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TrendForce Senior Analyst Mark Liu indicates that demand from data centers, namely, the four leading cloud providers in the U.S., remains the driving force in the server market. Owing to trade tensions between China and the U.S. in 2019, the four companies transferred a portion of their production capacities from China to Taiwan, with these production lines having since passed qualifications.
As such, they were able to fulfill and ship last year’s deferred orders in 1Q20. Although the projected acceleration of the pandemic (which was previously an outbreak in early-2020) in 2Q20 poses risks of hindering the shipment schedules of some parts of the server supply chain, U.S. companies have reacted by changing the shipping location of their servers and related components, among other strategies, to maintain a consistent level of shipment. Therefore, they may still register a QoQ shipment growth in 2Q20.
Most Chinese companies, on the other hand, have resumed factory operations. Apart from undertaking measures to battle the pandemic in 1Q20, new infrastructure plans, including 5G and cloud computing, are gradually executed in 2Q20; server suppliers such as Huawei, Inspur, and H3C have ramped up their stock-up efforts for key components in response to their 2H20 production plans.
Alibaba has raised its inventory in anticipation for strong server demand in 2Q20 from its “New Retail” business Hema Fresh (known as Fresh Hippo in the west) and from the surge in bandwidth usage during the upcoming 618 shopping festival. Likewise, ByteDance has also kept up its server orders to fulfill the demand from its newly built North American data centers. TrendForce expects the emerging BAT’s (ByteDance, Alibaba, and Tencent) server demand in 2020 to come from both their overseas business expansions and their infrastructure build-out in China. BAT are expected to see a 10-20% YoY increase in server demand this year.
The rapid global expansion of the pandemic has deferred the shipment schedule of servers and affected the supply of key components. In particular, the Philippines and Malaysia are major manufacturing sites of non-memory server components. The pandemic’s expansion in these regions may pose a potential risk of supply chain breakage in the 2H20 server market.
According to investigations by TrendForce, given that several of Intel’s assembly facilities are located in Malaysia, should the country extend its national lockdown, the production schedule of servers will be impacted in the mid- to long-term as a result. On the other hand, some of Samsung’s back-end server DRAM packaging operations are based in Luzon, the Philippines.
Therefore, the continued quarantine of Luzon may affect the shipment schedule of Samsung’s server DRAM modules. Despite normal levels of production at the moment, Samsung will have to reevaluate its capacity assignment in the future, in turn introducing even more unknowns into the current tight supply of server DRAM.
In short, TrendForce forecasts a constant growth in server shipment in 2020. Under an optimistic scenario, the pandemic can be contained in 2H20, resulting in a 5% YoY increase in yearly server shipment. However, if the pandemic continues to accelerate in 2H20, in turn affecting the shipment schedule of servers, then a pessimistic scenario is likely, with a mere 3% YoY increase in yearly server shipment.
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