TrendForce’s latest analysis of the server market finds that the global demand was noticeably lower than usual during 1H19 on account of the escalation of the US-China trade dispute. As the market enters the second half of the year, the replacement demand associated with the migration to the latest server processor platforms has yet to pick up significantly. Moreover, the demand from customers in China’s data center market is still rather uncertain. On the other hand, shipments from ODM direct businesses in the US to North America’s data center market is expected to maintain robust growth during the year’s second half. The growth from this end will compensate for the other factors that negatively affect the overall demand. Consequently, this year’s global server shipments will be roughly on par with the level of the previous year.
Mark Liu, senior analyst at TrendForce, has this to say about the effect of the US-China trade dispute on the overall server production: “While the trade negotiation between the US and China is at an impasse, ODMs have already taken precautionary measures. Most of them started to move production lines out of China as early as 2018. However, the entire supply chain still felt the disturbance of the relocation process in 1H19; and this, in turn, also had some impact on the procurement demand from the data center market during the same period. ODM partners of Microsoft Azure, Google, and a few other cloud service providers in the US have moved their L6 lines to Taiwan as requested by their clients. The issue is that the production yields from these lines have dropped following their relocation, leading to downward corrections in shipments. We expect that the yield rates of the relocated L6 lines will not return to their normal levels until the end of this year or perhaps even later in 2020. It is also worth mentioning that most of the production lines that supply AWS and Facebook are still in China. Since these two major clients are willing to absorb the costs associated with higher tariffs, server shipments destined for them will remain steady throughout this year.”
Server shipments in China are expected to drop slightly this year due to the US export restriction
TrendForce currently projects that the total annual server shipments in China for 2019 will drop by about 4% YoY because of the effect of the US export restriction on certain major Chinese suppliers to data centers (e.g. Huawei and Sugon). Customers in the data center market have gradually diverted their orders to alternative suppliers such as Inspur. Despite the trade frictions between the US and China, most of the enterprises that build and operate large-scale data centers still use China-made servers. Among the top five server manufacturers by shipments for this year, Inspur will be the only one to post a positive YoY growth with the rate currently estimated around 10%.
The current outlook of the whole server market indicates that the scale of server shipments worldwide in 2019 will be close to that of 2018. North American OEMs are again the main growth contributors, and they are expected to account for around 40% of the total shipments in 2019. From the perspective of market segments, enterprise servers still command the majority market share. However, suppliers catering to this segment are facing shrinking demand as businesses are increasingly relying on cloud services. Looking ahead, much of the demand will shift toward the kinds of servers used in large-scale internet data centers. Also, the forthcoming rollout of the 5G network will trigger another wave of procurement from the telecom industry and cloud service providers. Hence, TrendForce forecasts that hyperscale servers deployed in data centers owned or leased by cloud service providers and telecom companies will account for nearly 33% of the total annual shipments for 2019. This share figure is expected to reach the 40% level in 2020.