet technology has been fully popularized. From the perspective of network architecture, the initial media sharing local area network has developed into the current switched local area network. As the bearer of information flow, switches are also one of the most widely used network devices. In intranet connections, switches, as important devices, play a pivotal role. Ethernet switch is a switch that transmits data based on Ethernet and has become the most important LAN networking technology today. With the development of information technology, switches will develop towards the following trends:

1. Intelligent development

With the increasingly urgent need for network deployment of new applications and integration of multiple services, a single switch needs to have rich functions to provide more support, and the increasingly complex network environment has increased the difficulty of managing Ethernet switch devices. More and more users are willing to choose intelligent switches as the first choice for equipment procurement.

2. Integrate routing functionality

At present, China's Internet access technology has made significant progress and changes, and the differences and similarities between switching technology and routing technology are also constantly changing. With the continuous development and maturity of ASIC technology and network processors, and the gradual unification of networks by IP technology, Ethernet switching technology can connect routers. With the continuous progress of technology and the increasing demand of people, the Ethernet switch market has also ushered in a strong momentum of development.

3. Importance attached to application safety in industrial scenarios

The importance of the industrial internet as a link for information transmission in intelligent manufacturing is self-evident. With the development of information technology, the issue of switch network security is becoming increasingly prominent. As the main equipment of the network, the new generation of industrial switches should not only be able to adapt to industrial application scenarios and meet the application conditions of production enterprises, but also be able to achieve active defense and alarm security protection, achieve automatic protection and active monitoring, and avoid information security incidents caused by regulatory loopholes or employee negligence.