Next, we believe the maturity of the 10G Base-T technology is a key catalyst for a 10Gbps mass migration. SMBs are very dependent upon 10G Base-T, as they will continue to have a mix of rack environments with an installed base of servers using 1G Base-T. Without 10G Base-T, smaller IT shops would require two switches, which is not optimal. Larger enterprises tend to purchase servers in racks, and therefore interoperability with an installed base of servers is less critical. We currently expect to see major improvement on the 10G Base-T technology with the next 28 nm PHY, planned for the 2014-2015 time frame.
Furthermore, we believe the price per 10Gbps switch port must come down to propel migration towards 10Gbps. As illustrated in Figure 2, switches and optics comprise the vast majority of the price per 10Gbps server connectivity. We expect a strong price per port decline from today's 10Gbps switch products to those that will be shipping in the first quarter of 2013. We anticipate an Ethernet switch refresh cycle at the beginning of 2013 based on Broadcom's Trident II silicon, which will enable higher switch port density and result in a price-per-port decline of more than 10%.
Now the question is whether 40 Gbps and 100 Gbps are needed in the core to aggregate servers with 10Gbps. We don't think they are critical, because IT managers are changing their network architectures to match current traffic needs. They are moving away from a three-tier network architecture, with two tiers of modular switches in the core, to aggregate fixed top-of-rack switches.
Older architectures were designed to move traffic from servers to end users (referred to as north-south traffic). Current architectures flatten the number of tiers to accommodate machine-to-machine traffic (referred to as east-west traffic), which now comprises the bulk of the bandwidth used in data centers. The change in traffic flow topology means less traffic flows through the core of most data centers, removing some of the legacy requirements for higher-speed switching cores to drive adoption of server networking speed upgrades.
The Dell'Oro Group predicts a mass migration of servers to 10Gbps ahead of a core switch migration to higher speeds. We expect 10Gbps server connectivity to out-ship 1Gbps sometime between 2014 and 2015 (Figure 3), which would coincide with the 10G Base-T maturity. We do not anticipate that the higher-speed 40Gbps and 100Gbps core switches will eclipse 10Gbps for many years.
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