Preface:

The latest data from IDC reveals that in the third quarter of 2025, global Ethernet switch sales surged by 35.2% year-on-year, reaching an unprecedented peak of nearly $14.7 billion. Data center switches dominated the market, accounting for 59.5% of the total share, with a remarkable year-on-year growth rate of 62%.

Amidst this explosive growth, switch chips are witnessing a market boom valued at hundreds of billions.

Image Source | Network

AI Reshapes Demand: Ethernet Emerges as the Dominant Force

The soaring demand for switch chips is fundamentally driven by the exponential growth in data flow requirements in the AI era, coupled with rapid technological advancements.

As AI model parameters escalate from billions to trillions, merely stacking GPU computing power is insufficient to tackle core challenges. The crux of AI training and inference efficiency lies in enabling massive data to be transmitted with minimal latency and high bandwidth across distributed clusters.

Ethernet switches, renowned for their versatility and compatibility across various scenarios such as internet backbone networks, campus networks, and edge computing, coupled with their continuously enhanced horizontal scalability, have emerged as the preferred choice for hyperscale data centers.

IDC data indicates that in the third quarter of 2025, sales of high-end switches with speeds of 200Gb/s, 400Gb/s, and 800Gb/s reached $5.43 billion, constituting 37% of the global Ethernet switch market. Virtually all these high-end devices were deployed in data centers for AI cluster construction.

The Ultra Ethernet Consortium's integration of core InfiniBand features, such as packet spraying and lossless transmission, into Ethernet, along with the addition of functions like congestion control and adaptive routing, has further bolstered Ethernet's competitiveness.

Hyperscale data centers not only utilize Ethernet to connect GPU nodes but also upgrade front-end networks to interface with storage systems, forming a seamless data transmission chain across the entire network.

Data centers serve as the core engine driving the growth of switch chips. In the third quarter of 2025, global Ethernet switch sales for data centers reached $8.73 billion, marking a 62% year-on-year increase and setting a historic high market share of 59.5%.

Port shipments were equally impressive, with global Ethernet port shipments totaling approximately 73.5 million, doubling from the same period last year. Among them, 27.9 million ports were rated at 200Gb/s or above, all destined for data center applications.

To reduce costs, hyperscale data centers have shifted away from expensive routers offered by traditional vendors like Cisco and Huawei, opting instead for customized Ethernet switch ASIC chips to implement routing protocols. This solution is ideally suited for distributed storage, computing, and analytical workloads.

IDC data reveals that ODM vendors now dominate the data center Ethernet switch market, collectively squeezing the market share of traditional vendors alongside NVIDIA. Nevertheless, the overall market expansion still provides growth opportunities for companies like Cisco and Arista.

The continuous decline in cost per bit is a key factor driving the adoption of Ethernet switches.

Data indicates that the cost per bit of 400Gb/s switches has plummeted to the industry's lowest level. Although the cost per bit of 800Gb/s devices is 50% higher, they still offer a 30% price advantage over 100Gb/s devices.

This cost structure has accelerated the penetration of high-end ports, with 200Gb/s and above ports becoming the mainstream choice in data centers, thereby further fueling demand for high-end switch chips.

Meanwhile, growth in the routing equipment market indirectly underscores the trend of network upgrades.

In the third quarter of 2025, global router sales reached $3.6 billion, marking a 15.8% year-on-year increase. Service providers and hyperscale data centers contributed 74% of sales, with a year-on-year growth rate of 20.2%.

Cisco's 31.9% revenue growth, achieved through its Silicon One converged architecture, reflects the robust demand for high-end network chips.

The sustained growth in Ethernet switch sales serves as a direct catalyst for the surge in chip demand.

The expansion of the switch market is underpinned by explosive demand across multiple sectors in the context of digital economic transformation, forming a triple growth engine of AI computing power, industrial interconnection, and new infrastructure. This drives switches to accelerate their penetration from traditional office scenarios to high-bandwidth, low-latency premium scenarios.

AI large model training and inference impose stringent requirements on network bandwidth, directly fueling explosive demand for high-speed Ethernet switches.

A single AI training cluster often necessitates the collaborative effort of thousands of GPU servers, with each GPU server requiring at least two 400G ports for interconnection. Utilizing 800G switches can reduce communication latency in distributed computing by 40%, which is crucial for large model training efficiency.

In 2024, 400G ports accounted for 35% of purchases by leading domestic cloud service providers, rising to over 50% in 2025. This directly drove the unit price of high-end data center switches to increase by 18%-22%.

International cloud giants like Amazon AWS and Microsoft Azure have preemptively deployed 800G switches, planning to achieve full coverage of 400G switch chips by 2025 and scale up (mass) deployment of 800G by 2026.

According to IDC predictions, high-speed switch chips rated at 800G and above will account for 28% of the global market in 2025, rising to 45% by 2030, with the market size surpassing $15 billion.

In 2025, switch procurement in the smart manufacturing sector increased by 24% year-on-year, with automotive manufacturing and new energy applications accounting for over 60% combined.

Industrial Ethernet switch chip shipments surged by 82% year-on-year. However, due to the long-term monopoly of core technologies by foreign vendors, the localization rate, although jumping from 18% in 2020 to 43% in 2023, still falls short of meeting the rapidly growing demand.

Breakthroughs by local companies like Shengke Communication and Yutai Microelectronics in industrial protocol chips such as PROFINET and EtherCAT have alleviated some pressure, but capacity expansion still requires time, further exacerbating chip supply tightness.

The Core Direction of Technological Iteration Is Clear

The development of the AI industry is reshaping the core logic of network architecture, leading to fundamental changes in the technological forms and application scenarios of switch chips. The core directions of technological iteration are unmistakable:

① Bandwidth continues to double, evolving from the current 800Gb/s to 1.6Tb/s to meet the demands of larger-scale clusters.

② Latency continues to decrease, reducing GPU-to-GPU communication latency to the microsecond level through hardware optimization and protocol upgrades.

③ Energy efficiency improves, controlling power consumption while maintaining high bandwidth to adapt to the thermal constraints of AI servers.

According to TrendForce predictions, the global AI server market will achieve a compound annual growth rate of 27.2% from 2022 to 2029, driving the switch chip market to exceed RMB 102.2 billion by 2027 and doubling in size from 2025 to 2027.

From a technological perspective, 800Gb/s chips will gradually become the mainstream, with 1.6Tb/s chips entering pilot deployment. The increase in port speeds will continue to drive performance upgrades in switch chips.

The Scale-Up architecture will further proliferate, and the demand for GPU-to-GPU interconnection chips will grow rapidly.

Dedicated switch chips for niche scenarios such as automotive and industrial applications will emerge as new growth points. For example, Yutai Micro's automotive chips and Zhixin Micro's TSN chips have already demonstrated broad prospects.

Supply-Demand Imbalance Driven by Technological Iteration Becomes a Key Driver of Chip Price Surges

The yield ramp-up cycle for advanced processes is prolonged, with initial low yields directly limiting chip capacity release.

Upgrades in packaging processes have also intensified capacity pressures. Insufficient packaging capacity further restricts the overall supply capability of chips, driving prices upward.

On the surface, this appears to be an overflow effect of AI computing power. However, tracing the main thread of [Ethernet switch sales growth] reveals that this surge is not sentiment-driven but represents a structural and highly deterministic industrial repricing.

The growth in switch sales is not driven by an increase in the number of units sold. If we focus solely on data center switch sales, the growth is not particularly remarkable.

What has truly changed are two key indicators: the average selling price (ASP) per switch and the chip value per port.

In other words, it's not about selling more but selling at a higher [price] and using more [valuable] chips. The real anchor is the [passive rise] in Ethernet switch sales.

Each rate transition is not a linear upgrade but an architectural upgrade: more complex SerDes, higher power consumption, larger chip areas, and more advanced process nodes.

This results in a sharp increase in the value of individual switch chips, thicker switching layers, and chips [absorbing] more value.

Conclusion:

AI networks are not a one-time construction but an ongoing iteration. Once port speeds and network architectures are elevated, there is no turning back.

This means the floor for the ASP of switch chips has been permanently raised, with high-end chips becoming a [necessity] rather than an [option].

As Ethernet transforms from a general-purpose solution into a core AI infrastructure, the value of switch chips is destined to be rewritten. This surge is far from over.

Selected References: DEPEND Technology: 'AI Chip War Escalates: This Category of Chip Market Enters Explosive Growth Phase'; Switch Factory Programmer: 'Domestic Substitution Is the General Trend: How Many Domestic Switch Chip Solutions Do You Know?'