Mellanox closing in on Intel in Ethernet adapter market

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Strong demand from cloud service providers (CSPs) is boosting Mellanox’s profile in the Ethernet adapter business, with the company’s market share rising to within 5 percentage points of industry-leader Intel in the first quarter of 2019.

The demand from cloud service providers (CSPs) is helping to boost Mellanox’s share of the market which has climbed 3 percentage points in Q1 to reach 20% which compares to a 25% market share for Intel.

CSPs have been the key driver and are transitioning to higher networking speeds, i.e., 25GE, 50GE and 100GE. They are also adopting adapters with CPU offload capabilities, such as processing of networking and storage protocols.

As enterprises ramp their 25GE adoption, they’re creating favorable market conditions for Mellanox to continue gaining share in the Ethernet adapter market.

The 25GE+ Ethernet adapter market, where Mellanox competes, is poised for 39% revenue growth in 2019.

“Growth in artificial intelligence (AI) and other data-intensive workloads was a definitive trend in the first quarter of 2019, and this was reflected in strong demand for offload Ethernet adapters,” says IHS’ Vladimir Galabov, “as a result, revenue for offload adapters accounted for more than 50 percent of the total Ethernet adapter market revenue for the first time.Another significant trend continued to be the transition to 25GE and 100GE adapter speeds, which recorded 16 percent and 298 percent year-over-year revenue growth in the first quarter, respectively. Hyperscale CSPs are leading this transition, although the first signs of larger enterprise deployments were evident in the first quarter.”

Intel’s 25% share represented a 6-percentage point y-o-y decline. Intel’s portfolio, which is made up of 1GE and 10GE adapters, continues to lose its market appeal, impacting revenue growth. Intel is currently updating its portfolio, which could help strengthen its competitive position.

Mellanox recorded a rise in enterprise adoption of 25GE adapters. Revenue from enterprise customers made up 35% of Mellanox’s quarter, a 12-percentage-point increase from the first quarter of 2018. For the first time, sales of programmable adapters totaled more than $1 million in revenue for Mellanox, with a deployment of 40GE adapters driving the growth.

Broadcom won share from Intel in the established market for 1GE and 10GE basic network interface controllers (NICs). It also recorded a $2 million revenue upside from a 50GE offload adapter deal with a hyperscale CSP.

Marvell narrowly clung to its number-four position in revenue market share after reporting a fifth quarter of sequential revenue decline. At Marvell’s latest earnings call, chief executive officer Matt Murphy indicated that the Ethernet adapter business it gained through the acquisition of Cavium was not a focus for the organisation and was not expected to become a significant growth engine.

Amazon’s processor design team developed an ASIC)p to power in-house built Ethernet adapters for Amazon’s servers.

The volume of Amazon adapters started ramping in the second half of 2017, fueled by the CSPs’ transition from 10GE to 25GE.

In Q1, the value of the in-house built Ethernet adapters deployed by Amazon represented 8% of the total Ethernet adapter market’s revenue.

“A review of the initial shipment reports for the second quarter of 2019 revealed that Mellanox attained 20% quarter-over-quarter growth, driven by adoption of its 25GE and 100GE programmable adapters and its 25GE and 40GE offload adapters,” says Galabov, “within the next month we will know if Intel managed to keep its leadership position in the Ethernet adapter market.”

  • Offload NIC revenue was down 5% quarter-over-quarter and up 3% year-over-year, hitting $182 million in the first quarter.
  • Programmable NIC revenue was down 28% quarter-over-quarter and down 21 percent year-over-year, hitting $42 million in the first quarter.
  • Open compute revenue was up 22% quarter-over-quarter and up 78% year-over-year, hitting $70 million in the first quarter.
  • CSP revenue totaled $121 million, telco was $63 million, and enterprise was $162.5 million in the first quarter.
  • In the first quarter, the average price per 1GE port equivalents shipped was $3 for ports shipped to CSPs, $8 for telco, and $13 for enterprise.