Source to China Times, in response to increased visibility in AI server orders and optimistic future demand, two ODM-Direct based in Taiwan, Wiwynn, and Quanta, are accelerating the expansion of their server production lines in non-Chinese regions. Recently, there have been updates on their progress. Wiwynn has completed the first phase of its self-owned new factory in Malaysia, specifically for L10. As for Quanta, has further expanded its L10 production line in California, both gearing up for future AI server orders.

Wiwynn’s new server assembly factory, located in the Senai Airport City in Johor, Malaysia, was officially inaugurated on the 12th, and it will provide full cabinet assembly services for large-scale data centers. Additionally, the second phase of the front-end server motherboard production line is expected to be completed and operational next year, allowing Wiwynn to offer high-end AI servers and advanced cooling technology to cloud service providers and customers in the SEA region

While Wiwynn has experienced some slowdown in shipments and revenue due to its customers adjusting to inventory and CAPEX impacts in recent quarters, Wiwynn still chooses to continue its overseas factory expansion efforts. Notably, with the addition of the new factory in Malaysia, Wiwynn’s vision of establishing a one-stop manufacturing, service, and engineering center in the APAC region is becoming a reality.

Especially as we enter Q4, the shipment of AI servers based on NVIDIA’s AI-GPU architecture is expected to boost Wiwynn’s revenue. The market predicts that after a strong fourth quarter, this momentum will carry forward into the next year.

How significant is the demand for AI servers?

According to TrendForce projection, a dramatic surge in AI server shipments for 2023, with an estimated 1.2 million units—outfitted with GPUs, FPGAs, and ASICs—destined for markets around the world, marking a robust YoY growth of 38.4%. This increase resonates with the mounting demand for AI servers and chips, resulting in AI servers poised to constitute nearly 9% of the total server shipments, a figure projected to increase to 15% by 2026. TrendForce has revised its CAGR forecast for AI server shipments between 2022 and 2026 upwards to an ambitious 29%.

Quanta has also been rapidly expanding its production capacity in North America and Southeast Asia in recent years. This year, in addition to establishing new facilities in Vietnam, they have recently expanded their production capacity at their California-based Fremont plant.

The Fremont plant in California has been Quanta’s primary location for the L10 production line in the United States. In recent years, it has expanded several times. With the increasing demand for data center construction by Tier 1 CSP, Quanta’s Tennessee plant has also received multiple investments to prepare for operational needs and capacity expansion.

In August of this year, Quanta initially injected $135 million USD into its California subsidiary, which then leased a nearly 4,500 square-meter site in the Bay Area. Recently, Quanta announced a $79.6 million USD contract awarded to McLarney Construction, Inc. for three construction projects within their new factory locations.

It is expected that Quanta’s new production capacity will gradually come online, with the earliest capacity expected in 2H24, and full-scale production scheduled for 1H25. With the release of new high-end AI servers featuring the H100 architecture, Quanta has been shipping these products since August and September, contributing to its revenue growth. They aim to achieve a 20% YoY increase in server sales for 2023, with the potential for further significant growth in 2024.

As the struggle between China and the United States continues, in order to avoid upcoming geopolitical risks, not only have Taiwanese ODM manufacturers begun to shift some production locations, but market research firm TrendForce has also observed that American OEM companies have started to take action, discussing with partners how to reduce the proportion of Chinese supply chains and components.

TrendForce points out that, at present, American cloud service providers (CSPs) and OEM manufacturers have not yet been able to completely cut ties with Chinese-produced components. Among these, passive components and mechanical assemblies are more difficult to relocate due to factors such as cost and yield. However, other components (such as PCBs and power management control ICs) have plans to move out of China.

But where will these component manufacturers go if they want to move out of China? According to TrendForce’s analysis, PCB manufacturers are currently eyeing shifts to Thailand, Malaysia, Vietnam, and India; power management ICs and control ICs have already moved out of China and relocated to Taiwanese factories; mechanical assemblies and MLCC capacities still mainly come from China, with the former being requested to move but facing challenges due to cost and yield considerations.

TrendForce notes that the aforementioned production line and material shifts are primarily led by American CSPs. The overall server supply chain’s subsequent changes still need to be observed. For example, major players like Google, AWS, and Meta have not only moved most of their L6 production lines to Taiwan but also plan to establish bases in Southeast Asia after 2024 to handle cases within the United States, and reserve flexible production lines along the US-Mexico border, which will significantly increase utilization within this year.