By leveraging advantages such as lifelike interaction and virtual simulation, the metaverse will enable the growth of various applications ranging from virtual meetings, digital modeling and analysis, to virtual communities, gaming, and content creation, in the infancy of its development. According to TrendForce’s latest investigations, constructing the metaverse, which is more complex than the existing internet world, requires more powerful data processing cores, networking environments capable of transferring enormous data, and user-side AR/VR devices with improved display performances. These requirements will further drive forward the development of memory products, advanced process technologies, 5G telecommunications, and display technologies.
Regarding memory products, the conceptual framework of the metaverse is heavily contingent on the support provided by compute nodes. The data center industry will therefore experience more catalysts brought about by the metaverse, and there will be a corresponding growth in micro-servers and edge processing applications. The metaverse will also require an increase in the performance of storage devices. This means that SSDs, which are substantially faster than HDDs in writing data, will become an indispensable storage solution. On the DRAM front, take VR devices as an example; most existing devices are equipped with 4GB LPDRAM, which has the dual advantage of low power consumption and high performance. In the short run, manufacturers will not plan to massively upgrade the applications processors in these devices, which also operate in relatively simple processing environments. Hence, the growth in VR devices’ DRAM density will remain relatively stable. In terms of storage, on the other hand, because most AR/VR devices are equipped with Qualcomm chips whose specifications closely resemble those of flagship smartphone SoCs, AR/VR devices will also feature UFS 3.1 solutions.
Regarding advanced process technologies, the integration of AI and the increase in demand for computing power have resulted in a corresponding demand for high-performance chips, which enable improved graphics rendering and computation of massive amounts of data. Advanced process technologies allow the production of high-performance chips that deliver enhancements in performance, power consumption, and chip size. The realization of the metaverse requires high-performance chips for data and graphics processing, so high-performance CPUs and GPUs will assume key roles in this regard. TrendForce’s investigations indicate that, with respect to CPUs, the current mainstream products from Intel and AMD are manufactured at the Intel 7 node (equivalent to the 10nm node) and TSMC’s 7nm node, respectively, and the two companies will migrate to TSMC’s 3nm and 5nm nodes in 2022. With regards to GPUs, AMD’s wafer input plans for GPUs are basically in lockstep with its plans for CPUs, whereas Nvidia has been inputting wafers at TSMC’s 7nm node and Samsung’s 8nm node. Nvidia is currently planning to input wafers at the 5nm node, and the resultant GPUs will likely be released to market in early 2023.
Regarding networking and telecommunications, due to the metaverse’s demand for virtual interactions that are instant, lifelike, and stable, greater attention will be paid to the bandwidth and latency of data transmissions. 5G communication is able to meet this demand as it features high bandwidth, low latency, and support for a greater number of connected devices. Hence, the arrival of the metaverse will likely bring about the commercialization of 5G-related technologies at an increasingly rapid pace. Notably, some of these 5G technologies that are set to become the backbone of network environments powering the metaverse include SA (standalone) 5G networks, which delivers greater flexibility via network slicing; MEC (multi-access edge computing), which increases the computing capabilities of the cloud; and TSN (time sensitive networking), which improves the reliability of data transmissions. In addition, 5G networks will also be combined with Wi-Fi 6 in order to extend the range of indoor wireless connections. In light of their importance in enabling the metaverse, all of these aforementioned technologies have become major drivers of network service development in recent years.
Regarding display technologies, the immersive experiences of VR/AR devices depend on the integration of higher resolutions and refresh rates. In particular, an increase in resolution will receive much more attention in the market now that Micro LED and Micro OLED technologies have gained gradual adoption as display technologies shrink in terms of physical dimensions. As well, the traditional 60Hz refresh rate can no longer satisfy the visual demands of advanced display applications, meaning display solutions with higher than 120Hz refresh rates will become the mainstream going forward. In addition, the metaverse’s emphasis on interactivity demands display technologies that are not limited by traditional physical designs. The market for flexible display panels, which allow for free form factors, is expected to benefit as a result. At the same time, the metaverse is also expected to generate some demand for transparent displays, which serve as an important interface between the virtual world and real life.
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.
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