Servers up 37% in 1Q on cloud/COVID, but global recession looms

Cloud computing illustration with servers in background (Image: wynpnt / Pixabay)
Cloud providers favor white box servers (and the chips that run them), but businesses and governments are also buying more servers from DELL EMC, HPE, IBM and Inspur. The big question is how a looming global recession affects server demand. (Pixabay)

It’s good times for server makers like Dell EMC, HPE, and IBM --and the chips that power them--as COVID-19 has forced workers and students to go online remotely.  However, a global recession is looming that could make the second half of 2020 dicey.

Shipments of servers globally skyrocketed by nearly 37% in the first quarter of 2020 driven by increased demand from cloud service providers as their customers coped with a COVID-19 lockdown, according to research firm Omdia.

The enormous increase in the first quarter followed an impressive gain in the final quarter of 2019, Omdia said.  The big first quarter increase totaled 3.3 million, almost 1 million more servers than the amount shipped in the first quarter a year earlier.

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The increase in the fourth quarter of 2019 was 27% up from the last quarter of 2018.  For all of 2019, 11.9 million servers shipped, up from 11.4 million in 2018.

“Cloud service providers remain the growth engine of the server market as enterprises continue to shift workloads and physical servers to off-premises data centers that are run by cloud-service providers,” said Vlad Galabov, analyst for data center IT at Omdia.

Enterprises also increased their investments in servers to help prep for remote working, while telecom network providers also ramped up server deployments to cope with increased wireless and wired demand, Galabov explained

Omdia had earlier forecast 2020 to be less robust for servers because of the COVID-19 outbreak and global supply chain disruption with reduced workers making servers in February and March. However, the server vendors resolved their concerns and achieved record shipments in March. 

Omdia is now forecasting all of 2020 will result in shipments of 12.7 million servers, up from 11.9 million in 2019, about a 7% surge for the year.  The first half of 2020 could see market growth of 10% or more, Galabov said, depending on how severe the looming global recession becomes.

“Many enterprises and governments are likely to postpone investing in new servers in the second half of 2020,” Galabov said.  It is possible that a decrease in enterprise investment in servers will be offset by a surge in service provider expansion in response to strong demand for cloud and telecommunication services.

All the top semiconductor makers, including Intel and Samsung, have recently reported growth in chips including memory and logic, sold to server manufacturers.

Omdia said the biggest category of server vendors are white box makers like WiWynn, QCT (Quanta), Tyan (MiTAC) and Ingrasys (Foxconn).  As a group they accounted for 19% of server revenue in the fourth quarter of 2019 or about $4.2 billion.  Cloud service providers heavily rely on white box vendors, according to Omdia.

In 2019, Dell EMC had 17% of the market in fourth quarter 2019, aided by tailwinds from the Windows 10 refresh. HPE was next with 15% and IBM and Inspur both ranked fourth.

For all of 2019, server revenues declined by 6% to $78 billion due to a decline in server prices even as unit shipments rose, Omdia said. A big factor in that price decline was the dramatic drop in prices for memory.

RELATED: Intel pegs 23% revenue boost from data center, PC chips

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