Cisco Systems (CSCO), Ciena (CIEN), Arista Networks (ANET)
and other network gear makers will wait longer than hoped for their
customers to upgrade internet data centers to faster communications gear
for cloud computing. Cisco stock and Ciena stock continued to fall
Market research firm Dell'Oro Group says the technology giants have
been slow to upgrade internet data centers to optical communications
gear that transmits data at 400 gigabits per second, or 400G. Amazon.com (AMZN), Alphabet's (GOOGL) Google, Facebook (FB) and Microsoft (MSFT) are the biggest spenders on data center gear.
The so-called "internet cloud" is made up of warehouse-size data
centers. They're packed with racks of computer servers, data storage
systems and networking gear. Most data centers now use 100G technology.
A year ago, some analysts projected that the 400G networking era could start in the back half of 2019.
400G Networking Upgrade Cycle
However, high-volume production of devices may wait until 2020, says
Dell'Oro Group. The good news for Cisco, Ciena and other makers of 400G
components is that by 2023 the market should be huge.
"The first wave of 400 Gbps switch systems based on (optical) chips
were introduced in the market in second half 2018," Sameh Boujelbene,
senior director at Dell'Oro Group, said in a news release. "However, we
do not expect material adoption of 400G until 2020 due to the lack of
high volume, low cost 400G optics."
Engineers design data centers to ratchet up computing horsepower when
demand surges. That's due to mobile app downloads, e-commerce and video
streaming. The move to 400G basically creates more bandwidth —
essentially fatter pipes that allow for more data to pass through at
Boujelbene says shipments of network gear using 100G chips will peak
in 2020. However, 100G networking gear will still account for "30% of
data center switch ports in the next five years," said the analyst.
Cisco Stock Falls
Boujelbene added that Google has been the only data center customers
to deploy 400G networking gear. Amazon, Facebook and Microsoft have been
waiting for prices to drop as manufacturing ramps up.
Amid a broad sell-off in technology stocks, Cisco stock dropped 3.5% to close at 51.37 on Monday.
In July, Cisco agreed to buy Acacia Communications (ACIA) for $2.6 billion in cash. Acacia is among the leaders in building 400G optical devices.
Ciena stock fell 3.6% to 41.25 on Monday. Cisco stock and Ciena stock
have dropped the last five trading sessions amid worries that
technology spending could slow.
Cisco rival Arista stock fell 10% on Friday and lost 5.4% to close at
230.95 Monday. The networking gear maker reported second-quarter
earnings that topped views but issued a disappointing outlook on data
center spending. Analysts say Microsoft's spending on cloud computing
infrastructure could pick up in late 2019.