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Huawei’s Server Shipment to China to Reach a New Record High due to Surging Demand in China

Published: Aug 30,2018

According to the latest report by DRAMeXchange, a division of TrendForce, the Chinese market has witnessed a surging demand for servers in 2018. The number of servers shipped to China will increase by 23% YoY in 2018, and account for 25.6% of the global server shipments this year, up from 21.8% in 2017. The demand grows significantly since the Chinese government has been encouraging domestic companies to adopt servers of domestic brands, together with the increasing amount of servers used for hyperscale internet data centers.

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According to Mark Liu, senior analyst at DRAMeXchange, Huawei’s shipment of servers to China is expected to reach a new record high of 700,000 units this year, a YoY growth of 31.5%. This outstanding growth is due to the stable demand from data centers as well as from major telecom operators like China Mobile and China Telecom. The shipment to the Chinese market will account for around 30% of Huawei’s annual global server shipments, up from 20% in 2018. The increasing shipment is also attributed to the anticipated growth of server demand from European car manufacturers and telecom operators, in response to the development of autonomous driving market and 5G in the next three to five years.

Inspur’s shipment to the Chinese market is expected to reach 900,000 this year, a YoY growth of 35.3%, due to the supportive policies and subsidies from the government, as well as the development of third-party data centers in China. In addition, Inspur has also seen steady growth in high-performance servers thanks to Chinese Internet service providers’ expanding data-related business. On the other hand, Inspur has adopted the business model of Joint Design Manufacturer (JDM) this year which features a high degree of innovation and customization. As the result, Inspur is expected to supply 50% of the servers needed by BAT, significantly up from 30% of last year.

Currently, the China-US trade war has only a limited impact on Huawei and Inspur, whose server businesses mainly focus on the Chinese market. If the U.S. issues new tariffs on Chinese products in the future, then servers and their components, such as motherboard and server module, may face an extra tariff of 10% to 25%, due to the trade tax difference and value-added tax.

As for other server manufacturers, they may need to cope with the tax for server components, in addition to tax for servers. However, according to DRAMeXchange, most server manufacturers other than China-based ones have their assembly plants located in the duty-free zone on the US-Mexico border, and only limited items are currently affected by the tariff list. Therefore, the impact of China-US trade war is still limited in the short term. However, since pending tariff list includes server modules, the further impact on the industry remains to be seen.

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