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Ovum Says it is Good to be a Data Center Interconnect (DCI) Supplier

April 22, 2015

As a result of the rapid pace of new data center build-outs and transformations of existing facilities it has been clear that it is good to be a supplier of optical solutions to the data center interconnect (DCI) market. Confirmation of just how good is highlighted by the industry analysts at Ovum in a recently completed market study. In two words, the growth has been “very good” and prospects for continued growth are robust.

At a high level, Ovum says 2014 DCI revenues of $2.5 billion grew more than 16 percent from 2013. It is also noted that while nearly 50 percent of all DCI spending in 2014 was from communications service providers (CSPs) the Internet content provider (ICP) segment grew 64 percent for the year. 

Where growth is strongest according to the study is in North America. It is in this market where ICPs and what the researchers call carrier-neutral providers (CNPs) account for the majority of DCI spending.

A few of the key findings in the study cited by Ovum include:   

  • Enterprise IT evolution to cloud and the explosive growth of video is driving strong growth in data center builds and fundamentally changing how networks are constructed. 
  • The ongoing surge in DC build-outs has made DCI the fastest growing application for optical networking (ON) equipment. DCI revenues grew 16.2 percent in 2014, surpassing $2.5 billion. 
  • Most data center operators lease managed DCI services from CSPs, but a growing number of ICPs (e.g. Google, Facebook) and enterprises are securing fiber assets and building their own interconnect networks, increasing the opportunity for optical networking (ON) vendors. 
  • Growth in the number of data centers clustered in metro and campus environments is increasing the requirement for high-capacity, low-cost optical networking gear that is fundamentally different than traditional metro ON equipment.  
  • Ciena is the global market share leader for the total DCI market. By segment, Ciena also leads the Government/R&E and Enterprise end-user segments. Alcatel-Lucent leads the CSP market, while Infinera leads the ICP/CNP combined segment. 
  • The global DCI market is projected to grow at 10.5 percent CAGR in the 2014–19 period, surpassing $4.2 billion in 2019. DCI growth is strongest in the ICP segment, which is slated to grow at a 12 percent CAGR for 2014–19. 

Ron Kline, Principal Analyst, Intelligent Networks at Ovum, said “2015 is shaping up to be a very exciting year as metro-optimized 100G and adaptable-rate flex-spectrum 200G/400G capabilities enter the DCI market. We see tremendous opportunity for specialists such as Adva Optical Networking, BTI Systems, and Infinera to challenge their much bigger rivals for a larger share of this booming market.”

While not surprising, the most interesting finding in the report is the validation of how the ICP market is exploding.  The big guys here in the U.S. clearly with not just net neutrality concerns on their minds but also for very strategic reasons would rather own than lease the core of their networks, e.g., the interconnection of their increasingly dispersed data centers. That is good news for DCI arms merchants and serous food for thought for CSPS. 

Edited by Dominick Sorrentino

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