Current U.S. sanctions on China have extended their reach to strike at HPC and sectors such as aerospace, automotive market, and military industry. TrendForce indicates, the market for high-end computing chips (including CPU, GPU, etc.) has borne the brunt of these restrictions at this stage, while those providing related storage such as DRAM and NAND Flash also face potential supply disruption. At present, this not only includes domestic companies in mainland China but also extends to related US-based suppliers. Among them, server companies that rely on high-intensity computing will face greater scrutiny.

Impact analysis on server terminal shipments

In terms of server terminal shipments, since relevant component suppliers have not yet been able to confirm whether services provided by the four major cloud service providers (CSPs) in China, Baidu, ByteDance, Alibaba, and Tencent, involve military use, before CSPs sign MOUs (memoranda of understanding), component manufacturers may temporarily delay shipments to the Chinese market. However, TrendForce believes, due to the fact that current CSP buyers’ component inventories remain sufficient, the short-term impact on global server market shipment performance is relatively low and long-term impact depends on the evolution of the US Department of Commerce’s rules.

Huawei and Sugon, two companies that have received attention at this stage due to the US ban, have previously withdrawn from the x86 server market and turned into cloud business providers and whole server delivery has been transferred to other domestic OEMs and outsourced computing power leasing, so as not to be affected by sanctions. However, due to the previous CPU ban, Sugon has turned to AMD to obtain authorization for localized chips, which may be significantly curtailed by this ban. In 2022, Sugon’s market share in the overall server market will be approximately 2.3% and 8.5% of the Chinese market.

TrendForce believes, it cannot be ruled out that relevant Chinese OEMs may have server products that may be rendered to government supercomputing centers in the future. Inspur, H3C, and Lenovo will face more exacting future scrutiny and, if consequences intensify, the mainland Chinese industrial chain may feel direct effects. Although commercial servers are not currently on the list of directly restricted items, if friction between the United States and China intensifies in the future, it cannot be ruled out that the U.S. Department of Commerce will add more potentially risky Chinese server OEMs and CSPs onto the UVL list. If certification cannot be realized within 60 days of being included in the UVL list, these entities will be included on the entity list. The worst case scenario will be a future trend of negative growth in Chinese server demand.

Since the restrictions enumerated in this ban are primarily concentrated in the HPC field, the greatest factor affecting Sugon is the company largely providing server OEM to government departments including in supercomputers, military aerospace, and government server farms. At present, there are 8 national-level supercomputing centers in mainland China and the supercomputer located in the center of Wuxi is the headquarters of China’s self-developed chips including the self-developed Sunway TaihuLight. As the U.S. Department of Commerce continues to strengthen its sanctions, China’s supercomputing technology and domestic research capabilities will be severely damaged in the future.

Impact analysis on GPU and CPU sectors

At present, companies utilizing high-end graphics cards are primarily concentrated in the HPC sector. In terms of CSPs, Alibaba and Baidu are the largest companies in mainland China. These two CSP companies account for up to 60% of the market share of GPU usage in China. Before the previous ban at the end of August, Chinese CSP operators had to submit purchase applications before procurement but they could not apply at all after the ban. However, based on the premise that buyer inventory levels on hand remain high and the supply of goods through distribution channels is sufficient, no effect on demand is forecast until 1H23. Nonetheless, it will be a challenge in the long-term. Since the ban expressly prohibits supercomputing center applications such as HPC, TrendForce assesses that GPU servers used by supercomputing centers will be directly affected, which accounts for up to 30% of China’s GPU market.

In terms of chip computing performance control, ECCNs 3A090 and 4A090 are newly added sanctioned items and chips with a total processing performance of more than 4,800 (inclusive) calculated by TOPS will be restricted. GPUs are usually used to directly assist in performing complex operations. Basically, NVIDIA’s A100 PCIe Gen4 and AMD’s MI250 OAM Module exceed the 4,800 limit. With new high computing performance products restricted in the future, development of server acceleration computing in China will take a hit.

However, the computing performance of most server CPU products is generally lower than the provisions of the ban. Only Chinese-made chips such as Tianjin Haiguang face direct restrictions and other CPUs such as Intel and AMD servers will not be subject to prohibition. At this stage, Intel and AMD will sign MOUs with relevant mainland Chinese manufacturers to ensure that related products cannot be used in military and supercomputing fields before shipment. In today’s server CPUs, the computing performance of the commonly used Intel Ice Lake CPU series does not reach the limit imposed by U.S. sanctions.

Impact analysis on the memory sector

At present, Samsung and SK hynix have also suspended their supply of product to Sugon. If Sugon can clarify procured memory is not used for supercomputing, domestic server products, etc., the parties will be able to reach a consensus for shipment. In the long run, Korean companies are evaluating whether they need a written commitment from each customer to disavow using purchasing memory products in supercomputers. Therefore, some memory shipments may be affected before documents are signed. The industry generally believes that market inventory remains relatively abundant and there will be no substantial damage to the market in the short term. As far as SSD is concerned, the greatest utilization remains in the category of AI/DL (Deep Learning), since most of the data trained from DL must be stored in faster and more convenient SSDs for use in inference scenarios. If the suspension of shipments caused by the current ban cannot be rectified by relevant buyer agreements, the development of Chinese server manufacturers in related AI/DL fields may be hamstrung and a calamitous decline in the market penetration rate of enterprise SSDs from international manufacturers cannot be ruled out.

Impact analysis on the networking sector

There are three reasons for a relatively minor impact assessment on the well-connected suppliers in the networking sector. First, there are numerous networking suppliers and many of them are in China. Since the demand for key components is relatively small, Chinese suppliers should be able to keep up. Second, the mainstream process in this field is a mature process and future expansion is less restricted. Third, from the perspective of supplier shipments, after foundry assembly, packaging, and testing, there are multiple distribution channels for the circulation of the final product and it will be difficult to determine whether terminals are military use. However, from the perspective of long-term impact, there is a high probability that Chinese manufacturers will give priority to China’s local supply chain in the future to ensure future supply. This move will undoubtedly deepen the resistance of other suppliers’ shipments to China, so it is necessary to open up multiple shipping channels to stabilize market share.

（Image credit: iStock）

According to TrendForce research, the global high-performance computing market reached approximately US$36.8 billion in 2021, growing 7.1% compared to 2020. The United States is still the largest market for high-performance computing in the world with an approximate 48% share, followed by China and Europe, with a combined share of approximately 35%. Segregated into application markets, high-performance computing is most widely used in scientific research, national defense/government affairs, and commercial applications, with market shares of 15%, 25%, and 50%, respectively. In terms of product type, software (including services) and hardware account for 58% and 42% of the market, respectively.

Since high-performance computing can support data analysis, machine learning (ML), network security, scientific research, etc., it plays a key role in military fields such as nuclear warhead design and missile explosion simulations. Therefore, there are relatively few players occupying key positions in the value chain. Primary suppliers are Fujitsu, HPE, Lenovo, and IBM. These four manufacturers account for a market share of approximately 73.5% globally.

In addition, the continuous development of smart cities, smart transportation, self-driving cars, the metaverse, and space exploration and travel programs launched by Space X, Blue Origin, and Virgin Galactic will increase the demand for high-performance computing focused on R&D and testing along the two major axes of simulation and big data processing and analysis. The global high-performance computing market is expected to reach US$39.7 billion in 2022, with a growth rate of 7.3%. The CAGR (Compound Annual Growth Rate) of the global high-performance computing market from 2022 to 2027 will be 7.4%.

In view of this, the global high-performance computing market is growing steadily but not by much. The reason is that many of the aforementioned commercial application terminals are still in the growth stage, so high-performance computing technologies and solutions adopted by cloud service providers are limited to local deployment This enables HPC servers to scale on-premises or in the cloud and provides dedicated storage systems and software to drive innovation, thereby accelerating the development of hybrid HPC solutions.

In terms of end-use, the high-performance computing market is segmented into BFSI (Banking, Financial Services and Insurance), manufacturing, healthcare, retail, transportation, gaming, entertainment media, education & research, and government & defense. High-performance computing’s highest revenue share was derived from the government and defense market in 2021, primarily due to related agencies actively adopting cutting-edge and advanced IT solutions to improve computing efficiency. At present, government agencies in the United States, China, Japan, South Korea, as well as European countries have successively adopted high-performance computing systems to support digitization projects and contribute to economic development. Therefore, in 2021, the global scale of the on-premise high-performance computing server market was US$14.8 billion, of which Supercomputer, Divisional, Departmental, and Workgroup accounted for 46.6%, 18.9%, 25%, and 9.5% of the market, respectively. The global on-premise high-performance computing server market in 2022 is expected to reach US$16.7 billion with Supercomputer and Divisional growing by 11.5% and 15.2% compared with 2021.

（Image credit: Pixabay）

According to TrendForce, the consumer electronics market will feel the brunt of the weakening stay-at-home economy, the pandemic in China, international tensions, and rising inflation in 1H22. Coupled with the traditional off-season, demand for relevant applications such as PCs, laptops, TVs, and smartphones has cooled significantly and downstream customers have successively downgraded their shipment targets for the year, while demand for automotive, Internet of Things, communications, and servers products remain good. At the same time, the supply chain will build higher inventories in general to mitigate the risk of material shortages due to transportation impediments induced by the spread of the pandemic and the ongoing war between Russia and Ukraine.

1. Foundries

Due to the prolonged lead-time of semiconductor equipment and limited new capacity in 1Q22, the overall foundry capacity utilization rate remains fully loaded, in particular, component mismatch issues continue for parts produced at mature nodes (1Xnm~180nm). Looking forward to the second quarter, although growth in global wafer production capacity remains limited, due to weak demand for end products, continuing international tension, and China’s forced lockdowns and supervision due to the recent spread of the pandemic, there is an opportunity for the supply chain to obtain a more adequate supply of wafers that were previously squeezed by production capacity.

2. Servers

The overall supply of key server materials improved slightly in 1Q22. In addition, due to increasing orders from ultra-large data centers, the general supply cycle of NetCom chips such as LAN IC/chip remains as long as approximately 40 weeks but the demand gap can be bridged by instituting urgent order fees, mitigating actual impact. As the aforementioned situation eases, additional orders for ODM motherboard production are moving briskly, prompting continued stocking of FPGAs and PMICs materials. NetCom chips are also overstocked and the overall market has a reached a “rich get richer” mindset. Material shortages at second-tier ODMs still stifle the production of motherboards for a small number of customers but does not affect the overall server market supply. With improvements in material supply, server shipments will increase significantly in 2Q22, growing an estimated 15.8% QoQ to 3.6 million units.

3. Smartphones

Affected by sluggish seasonal demand, the Russian-Ukrainian war, and rising inflation, market demand has cooled. Thus, material delivery issues in the supply chain have eased compared to 2H21. Although there is still a shortage of certain components, most of these shortages are concentrated in mid/low-end smartphone products. The lead time for 4G and low-end 5G SoCs is approximately 30 to 40 weeks, which is limited by production capacity planning. Since last year, the demand of the mid/low-end mobile phone market has not been met. This is followed by A+G sensors with a lead time of approximately 32~36 weeks and OLED DDIC and Touch IC with a lead time of 20~22 weeks. The production volume of smartphones in 2Q22 will be affected by the interaction of the aforementioned factors with a forecast production volume of 323 million units, or only 6% QoQ, which is lower than the performance of previous years.

4. Notebooks

Also affected by weakening end market demand, discounting client SSDs that are no longer oversupplied, Type C IC, WiFi, and PMIC all currently boast long lead times, with Type C IC the lengthiest at 20~25 weeks. However, compared with TrendForce’s assessment at the beginning of this year, the delivery cycle has not grown longer, so the lead time of these three types of products is expected to improve by the end of 2Q22. As supply chain backlog continues to improve, shipments of notebook computers (including Chromebooks) is expected to reach approximately 55.1 million units in 2Q22, down 0.7% QoQ.

5. MLCC Passive Components

From the perspective of other key components, taking MLCC as an example, demand for major consumer electronic products such as mobile phones, laptops, tablets, and TVs declined significantly in 1Q22, resulting in high consumer product specification MLCC inventory levels held by original suppliers and channel agents and this situation may continue into 2Q22. At present, the stocking momentum for automotive and industrial MLCCs has steadily increased, while consumer specification products have yet to escape the pattern of oversupply. In 2Q22, the MLCC market has the opportunity to alleviate its component mismatch issues through gradually increased production capacity and automotive and server ICs supplied by semiconductor IDM companies, driving stocking momentum at automotive power, server, fast charging, and charging/energy storage equipment OEMs. Vehicle and industrial MLCCs have the opportunity to become primary growth drivers in 2Q22 with Murata, TDK, Taiyu and Yageo as the primary beneficiaries. Consumer specification products, which account for the bulk of MLCC production from suppliers in Taiwan, South Korea, and China, may face continued market demand weakness in 2Q22 due to a slowdown in demand for mobile phones and laptops and continuing inventory adjustment by branded companies and ODMs.

Looking forward to 2Q22, not including servers, demand for end products related to the consumer category remains weak. Components that were originally oversupplied will face more severe price tests due to the imbalance between supply and demand. In terms of materials in serious short supply, more output will be transferred to products with strong demand through the deployment of internal production capacity. TrendForce believes that from the changes in PC market conditions, it can be seen in rapid changes in demand, purchasing behavior has quickly switched from the former over-ordering strategy to actively cutting orders, inducing supply chains to buck the seasonal trends of previous years. Due to the accelerated recent spread of Omicron in China and under the country’s dynamic zero-COVID policy, mandatory and sudden lockdown and control measures may cause local manufacturers to face multiple and complex supply chain problems, which will be detrimental to market performance.

The “new normal” in the post-pandemic era has seen the meteoric rise of high-speed and high-bandwidth 5G applications, which subsequently brought about a corresponding increase in cloud services demand. As such, the global server shipment for 2021 will likely reach 13.6 million units, a 5.4% increase YoY. As commercial opportunities in white-box servers begin to emerge, Taiwanese ODMs, including Quanta, Wiwynn, and Foxconn are likely to benefit.

The prevailing business model of the server supply chain involves having the ODM responsible for the design, hardware installation, and assembly processes, after which servers are delivered to server brands (such as HPE, Dell, Inspur, and Lenovo), which then sell the servers to end-clients. In contrast, a new business model has recently started to emerge; this business model involves having server ODMs responsible for manufacturing specific and customized server hardware, available directly for purchase by such end-clients as cloud service providers, thereby bypassing brands as the middlemen.

With regards to market share, Foxconn accounts for nearly half of the total server demand from Microsoft Azure and from AWS, while Quanta accounts for about 60-65% of Facebook’s server demand.

According to TrendForce’s investigations, ODMs including Quanta, Inventec, Foxconn, Wiwynn, and QCT have all received server orders from clients in the cloud services sector in 1H21. In particular, both Quanta and Inventec received orders from Microsoft Azure, AWS, Facebook, and Google Cloud. With regards to market share, Foxconn accounts for nearly half of the total server demand from Microsoft Azure and from AWS, while Quanta accounts for about 60-65% of Facebook’s server demand, in turn giving Foxconn and Quanta the lion’s shares in the ODM market.

The aforementioned Taiwanese ODMs have been aggressive in growing their presence in the private industrial 5G network and edge computing markets, with Quanta subsidiary QCT being a good case in point as an ODM that supplies servers to both telecom operators and private industrial networks for these clients’ respective 5G infrastructures build-outs.

More specifically, QCT stated the following in a press release dated Jan. 4, 2021:

“Quanta Cloud Technology (QCT), a global data center solution provider, independently developed Taiwan’s first 5G standalone (SA) core network, which recently passed interoperability and performance verifications for 5G Open Network Lab operated by Taiwan’s Industrial Technology Research Institute (ITRI). The core network was successfully connected to partner radio access networks (RAN) and third-party user equipment, realizing end-to-end 5G signal transmission from edge to core and achieving significant acceleration in both uplink and downlink speeds.”

In response to the edge computing demand generated by global 5G commercialization efforts, Wiwynn recently released the EP100 server, which is a 5G edge computing solution compliant with the OCP openEDGE specification. Developed in collaboration with U.S.-based 5G software solutions provider Radisys, the EP100 can function as an O-DU or an O-CU depending on the various 5G RAN needs of telecom operators.

Furthermore, Wiwynn is continuing to develop the next generation of edge computing servers targeted at the enterprise networking and edge computing segments.

Foxconn, on the other hand, has been focusing on developing vertical solutions for private industrial 5G networks. Foxconn’s hardware infrastructure offerings include edge computing servers, TSN network switches, and gateways. The company also offers a slew of software solutions such as data management platforms and other apps, hosted by Asia Pacific Telecom. Last but not least, Foxconn recently announced an additional US$35.6 million investment in its Wisconsin project; this injection of capital will make the company well equipped to meet the demand for servers as well as 5G O-RAN and other telecom equipment.

（Cover image source：Pixabay）

TrendForce’s investigations find that DRAM suppliers and major PC OEMs are currently participating in the critical period of negotiating with each other over contract prices for 2Q21. Although these negotiations have yet to be finalized, the ASP of mainstream DDR4 1G*8 2666Mbps modules has already increased by nearly 25% QoQ as of now, according to data on ongoing transactions.

This represents a higher price hike than TrendForce’s prior forecast of “nearly 20%”. On the other hand, prices are likewise rising across various DRAM product categories in 2Q21, including DDR3/4 specialty DRAM, mobile DRAM, graphics DRAM, and in particular server DRAM, which is highly related to PC DRAM and is therefore also undergoing a higher price hike than previously expected. TrendForce is therefore revising up its forecast of overall DRAM price hike for 2Q21 from 13-18% QoQ to 18-23% QoQ instead. However, the actual increase in prices of various DRAM product categories will depend on the production capacities allocated to the respective products by DRAM suppliers.

PC DRAM prices are now expected to undergo a 23-28% QoQ growth in 2Q21 due to the increased production of notebook computers

PC DRAM contract prices are rising by a higher margin than previously expected for 2Q21 primarily because major PC OEMs are now aggressively expanding their production targets. Furthermore, as second quarters are generally peak seasons for notebook production, PC ODMs are now estimated to increase their quarterly production of notebook computers by about 7.9% QoQ in 2Q21. Finally, with regards to the COVID-19 pandemic, vaccination rates remain relatively low across the globe, meaning WFH and distance education are likely to persist and create continued demand for notebook computers, thereby further expanding the hike in PC DRAM prices.

DRAM Suppliers will enjoy increased bargaining power in price negotiations as server DRAM prices are expected to increase by 20-25% QoQ in 2Q21

Apart from the issue of short DRAM supply, server DRAM procurement in 2Q21 has benefitted from the positive turn in the view of enterprises toward IT investments as well as the stronger-than-expected demand related to cloud migration. There was already a supply gap in 1Q21, and these developments will further drive up demand in 2Q21. Hence, difficulty has increased for buyers and suppliers in reaching an agreement on price. Suppliers are in a more advantageous position in contract negotiations since the DRAM market is an oligopoly. Therefore, compared to the previous forecast of nearly 20%, TrendForce is now expecting server DRAM contract prices to increase by 20-25% QoQ in 2Q21.

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