According to TrendForce research, corporate demand for digital transformation including artificial intelligence and high-performance computing has accelerated in recent years, which has led to increasing adoption of cloud computing. In order to improve service flexibility, the world’s major cloud service providers have gradually introduced ARM-based servers. The penetration rate of ARM architecture in data center servers is expected to reach 22% by 2025.

In the past few years, ARM architecture processors have matured in the fields of mobile terminals and Internet of Things but progress in the server field has been relatively slow. However, companies have diversified cloud workloads in recent years and the market has begun to pay attention to the benefits ARM architecture processing can provide to data centers. TrendForce believes that ARM-based processors have three major advantages. First, they can support diverse and rapidly changing workloads and are more scalability and cost-effective. Second, ARM-based processors provide higher customization for different niche markets with a more flexible ecosystem. Third, physical footprint is relatively small which meets the needs of today’s micro data centers.

Influenced by geopolitics and the strengthening of data sovereignty in various countries, major cloud service providers and telecom operators are actively developing micro data centers which will further drive the penetration of ARM-based processors. At the same time, from the perspective of cloud service providers currently adopting ARM-based processors, Graviton, led by AWS, has the largest market scale and began encroaching gradually into the market in 2021. TrendForce also observed that AWS’s deployment of ARM-based processors in 2021 reached 15% of overall server deployment and will exceed 20% in 2022. This forces other major cloud service providers to keep up by initiating their own projects at various foundries. If testing is successful, these projects are expected to start mass introduction in 2025.

In addition, according to the Neoverse Platform plan previously released by ARM, its Platform Roadmap will also be one of the key drivers of penetration. This product line is set up to target ultra-large-scale data centers and edge computing infrastructure. However, it is worth mentioning, since x86 is still mainstream in the market and ARM-based server CPU suppliers only maintain small-batch production orders at this stage and primarily focus on ultra-large-scale data centers, introduction of ARM-based servers into enterprise data centers will be slow going. Thus, TrendForce believes that it will still be difficult for ARM-based servers to compete with x86-based servers before 2025.

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.

（Image credit: Unsplash）

Escalating trade tensions between the US and China, rising geopolitical issues, increased tariffs, and uncertainties stemming from the COVID-19 pandemic’s emergence last year have compelled server ODMs to actively shift their operations closer to clients as well as engage in risk mitigation strategies, according to TrendForce’s latest investigations. Taiwanese ODMs, in particular, are shifting their production bases away from domestic China and accelerating the installation of additional overseas production lines. TrendForce expects the share of servers manufactured in domestic China by global server ODMs to undergo a 7% YoY decrease this year as these ODMs shift their production bases mainly to Taiwan. Furthermore, Taiwanese ODMs are expected to account for about 90% of total server production this year.

On the other hand, server assembly operations, which are closely related to motherboard manufacturing operations, are also dynamically reserving their L6 capacities. Server assembly facilities located in New Mexico and the Czech Republic are gradually installing new production lines for server motherboards there. Inventec, Wistron (including Wiwynn), and Foxconn all currently possess sufficient motherboard manufacturing capacities for allocation as needed.

While future changes in the overall server supply chain remains to be seen, it should be pointed out that the migration of production bases pertaining to US companies is of particular importance. For instance, North American CSPs have requested their server ODM partners to migrate L6 assembly lines to locations such as Taiwan and Southeast Asia in response to potential geopolitical factors going forward. However, servers to be shipped to non-US regions will still be manufactured in China in accordance with prior plans. Aside from Google and Facebook, both of which have production lines in Taiwan, AWS and Microsoft have also transitioned their production lines to Taiwan.

Regarding major server ODMs’ current progress, most of them have installed new production lines in Taiwan, with Inventec, Wistron, Quanta, and Foxconn making the most headway. For instance, after installing three additional production lines in Guishan, Taoyuan at the end of 2020, Inventec currently operate a total of eight production lines, while Wistron has not only installed several spare production lines in the Southern Taiwan Science Park, but also planned to expand production bases in Southeast Asia at the end of 2021 for capacity allocation purposes. Quanta is aiming to capitalize on demand from 5G-related applications and data center build-outs by continually adjusting its production capacity for motherboards in Taiwan and Thailand. Finally, by expanding the physical capacity of its Taoyuan facility, Foxconn is able to avoid incurring tariffs for its North American clients’ L6 assembly operations.

While the server industry transitions to the latest generation of processors based on the x86 platform, the Intel Ice Lake and AMD Milan CPUs entered mass production earlier this year and were shipped to certain customers, such as North American CSPs and telecommunication companies, at a low volume in 1Q21, according to TrendForce’s latest investigations.

These processors are expected to begin seeing widespread adoption in the server market in 3Q21. TrendForce believes that Ice Lake represents a step-up in computing performance from the previous generation due to its higher scalability and support for more memory channels. On the other hand, the new normal that emerged in the post-pandemic era is expected to drive clients in the server sector to partially migrate to the Ice Lake platform, whose share in the server market is expected to surpass 30% in 4Q21.

Volume ramp of CPUs based on the Eagle Stream platform will likely take place in 2Q22, while AMD is expected to reach a 15% share in the server market next year

Regarding the mass production schedule of Intel CPUs based on the next-gen Eagle Stream platform, volume ramp is expected to occur in 2Q22. These processors, which feature embedded HBM, comprise a much more diverse product lineup compared to the previous generation. Although Intel’s 2Q22 target represents a slight delay from the market’s previous expectation of a 4Q21 ramp-up, Eagle Stream CPUs will enter the final product qualification stage at the end of 4Q21, after which Intel will begin provisioning certain leading customers with a small batch of these CPUs in 1Q22, according to TrendForce’s survey of server ODMs. As such, the mass production schedule of Sapphire Rapids will likely resemble the release of Ice Lake server processors earlier this year.

Genoa CPUs, AMD’s competitive equivalent of the Intel Eagle Stream, are expected to enter mass production on a similar schedule, since AMD’s wafer starts at the 5nm node have been relatively low-volume. AMD’s server processors manufactured at the 14nm node and below have the competitive advantage in terms of price-to-performance, core count, and interface support.

Furthermore, after progressing to the 7nm node, these processors have been seeing gradually increased adoption by various public cloud service providers, including Google Cloud Platform, Microsoft Azure, and Tencent, throughout 2021. AMD CPUs have currently surpassed a 10% penetration rate in these three CSPs’ servers. Going forward, AMD will begin inputting wafers at the 5nm node at the end of 2021 in order to further optimize its processors’ cost, power consumption, and performance. TrendForce therefore expects AMD CPUs to reach a 15% share in the global server market in 2022.

While the ARM architecture is starting to gain popularity, ARM chips are mostly built-to-order due to the relatively small scale of client demand

Processors based on the ARM architecture began seeing increased market penetration this year, with AWS’ self-designed Graviton chips enjoying the greatest market share. In addition, Ampere and Marvell have also been releasing more agile and flexible ARM-based server processors, validation for which by CSPs is expected to kick off in 4Q21. The server market, however, is still dominated by x86 processors, which currently account for 97% of total server processor shipments.

In particular, AMD has transitioned most of its server offerings to processors manufactured at the 7nm and 7nm+ nodes by increasing wafer inputs at these nodes and replacing its old 14nm product lineups. This transition has paid off, as some of AMD’s clients have gradually become receptive to these new products. On the other hand, ARM- and RISC-based processors are currently built to order, mostly for the data center market. TrendForce therefore believes that ARM CPUs will not be competitive with x86 CPUs in the server market before 2023.

Support will extend to include PCIe G5 and DDR5 RDIMM, while CXL will improve memory performance

It should be noted that Intel as the dominant leader in the market for x86 server CPUs has decided to have Eagle Stream support CXL (Compute Express Link). This interface further optimizes the memory coherence between the CPU and the memory components to which the CPU is connected. The processor platform thus has the ultimate function of establishing a memory pool for all computing units within the server through memory virtualization, even though this function is not notably emphasized in the initial establishment of the product specifications, which originally sought to enable high-bandwidth and low-latency data transfer for the CPU.

The memory pool, in turn, enhances the interconnections (or the data transfer efficiency) among the CPU, memory, GPU, ASIC, FPGA, etc. The new CXL interface will be able to offer significant improvements in terms of dealing with heavier workload in the future and conducting heterogeneous computing. Moreover, CXL will be able to overcome the limits imposed on the current hardware architecture with respect to data transfer and thereby enable more effective integrated computing capability.

The build-out of data centers continues to grow because of the emergence of applications related to AI and Big Data. Furthermore, the demand for larger cloud storage capacity has massively expanded as a result of enterprises’ increasingly rapid digital transformation efforts in the post-pandemic world. At the same time, with the increase in CPU core count, how to raise computing performance via memory optimization has now become an important issue. Eagle Stream can resolve this bottleneck by extending support to PCIe G5 for the SSD interface technology.

Compared with its predecessor, PCIe G5 offers twice the data transfer rate. Therefore, hyperscalers are eager to adopt SSDs based on this standard. As for DRAM, both Eagle Stream and Genoa extend support to the next-generation DDR5 server DRAM, which delivers a faster data transfer rate, making these new server CPUs superior to Ice Lake in all respects. NAND Flash and DRAM suppliers have made plans to commence mass production of PCIe G5 SSDs and DDR5 RDIMMs at the end of 2Q22 in anticipation of demand generated by the release of the Eagle Stream and Genoa platforms for these next-gen products.

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

（Cover image source: Intel Newsroom）