In a recent announcement, TrendForce, a leading market research firm, has revised its forecast for 2023 server shipments, predicting a downward shift of 5.94 percent year-over-year. This revision is attributed to a combination of economic hurdles, including reduced demand from Meta and sluggish tech demand in China during the first half of the year.
One of the major factors contributing to this downward trend is Meta’s (Facebook owner) diminished demand for the second half of 2023. Additionally, China’s internal tech demand, including state-owned cloud and East-West computing projects, experienced a sluggish start in the first half of the year. These challenges have highlighted the broader economic pressures of global inflation.
Cloud service providers (CSPs) are strategically redirecting their focus towards investments in artificial intelligence (AI), a move that inadvertently impacted the budget allocated for traditional server shipments. This shift has caused a ripple effect throughout the tech market landscape.
While there is an anticipation of slight growth in server shipments during the third quarter, the subsequent quarters of the year are projected to experience declines, marking a challenging year for the server market.
Several key indicators have been identified by TrendForce as influencing the momentum of the server market:
China’s Stumbling Blocks: State-owned enterprises in China have been submitting underwhelming bids, leading to a predicted 9.7 percent decrease in server demand compared to 2022.
Global Economic Strains: Ongoing inflationary pressures and interest rate hikes have led companies to tighten their budgets, resulting in decreased demand for enterprise servers. Industry giants like HPE and Dell are shifting focus towards subscription services and AI server offerings.
Supply Chain Challenges: Current data indicates that supply chain inventory is gradually being cleared, with a significant revival in purchasing dynamics expected towards the end of the year.
CSPs’ Evolving Focus: Budget reallocations are driving increased demand for older server platforms in the second half of 2023, potentially limiting space for new platform rollouts in 2024.
Microsoft and Meta’s Strategic Focus on AI
The evolving strategies of cloud service providers, Microsoft and Meta, are noteworthy in this context. Microsoft’s emphasis on AI investment is expected to lead to a 5.2 percent increase in server acquisitions. Due to budgetary considerations, Microsoft has postponed the scale of its Gen 9 platform while expanding the use of Gen 7 and Gen 8 platforms. On the other hand, Meta has significantly reduced its server purchase plans by 11-15 percent to allocate more resources towards AI-centric equipment in the latter half of 2023.
Supply chain data suggests that Meta’s budget will be increasingly directed towards AI-related equipment, resulting in a noticeable contraction in general server orders. Meanwhile, AWS and Google are maintaining steady expansion of their public-cloud businesses, with relatively stable order adjustments and an anticipated annual purchase volume growth of 4–5 percent in the second half of 2023.
OEMs’ Responses to Market Dynamics
In response to the shifting market dynamics, Original Equipment Manufacturers (OEMs) are adapting their strategies. Lenovo is grappling with the adverse effects of global inflation on its core business but has found resilience in its White-Box Cloud business. HPE is capitalizing on the success of its GreenLake venture, experiencing a 35 percent growth in annual revenue-run rate in Q2, accompanied by a 10 percent growth in server shipments. Dell, however, is forecasting a significant 16.3 percent annual drop in shipments due to the elevated baseline set in 2022 as a result of stockpiling.
The complex interplay of economic challenges, AI investments, and shifting market priorities is reshaping the server market landscape in 2023, with significant implications for industry players and stakeholders alike.
