Server supply chain undergoes realignment

Geopolitical tensions have been rising as the US-China trade dispute escalates, and the global server supply chain has undergone notable changes as a result. 

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.

In order to meet demand from US clients, ODMs are building production lines outside China and aim to activate these in 2023.

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 US, 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.

For more information visit TrendForce.