Cloud majors scale back server procurement

Four major cloud service providers (CSPs) have scaled back their server procurement quantities for 2023.
CSPs server purchase trends
HPE, Dell, Inspur, Lenovo, IBM, among others, are the leading server vendors in the world.

Meta is the leader among the four in terms of server demand reduction, followed by Microsoft, Google, and Amazon Web Services (AWS).

As a result, research agency TrendForce has lowered the growth rate of server procurement quantity by CSPs for this year from the original projection of 6.9 percent to 4.4 percent.

Global server shipments are estimated to grow by 1.87 percent for 2023. Price of server DRAM is likely to drop by around 20~25 percent QoQ for 1Q23.

The drop in Meta’s server procurement quantity will be 3 percent and could get larger. Meta has faced a notable obstacle in expanding its operation in Europe. Specifically, Meta’s data center in Denmark has not met the regional standard for emissions. This issue is expected to hinder its progress in setting up additional data centers across the EU.
server market share in Q2 2021
Businesses related to e-commerce account for about 98 percent of Meta’s revenue. The decline in e-commerce activities amidst the recent easing of the COVID-19 pandemic has impacted Meta’s growth momentum. Meta’s server demand has been affected by the high level of component inventory held by server ODMs.

Microsoft’s server procurement quantity will register a double-digit growth rate because it has not significantly curbed its demand related to enterprise cloud investments. However, the growth rate has been lowered to 13.4 percent from the previous projection of 16.9 percent.

Microsoft could see limited growth for its cloud-related revenues (e.g., revenues from IaaS and PaaS). On the top of all these, inventory reduction is proceeding at a slower-than-expected pace in the server supply chain. Therefore, production has been scaled down for servers that run on the Gen 9 platforms (i.e., Intel’s Sapphire Rapids, AMD’s Genoa, and Ampere’s Siryn).

Google’s growth rate of its server procurement quantity for 2023 has been lowered to 5.2 percent. Google’s server procurement plan could still be affected by two factors. First, new servers running on Intel’s Sapphire Rapids or AMD’s Genoa have not met Google’s expectations in terms of total cost of ownership.

Second, the slump in the e-commerce market during this post-pandemic period is limiting the growth of Google’s revenue from cloud services.

Growth rate of its server procurement quantity by AWS will be 6.2 percent.

AWS’ orders for components such as CPUs, connectors, and CCLs have been affected by the recent performance of the wider economy. AWS has shrunk the scale of its component orders by about 30 percent from last year.

Two factors could lead to a further revision to its demand. First, most its servers that run on its in-house Graviton CPUs are being used to provide services to its clients in the enterprise market. If these clients cut their demand this year, AWS will also make adjustment to its demand for Graviton servers. Second, AWS originally planned to begin the mass production of servers that run on the Graviton 3 platform in 3Q23, but there are now indications of an immediate migration to the new Graviton 4 platform. If AWS has formally decided to replace the models that run on the Graviton 3 with the ones that run on the Graviton 4, then the contribution from the servers with the more advanced platform will arrive too late to be reflected in the server shipment figure for this year.

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