According to TrendForce research, the global Metaverse market reached US$38.6 billion in 2021, an increase of 17.9% compared to 2020. The global Metaverse market is expected to reach US$47.5 billion in 2022, with a growth rate of 18.7% and a CAGR (Compound Annual Growth Rate) from 2022 to 2030 of 39.4%. With the rapid expansion of the digital economy to the Metaverse and its total addressable market (TAM), total revenue of the global digital economy will account for 22.3% of total global GDP in 2028. Initial estimates reveal that the potential market opportunity of the Metaverse is approximately US$3.8 to US$12.5 trillion.

Due to the vague concept and definition of the Metaverse, specific actions and orientations are mainly based on games and NFTs (Non-Fungible Token, non-fungible tokens). Potential areas of development and feasible markets are also relatively vague, forcing companies into a mostly wait and see stance. In the second half of 2021, countries successively introduced relevant policies for the Metaverse, solidifying a clear development vision, and attracting the participation and speedy investment of Acer, HTC, Microsoft, Tencent, Take-Two, and Lenovo. At present, Adidas, Atari, Ferrari, Gap, Hulu, Nike, Verizon, and Walmart are entering the virtual world in different ways to witness the immersive experience of the digital universe.

Since the Metaverse’s digital asset transaction and exchange program involves three inseparable structures of legal currency, cryptocurrency, and NFTs, it also reeks of issues on many levels including ownership and intellectual property rights, digital asset transfer pricing, system encryption, supervision mechanisms, money laundering prevention, and combating terrorism, resulting in different degrees of openness to the Metaverse in different countries. Take the United States and China as examples.

The U.S. Treasury Department released the “Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art” in February 2022. The report pointed out that, due to limited evidence of money laundering, the government temporarily refrained from taking immediate intervention measures against the self-regulating global art industry (including digital assets). However, if the current situation persists, there will be lurking future risks to the US economy and national security, such as an increase in the risk of entities using the soaring value of the digital art market to bypassing global legal norms. Whether or not to intervene will need to be discussed further.

In contrast, China has adopted stricter policies, such as prohibiting the circulation of cryptocurrencies in the market and prohibiting cryptocurrency exchange. From this point of view, if China wants to develop the Metaverse, it will be limited in terms of expanding into new application fields. On the whole, the world has the same development vision in AR/VR, advanced infrastructure (including communication technology), and AI/ML. However, China’s restrictions on “cryptocurrency” and “game bans,” will pose both the greatest challenges and new market opportunities to participants in games and digital assets. Metaverse development plans proposed from various regions in China and the aforementioned legal digital currency show that the Chinese authorities already have a set of plans, development goals, and operation frameworks.

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The new normal ushered in by the pandemic will not only become the driving force of digital transformation but will also continue to drive the server market in 2022, according to TrendForce’s investigations. It is worth noting that potential unmet demand in 2021 and the risk of future server component shortages will become medium and long-term variables that influence the market. Analyzing the shipment volume of completed servers, a growth rate of approximately 4-5% in completed server shipments is expected next year with primary shipment dynamics remaining concentrated in North American data centers with an annual growth rate of approximately 13-14%. From the supply chain perspective, the ODM Direct business model has gradually replaced the business model of the traditional server market, giving cloud service providers the ability to respond quickly to market changes. However, based on the unpredictability of the market, TrendForce assumes two forecasts for server growth trends. One, the supply situation of key components is effectively improved. Two, the supply situation of key components is exacerbated.

TrendForce states, based on the current situation as materials issues ease quarter by quarter, the annual growth rate of server shipments in 2022 will reach 4~5%. There are three primary factors driving market momentum. First, the introduction of the Intel Sapphire Rapids and AMD Genoa platforms into the market may once again stimulate the replacement of enterprise client servers and infrastructure construction in data centers. Second, the market generally believes that transformational needs generated by the pandemic in 2022, such as shifts in working paradigms and the new normal, will continue to drive the cloud market. Furthermore, international tensions have led to geopolitical uncertainty, which in turn has encouraged countries to tighten their control over data sovereignty and prompting the emergence of small-scale data centers in specific geographic locations.

Actual shipment volume of completed servers in 2022 depends on improvement of supply chain issues

Based on the two aforementioned assumptions, if the pandemic is effectively controlled next year, and international logistics, satisfaction of materials demand, and other factors either return to normal or fare better than expected, server companies will be able to increase their shipping capabilities and the annual growth rate of shipments in the overall server market will be able to reach 5-6% while the annual growth rate of ODM-Direct will approach 15%, up from the original forecast 13%. However, if the pandemic intensifies next year, the overall global economy will continue under that dark cloud which will greatly affect the willingness of companies to invest. In that case, the estimated annual growth rate of server shipments will fall to only 3-4%. In addition, the growth momentum of North American data centers will also be affected leading to an annual growth rate of ODM-Direct of only 10%, approximately.

As a whole and continuing under the influence of the two-year pandemic, the business trend of flexible deployment is irreversible. Regardless of overall economic changes, TrendForce expects double-digit growth in the demand for ODM-direct servers next year while overall server demand will also maintain a positive growth trajectory. However, continued attention should be focused on issues related to server order fulfillment in the broader market, including the fulfillment rate of key PMIC and LAN chip materials. At the same time, another major market variable will be whether Intel and AMD can introduce their two new platforms as scheduled next year and inject additional momentum into equipment replacement.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

In light of rapid advancements in 5G, AI, cloud computing, and cloud services, TrendForce has observed that, since 2012, the widespread adoption of smartphones has brought about the emergence of certain new applications such as smartphone apps that leverage backend server support. Furthermore, enterprise cloud migration has noticeably accelerated after digital transformation activities began taking place in 2016. As a result, widespread data center deployments took center stage as the industry mainstream prior to 2020.

Moving into 2021, however, one of the many impacts of 5G commercialization on the market has to do with the regional deployment of infrastructures (i.e., small-scale data centers). This trend towards local deployment can be primarily attributed to the increasing stringency of personal data protection laws by governments worldwide that emphasize both the residency and the sovereignty of consumer data. Major public cloud companies are now beginning to establish cloud deployments closer to regions that represent sources of data generation, in order to deliver faster data analysis that is still in accordance with the law.

TrendForce’s observations on the build-out of data centers can be divided into the individual and enterprise aspects. With regards to the former, as connected devices become increasingly widespread and emerging content services more popular in the post-pandemic stay-at-home economy, consumer spending on streaming videos and online shopping began to experience a rapid spike, thereby contributing to a gradual increase in server build-outs for cloud services. Enterprises, on the other hand, have been seeking and deploying more flexible infrastructures in response to pandemic-induced uncertainties. Hence, certainly subscription services and hybrid cloud services have also been gaining momentum in the ongoing trend of cloud migration.

It should be noted that, due to recent geopolitical tensions, which intimately dictate the development of various countries’ industries and supply chains, global enterprises also face rapidly changing market needs as well as a high degree of uncertainties stemming from the pandemic. In turn, enterprise demand for cloud services has also seen a continued rise in the past two years. With respect to the adoption of AI and other emerging technologies, most enterprises prefer cloud services due to such services’ flexible cost structures. TrendForce’s latest investigations indicate that flexible pricing strategies and diverse services offered by data centers have directly propelled the demand from enterprises for cloud applications in the past two years. From the perspective of the server supply chain, these shifts have facilitated a gradual shift of the predominant business model in the server market from traditional server brands to ODM Direct.

In addition, data center-related technologies have also progressed significantly. As the way people work and live transforms, accompanied by the emergence of e-commerce and streaming media, enterprises have also become increasingly well-versed in cloud services and increasingly able to leverage related technologies. As such, the primary sources of competition in the cloud market will include not only infrastructures responsible for computing, storage, and networking, but also emerging technologies such as edge computing and software/hardware integration of related services by major operators. In particular, as 5G services successively kick into gear worldwide, the concept of “cloud-edge-local network” will begin to replace the current “cloud only” framework on a massive scale, thereby extending the relevant commercial opportunities from cloud services to hardware vendors. That is to say, in the future, cloud services will no longer be limited to the software front, as in-house hardware brands from CSPs are set to become the next battlefield while these companies compete to offer comprehensive services.

All of this raises the question of whether the build-out of data centers will involve more challenges and opportunities going forward. TrendForce believes that, in addition to factors such as telecommuting and e-commerce, data center demand from biomedical applications (for instance, the ramp-up of vaccinations) will also experience substantial growth, with the caveat that regulations governing the protection and collection of medical data will be even more stringent than those driving various countries’ data sovereignty endeavors. Hence, privacy and security pertaining to medical data will likely become not only a global pursuit, but also a significant challenge facing the application of data centers.

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Factors such as the rising popularity of topics related to the metaverse and UGC (user-generated content), as well as the rapid increase in AR/VR device shipment, will likely result in the creation of a growing body of virtual reality content in the market, according to TrendForce’s latest investigations. TrendForce expects annual global virtual reality content revenue to grow at a 40% CAGR from US$2.16 billion in 2021 to US$8.31 billion in 2025.

TrendForce further indicates that gaming/entertainment, videos, and social interactions comprise the primary categories of virtual reality content. Incidentally, as the construction of the virtual world and the development of virtual reality content are unlikely to be accomplished by only a handful of companies alone, companies in this space will therefore place an increasing emphasis on UGC instead. Leading companies will likely leverage the build-out of virtual reality platforms/environments and the provisioning of developmental tools/interfaces in order to not only lower the barrier to entry for content creation, but also raise user participation, thereby driving up the content market for virtual reality applications.

In consideration of profitability, most companies still adopt a wait-and-see approach towards the virtual reality market because content development for the virtual world entails substantial time and expenses. The vast majority of UGC, however, is not profit-driven. Hence, TrendForce believes that UGC is likely a more suitable point of entry into the virtual reality market for most companies that wish to do so. Furthermore, companies that specialize in metaverse applications will place increasing emphasis on developing platforms, building comprehensive ecosystems, and lowering the barrier to entry for content creation through the appropriate development tools and interfaces.

On the whole, factors that affect the development of the global virtual reality content market include not only the availability of platforms and their respective contents, but also the build-out of hardware equipment and infrastructures, such as high-speed computing chip adoption as well as 5G and Wi-Fi 6 deployment. On the other hand, as the virtual world places a high demand on instant, lifelike, and stable interactions, the ability to resolve signal disruptions has in turn become a topic that demands attention. With regards to end devices, the penetration rate of AR/VR devices going forward will primarily be determined by suppliers’ pricing strategies. In light of the growth of virtual reality application content, companies will look to expand their user base via low-priced hardware devices and compensate for their reduced hardware profitability through software sales. Finally, in response to the demand for more immersive and interactive user experiences, the integration of more sensors and better feedback design is set to become the next major trend of AR/VR device development.

The growth of the metaverse will drive an increasing number of companies to participate in the build-out of the virtual world, with use cases such as social communities, gaming/entertainment, content creation, virtual economy, and industrial applications all becoming important points of focus in the coming years, according to TrendForce’s latest investigations. Apart from increases in both computing power of semiconductors and coverage of low-latency, high-speed networks, the metavere’s development will also depend on the adoption of AR/VR devices by end users. TrendForce expects global AR/VR device shipment for 2022 to reach 12.02 million units, a 26.4% YoY increase, with Oculus and Microsoft each taking leadership position in the consumer and commercial markets, respectively.

TrendForce further indicates that the success of AR/VR devices in the consumer and commercial markets will be determined by their retail prices and degree of system integration, respectively, while these two factors are also responsible for leading companies’ continued competitive advantages. However, gross and net profit considerations regarding AR/VR hardware have made it difficult to not only price these devices competitively, but also increase the volume of AR/VR device shipment.

Even so, the growing popularity of the metaverse will drive more and more hardware brands to enter the AR/VR market and push online service platform providers to either directly or indirectly propel the growth of the hardware market in 2022. Regarding the consumer market, AR/VR device suppliers may look to expand their user base and increase their market penetration via low-priced yet high-spec devices, while compensating for their reduced hardware profitability through software sales. Oculus, for instance, has adopted such a strategy to maintain its advantage in the market, thereby raising the market share of the Oculus Quest products to a forecasted 66% next year.

Regarding the commercial market, there has been a growth in applications ranging from remote interactions and virtual collaborations to digital twins; hence, enterprises have become increasingly willing to adopt AR/VR devices. Compared to the consumer market, which is mainly driven by products with low prices and high specs, the commercial market is comprised of enterprises that are more willing to choose high-priced and high-performance products, although such products must be paired with a full system integration solution or customized services. Possessing substantial competency in the industrial ecosystem, Microsoft enjoys a relatively large competitive advantage in the commercial market, as the company’s HoloLens 2 became one of the few commercial AR devices with an annual shipment exceeding 200,000 units this year.

It should also be pointed out that, given the rapid advancements in high-speed 5G networks, video-based remote assistance applications enabled by low-priced AR glasses and 5G smartphones’ computing and networking functions will become yet another commercial AR/VR use case. TrendForce believes that these applications can serve as a low-cost, easily deployable early trial that will not only raise enterprises’ willingness to adopt more AR/VR commercial applications going forward, but also accelerate the development of commercial services related to the metaverse.