Data Center Interconnect Market - Growth, Trends, COVID-19 Impact, And Forecasts (2021 - 2026)

The Data Center Interconnect (DCT) Market was valued at USD 3.48 billion in 2020 and is expected to reach USD 7.65 billion in 2026 with a CAGR of 14% during the forecast period (2021 - 2026). With the proliferation of data and expansion of technologies like AI and High-Performance Computing (HPC), the need to connect data center assets quickly, reliable, and cost-effectively is growing significantly. Factors, such as throughput, latency, simplified operations and maintenance, intelligence, and security, are becoming a major priority for data center vendors. This is one of the major factors driving the adoption of Data Centre Interconnect (DCI) technology. This is due to their ability to boost inter-data center bandwidth, reduce latency, and eliminate packet loss.

- The growing cloud computing and the recent surge in OTT services consumption due to nationwide lockdown are also expanding the studied market scope. Moreover, growing commercialization of 5G services may further expand the scope of data center interconnected solutions. The following markets' growth may also fuel the demand in the studied market: Autonomous Vehicles, Smart City, digital twin, Smart Cities, VR, AI virtual assistant, Video surveillance and monitoring, and gaming.
- The trend of edge computing, which becomes essential in the 2020 nationwide lockdown scenario, is further expending the studied market scope. About 10-15% of data is created and processed outside a centralized data center or cloud, but it is expected to cross 60-70% by 2025. Hyperscale data centers of Amazon, Google, Equinix, DRT, are interconnected and stream data and applications over the network to end-users. The edge cloud may be a unique ecosystem of open and interconnected data centers.
- Data Communication Network (DCN) and Data Center Interconnect (DCI) solutions are increasingly concerned with quickly increasing DCN/DCI bandwidth, to ensure zero packet loss, low latency, and high throughput of lossless networks, meeting the requirements of rapid service development. The DCI network connecting data centers has evolved to a 10 Tbit/s Wavelength Division Multiplexing (WDM) interconnection network.
- They urgently need ultra-broadband, simplified, and intelligent DCI networks to cope with numerous data flows in the cloud era, is further fueling innovation in the studied market. The introduction of automatic planning, automatic configuration, and intelligent alarm analysis systems is witnessed in the market. Companies offer Intelligent Data Center Service, which may help design, build, and operate efficient facilities that use AI to reduce power usage effectiveness (PUE) by up to 15%.
- The recent COVID-19 outbreak has surged the demand for cloud computing globally; hence, it has expanded the scope of the data center market. Although, the data center construction projects witnessed a supply chain disruptions with the labor shortage, expecting to delay the completion of several projects. This was only seen in the initial phases.
- According to Sify Technologies, due to the recent COVID-19 outbreak, data centers' interconnection has come into the spotlight as the demand for pure colocation or cloud. During the first four months of 2020, the sales of optical transport equipment used for data center interconnect increased 11-14 % year-over-year.

Key Market Trends

Increasing Number of Data Centers to Drive the Market Growth

- According to the US-based market vendor, Ciena Corporation, data centers have increased in recent years, as there are now more than 7,500 around the globe, with 2,600 packed into the top 20 global cities alone. According to Huawei, the amount of global data produced annually may reach 180 ZB in 2025. The proportion of unstructured data (such as raw voice, video, and image data) may also continue to increase, reaching more than 95% shortly. Thus boosting the growth of data centers globally.
- Since 2019, data center construction has witnessed significant growth, which further accelerated in 2020 due to the COVID-19. This stimulated the direction of building their own data center among enterprises, along with the challenges of high DCI costs and complicated management of multiple data centers. Owing to this, DCI requirements increase in early 2020 on a large scale.
- Further, data center service providers are investing in expanding their colocation and cloud capabilities. End-user enterprises (like telecom and financial organization) opting to build their own data centers are mainly making data centers interconnected market a global investment hotspot. Industries mainly including OTT, ISP, financial sector, and public sector are developing their use cases of DCI networks due to data center growth and distribution, fiber utilization improvement, and low-cost pluggable modules.
- Product innovation is still a major differentiating factor among market players. Since 2020 starting, vendors like Ciena, Infinera, Huawei, and Nokia have been pushing the limits of modern optics. Huawei CloudFabric EVN Layer 2 DCI solution provides highly scalable, efficient layer two interconnections, allowing expansion of up to 32 data centers across IP WANs. Like Huawei, competing vendors, like Ciena or Infinera, are also working on their 800G-capable coherent solutions, which may power next-generation DCI platforms.
- Germany is known as the European Union's financial powerhouse and is one of the few countries with the highest concentration of data centers. The DE-CIX internet nodes in Frankfurt account for most of the data transfer across the globe. The region is the second-largest hosting market in the world after the US. Many industry experts claim that more than USD 50 billion have been invested in data center projects in Germany between 2015-2019

Europe to Hold Significant Market Share

- The growing number of data centers, increasing investment in cloud technologies, and the expansion of end-user markets are some of the major factors driving the Europe data center's investment in the interconnect market. The stringent regional laws, like GDPR, Personal Data Protection Initiatives (Gaia-X), among others, are further boosting the local data center construction and development in the region.
- Germany, the United Kingdom, Netherlands, and France are some of the major investors and adopters in the studied market. Investment and growth in the data center sector in the region has been increasing. This is mainly due to the high rate of adoption of cloud technologies.
- For instance, Microsoft alone has doubled its European data center capacity in recent times. In August 2019, Microsoft announced it had doubled the size of its Azure regions in the United Kingdom with the addition of availability Zones, increasing compute capacity by more than 1,500% since it was launched in the region. More than 100,000 internal Microsoft users and millions of customers have used them to build their own products and release them to the cloud and their on-premise data centers.
- The growth in data traffic is expected to contribute to the market's growth significantly. For instance, according to Equinix, London is expected to remain the most important European market for data. Additionally, an increasing number of European regulations regarding data compliance serves as the catalyst, which is predicted to grow 48% per annum, contributing to 23% of interconnection bandwidth globally.
- In June 2020, Europe-based Lamda Hellix deployed Microsoft Azure Stack at its Lamda Hellix data center campus. Azure Stack now joins a wide range of hybrid cloud services at Lamda Hellix, private and public clouds, colocation, business continuity, and unlimited interconnection solutions.

Competitive Landscape

The market is concentrated due to enterprises relying on only pioneers occupying the majority market share. Lately the vendors offering data centers are also providing data center interconnect solutions as a combined offering. Market players are adopting strategies such as product innovation, mergers, acquisitions, and partnerships. Some of the recent developments in the market are:

- July 2020 - Nokia launched a new network hardware range to automate and simplify data center operations. The products were developed over two years in collaboration with hyperscale companies, including Apple. The range also includes the Nokia 7250 Interconnect Routers (IXR), Nokia 7220 IXR-H series, and Nokia 7220 IXR-D series routers.
- April 2020 - Huawei Technologies Co. limited launched the next-gen FusionServer Pro 2298 V5, a 2U 2-socket storage rack server that provides up to 450 TB storage capacity. It is designed to resolve the problems of low storage capacity and limited room space, and for customers who are looking to deploy a high-density and large-capacity storage solution in their data centers.

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