Mixed news for enterprise network infrastructure upgrades

Businesses working with aging network architectures could use a tech refresh. While the easing of equipment backlogs works in their favor, budgets could hold them back.

Customer interest in enterprise network infrastructure and an easing of equipment backlogs would seem to spell increased business for channel partners, but the outlook is complicated.

Market research studies depict a technology sector at once promising and problematic. Some developments suggest favorable conditions for a network upgrade cycle, but economic headwinds could blunt efforts to significantly upgrade networks.

Need for network investment

The enterprise appetite for network investment is strong, according to recent polling:

  • A survey published last week by Asperitas, a cloud services company based in Chicago, found that 95% of companies polled had yet to completely modernize their networks. Asperitas surveyed more than 250 network professionals at companies with at least 1,000 employees.
  • The result jibes with NTT Ltd.'s "2022 Global Network Report" in which 95% of enterprise networking professionals cited plans to invest in network modernization. NTT, which interviewed more than 1,300 participants in 21 countries, reported that about two-thirds of the respondents had increased network spend as a percentage of their overall IT budget.
  • Dell'Oro Group, a market research company in Redwood City, Calif., last week projected a record revenue year for campus switches -- devices that run large enterprise networks. This year's projected revenue growth comes on the heels of what the company expects to be a double-digit increase in 2022 spending. Much of that revenue boost, however, will stem from orders placed during 2022 and delayed due to supply chain challenges. Dell'Oro expects campus switch orders to actually decline this year as IT shops deploy previously ordered gear.

Budgets hit network enterprise infrastructure plans

The need for new gear and improving product availability, however, might not translate into massive upgrade projects for partners. The Asperitas survey suggested economic conditions will affect network initiatives, with 42% of respondents pointing to the economy as having a significant bearing on their projects and 38% citing the economy as a somewhat important factor.

They don't have the budget to do it all at once.
Scott WheelerCloud practice lead, Asperitas

IT organizations often struggle to get funding for infrastructure projects that cut across the business and are hard put to be tied to a specific revenue-generating initiative, noted Scott Wheeler, cloud practice lead at Asperitas. Accordingly, network infrastructure upgrades tend to arrive in a slow-drip fashion as opposed to a torrent of investment, he added.

"They don't have the budget to do it all at once," Wheeler said, noting that wholesale network overhauls can cost millions of dollars and take years to fully deploy.

Doug Murray, CEO of Auvik, a network management and monitoring company that works with MSPs, said spending on networking equipment tends to spike early in the year when budgets are flush. That scenario, however, doesn't appear to be in the offing this year.

"We have not yet seen a similar spike in 2023, which leads us to believe IT departments might keep network gear as is in 2023 and instead spend on upgrades in 2024," Murray said.

The company's survey of 4,500 network professionals and IT managers suggested lack of budget will be their greatest challenge in 2023. IT managers might use budget and head count limitations to justify spending on network-task automation to save money and improve efficiency, he added.

Upgrade impetus to linger

While the economy could restrict network modernization this year, the impetus for doing so seems likely to persist.

Many enterprise networks were designed and implemented 15 to 20 years ago, Wheeler said. Businesses replace individual devices as they fail, but the underlying network architecture remains the same. Those aging architectures, however, were not designed for the cloud computing era and the widespread use of hyperscalers and SaaS providers, he said.

Graphic listing six corporate campus network trends: automation, IT security, wireless, IoT and edge computing, cloud, and AI.
Automation, cloud and transformation projects such as AI could spark network investment, but the economy could limit large-scale upgrades.

"You are consuming services outside of the organization, where traditionally, networks consumed resources within the walls of the organization," Wheeler said.

The task, in essence, is to update networks so that they can integrate in a safe and secure way with public clouds -- treating cloud services as if they were resources within the enterprise firewall. Indeed, cloud-enablement projects have been one way to justify network reinvestment, Wheeler noted.

Network investment is also tied to broader digital transformation initiatives. Amit Dhingra, executive vice president of network services at NTT, cited the "network dependency" of such efforts. Nine out of 10 of the executives NTT surveyed said that dependency will grow in the next two years, he said, noting cloud-based network management, 5G networks and AIOps as areas set for expansion.

The improving availability of networking equipment is another factor supporting network upgrades. CIOs have pointed to supply chain issues as one of their top challenges, with lead times for networking equipment of up to a year.

Sameh Boujelbene, vice president at Dell'Oro Group, said the supply of networking gear is improving.

"This will help volume shipment growth and, therefore, revenue," she said.

Networking's digestion phase

Campus switches will enter a digestion period in 2024 on the back of lower bookings in 2023, according to Dell'Oro Group.

Enterprise buyers will work with the equipment they have on hand this year and next, instead of bringing in new products. As a result, next year will see a decline in campus switch revenue, Boujelbene said.

The expected 2024 market correction would echo the current state of the cloud sector. The spate of pandemic-era cloud spending led to a proliferation of cloud services within enterprises, which they are now trying to optimize and integrate. The economy and tighter budgets also contribute to a cloud pause. Vendors' revenue growth rates are dropping as a consequence.

There's a key difference, however: Cloud transactions happen relatively quickly, but equipment orders can take months to fulfill, resulting in a greater lag between booking sales and recognizing revenue.

Wheeler said he has also observed the easing of supply constraints, noting that networking equipment is now much easier to obtain than a year ago. "There are delays, but not like before," he said.

NTT has observed this trend as well.

"We are starting to see the supply chain shortages and resulting backlogs start to clear," an NTT spokesperson said. "We see this in our client base and hear similar sentiments from our vendor partners. How quickly supply chains return to pre-pandemic norms will be the question for this year."

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