North American Data Centers Unlikely To Face Significant Cost Increase of Servers, Says TrendForce

Donald Trump
Photo Credits: Official White House Photo by Shealah Craighead

TRADE WAR NEWS – North American markets contribute to around 40% of the global server demand, but Trump’s threat of steep tariffs on Chinese goods, including server imports, may bring more risks to Taiwanese server ODMs, whose production are mainly based in China. Therefore, Taiwanese server makers are now considering moving their production facilities back to Taiwan, according to the latest report by DRAMeXchange, a division of TrendForce.

With the next wave of tariffs going into effect on September 24, tariffs of 10 percent will be imposed on Chinese products like servers, server modules, motherboards and network switches, so server makers are bound to relocate their facilities to minimize the impacts of the trade war on their businesses.

However, the new round of tariffs may have limited impact on North American data centers, who are unlikely to face significant cost increase of servers, for the server manufacturers have taken measures to minimize the impacts, according to the new report.

ODM Direct orders from Google, AWS, Microsoft and Facebook account for 20% of the global server demand. Google and AWS would be the least influenced, for the server ODMs working with these two companies have located the manufacturing houses mainly in Taiwan. These ODMs will continue to increase the share of Taiwan-based production. In addition, the assembly houses of servers are located in Europe and America and will not be influenced by the tariffs.

As for Facebook and Microsoft, the two companies have negotiated with their server ODM partners in advance, taking risk assessment and figuring out measures for the future. Their ODMs partners have already developed plans of moving production facilities, and will make adjustments according to the updates of trade policies, according to the report by DRAMeXchange.

Moving Production Facilities To Taiwan

Taiwanese server ODMs such as Quanta, Wistron, IEC, and MiTAC would be largely impacted by the latest round of tariffs due to the rising costs for key components, including motherboards and server modules. Some of the motherboards are made in China-based L6 manufacturing houses, while the server modules are assembled and packaged in China as well. In comparison, their L10 assembly houses, which are mainly located in the tax-free zone on the US-Mexico border, will be hardly influenced.

Quanta mainly focuses on ODM Direct business and making server products for data center customers in North America, with Google, AWS, Azure and Facebook being its major clients. Quanta, which has located its L10 assembly houses in the U.S., may be significantly influenced by the new tariffs if the servers are directed imported from China. Therefore, it has been considering moving the server manufacturing out of China to avoid the cost increases of server units and server components. In addition, the rising labor costs in China would have also made the server makers relocate their facilities in Taiwan and Southeast Asia.

IEC would be the least influenced by the new round of tariffs among the major server makers, because over 60% of its revenue comes from conventional ODM business, where it makes servers for other branded server suppliers. Following that, orders from major American and Chinese cloud service companies like Google, Baidu and Alibaba, also contribute to a considerate part of IEC’s business. For products to be shipped to North America, IEC will continue to assemble them in Czech and Mexico. To avoid potential trade issues and to lower the costs, IEC may also move its production lines of barebone motherboard and Level 6 grade server from Shanghai back to Taiwan in the future.

As one of the world’s largest suppliers of motherboards and server supplier to OEMs including Dell and HPE, Wistron would be greatly impacted by the new tariffs for its manufacturing houses are mainly located in China, according to the latest report published by DRAMeXchange. To cope with the trade issues through more flexible production plans, Wistron may build new production lines in Taiwan in addition to current facilities in Zhongshan, China. The assembly of servers for North American data center customers will remain in the tax-free border zone, thus will be less impacted by the trade war.

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