From a longer-term perspective, TrendForce believes the core parts of the server supply chain will eventually shift to Southeast Asia and the Americas.
The rising geopolitical tensions and escalating US-China trade dispute are driving notable changes in the global server supply chain.
With regard to L6 server motherboard production, the first notable wave of relocation since the start of the trade dispute in 2018 involved server ODMs moving their production lines from Mainland China to Taiwan. Then, due to the construction of data centers across the Asia-Pacific region and ODMs’ need to increase their STM lines, Southeast Asian countries such as Malaysia and Thailand also came under consideration for capacity expansion.
More recently, the trade dispute has taken another significant turn with the US Commerce Department further broadening the semiconductor technology export rules. In view of this development, some US-based cloud service providers (CSPs) have been conducting more internal discussions about adding server production lines outside Taiwan as a precautionary measure. Hence, from a longer-term perspective, TrendForce believes the core parts of the server supply chain will eventually shift to Southeast Asia and the Americas.
According to TrendForce’s research, Taiwan-based ODMs now account for about 90% of global server motherboard production. With respect to L6 server motherboards, the shares of global production belonging to Taiwan and Southeast Asia have also increased slightly this year, whereas Mainland China’s share has shrunk by around 6.2 percentage points. To meet the demand from US clients, ODMs are ramping up production at their operations in Taiwan and expanding existing server assembly sites to include motherboard production.
For example, Inventec will be adding three new motherboard production lines near its assembly site in Mexico. Wistron (which encompasses Wiywnn) also plans to set up a production base in Malaysia at the start of next year in order to have some reserved production capacity that can be deployed immediately in any given situation. Likewise, the other major ODMs such as Foxconn and Quanta have added new production capacity in the United States, Mexico, Vietnam, and Thailand so that they can maintain production flexibility.
In addition to these recent developments, TrendForce especially points out that the relocation efforts taking place across the server supply chain are expected to bring about a lot more changes in the future. On the demand side, the major North American CSPs such as Google, AWS, Meta, and Microsoft have not only moved most of their ODM partners’ L6 server production lines to Taiwan but also made plans to set up production capacity in Southeast Asia in order to further minimize geopolitical risks. Moreover, their ODM partners have begun building “buffer lines” (or backup production lines) at locations along the US-Mexico border.
On the other hand, these same CSPs have also allowed their ODM partners to maintain existing production plans for servers deployed in regions outside North America and keep some production lines in Mainland China running.
Furthermore, TrendForce wants to bring attention to “fragmentation” as an emerging model in the management of the server supply chain. For example, Microsoft and AWS have further segmented the server production plus assembly process that used to be streamlined because it was handled entirely by ODMs. In the future, the assembly task of a server project will be given to not only an ODM partner but also a system integrator. Again, the intent behind seeking a system integrator’s assistance is to enhance the stability of the supply chain and hedge the risk of a shortage caused by a geopolitical crisis.
In conclusion, TrendForce believes China’s and Taiwan’s shares of L6 server production lines will shrink over the long term. Instead, these production lines will be more geographically dispersed and more regionalized in terms of operation. Such development will allow clients to effectively spread risk and meet specific local demands. Moreover, moving server production lines may not be enough, and a corresponding shift in the sourcing of components and materials may be required as well. Therefore, TrendForce is not ruling out the possibility of relocation efforts taking place further upstream in the supply chain.