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.

Although the stay-at-home economy has persisted through 2021, governments in Europe and the US are starting to lift restrictions in light of increased vaccinations. As such, it remains to be seen whether notebook computers will continue to experience strong demand and whether global notebook shipment will change accordingly.

TrendForce indicates that the YoY changes in annual notebook shipment for 2015-2019 remained within 3%, and about 160-165 million units were shipped each year during this period. However, as WFH and distance education became the norm due to the COVID-19 pandemic’s emergence in 2020, demand for notebooks has risen accordingly; global notebook shipment for 2021 is expected to reach 237 million units, a 15% YoY increase.

Nonetheless, TrendForce also believes that the easing of restrictions in Europe and the US in 2H21 will somewhat weaken the pandemic-generated demand for notebooks. While global notebook shipment for 2022 is expected to reach 222 million units, Chromebooks in particular will likely experience a double-digit decline. Shipments of other product categories, namely, business notebooks or consumer notebooks, are expected to decline by nearly 5%.

Chromebooks have been occupying an increasing share of the overall notebook market, from 11% in 2019 to 15% in 2020 and 20% in 2021. Volume-wise, the upward trajectory of Chromebooks has been nothing short of impressive. Chromebook shipment for 2020 reached 31.17 million units, a staggering 87% YoY increase. This momentum is expected to continue into 2021, during which annual Chromebook shipment will likely reach 46.87 million units, thereby becoming an indispensable driver of the global notebook market’s growth.

The US market accounts for the bulk（about 70%）of global Chromebook demand this year. That is why the near saturation of the US education notebook market and the impending return to physical locations for work and study after restrictions have been eased will lead to a slowdown of global education notebook demand.

At the same time, there will likely be a corresponding decline in demand for notebooks used in WFH applications, including business and consumer notebooks. TrendForce, therefore, believes that demand in the notebook market will peak in 2021 and slightly taper off in 2022.

（Cover image source: Lenovo StoryHub）

Thanks to their flexible pricing schemes and diverse service offerings, CSPs have been a direct, major driver of enterprise demand for cloud services, according to TrendForce’s latest investigations. As such, the rise of CSPs have in turn brought about a gradual shift in the prevailing business model of server supply chains from sales of traditional branded servers (that is, server OEMs) to ODM Direct sales instead.

Incidentally, the global public cloud market operates as an oligopoly dominated by North American companies including Microsoft Azure, Amazon Web Services (AWS), and Google Cloud Platform (GCP), which collectively possess an above-50% share in this market. More specifically, GCP and AWS are the most aggressive in their data center build-outs. Each of these two companies is expected to increase its server procurement by 25-30% YoY this year, followed closely by Azure.

TrendForce indicates that, in order to expand the presence of their respective ecosystems in the cloud services market, the aforementioned three CSPs have begun collaborating with various countries’ domestic CSPs and telecom operators in compliance with data residency and data sovereignty regulations. For instance, thanks to the accelerating data transformation efforts taking place in the APAC regions, Google is ramping up its supply chain strategies for 2021.

As part of Google’s efforts at building out and refreshing its data centers, not only is the company stocking up on more weeks’ worth of memory products, but it has also been increasing its server orders since 4Q20, in turn leading its ODM partners to expand their SMT capacities. As for AWS, the company has benefitted from activities driven by the post-pandemic new normal, including WFH and enterprise cloud migrations, both of which are major sources of data consumption for AWS’ public cloud.

Conversely, Microsoft Azure will adopt a relatively more cautious and conservative approach to server procurement, likely because the Ice Lake-based server platforms used to power Azure services have yet to enter mass production. In other words, only after these Ice Lake servers enter mass production will Microsoft likely ramp up its server procurement in 2H21, during which TrendForce expects Microsoft’s peak server demand to take place, resulting in a 10-15% YoY growth in server procurement for the entirety of 2021.

Finally, compared to its three competitors, Facebook will experience a relatively more stable growth in server procurement owing to two factors. First, the implementation of GDPR in the EU and the resultant data sovereignty implications mean that data gathered on EU residents are now subject to their respective country’s legal regulations, and therefore more servers are now required to keep up the domestic data processing and storage needs that arise from the GDPR. Secondly, most servers used by Facebook are custom spec’ed to the company’s requirements, and Facebook’s server needs are accordingly higher than its competitors’. As such, TrendForce forecasts a double-digit YoY growth in Facebook’s server procurement this year.

Chinese CSPs are limited in their pace of expansions, while Tencent stands out with a 10% YoY increase in server demand

On the other hand, Chinese CSPs are expected to be relatively weak in terms of server demand this year due to their relatively limited pace of expansion and service areas. Case in point, Alicloud is currently planning to procure the same volume of servers as it did last year, and the company will ramp up its server procurement going forward only after the Chinese government implements its new infrastructure policies. Tencent, which is the other dominant Chinese CSP, will benefit from increased commercial activities from domestic online service platforms, including JD, Meituan, and Kuaishou, and therefore experience a corresponding growth in its server colocation business.

Tencent’s demand for servers this year is expected to increase by about 10% YoY. Baidu will primarily focus on autonomous driving projects this year. There will be a slight YoY increase in Baidu’s server procurement for 2021, mostly thanks to its increased demand for roadside servers used in autonomous driving applications. Finally, with regards to Bytedance, its server procurement will undergo a 10-15% YoY decrease since it will look to adopt colocation services rather than run its own servers in the overseas markets due to its shrinking presence in those markets.

Looking ahead, TrendForce believes that as enterprise clients become more familiar with various cloud services and related technologies, the competition in the cloud market will no longer be confined within the traditional segments of computing, storage, and networking infrastructure. The major CSPs will pay greater attention to the emerging fields such as edge computing as well as the software-hardware integration for the related services.

With the commercialization of 5G services that is taking place worldwide, the concept of “cloud, edge, and device” will replace the current “cloud” framework. This means that cloud services will not be limited to software in the future because cloud service providers may also want to offer their branded hardware in order to make their solutions more comprehensive or all-encompassing. Hence, TrendForce expects hardware to be the next battleground for CSPs.

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