In our latest Data Center Capex report published in June 2021, server spending, which accounts for more than 40% of the data center capex, is forecast to grow 8% in 2021. We anticipate growth to come mostly from an increase of server average selling price (ASP), as vendors pass on higher commodity pricing and supply chain costs to customers amid recent global semiconductor shortages. We predict demand on servers to strengthen in 2H 2021, as the major Cloud service providers ease out of a digestion cycle, and as enterprise spending unfreezes for certain sectors, which could further strain the supply chain.
We identify the following effects due to these ongoing supply chain constraints:
- Data center equipment—such as servers, storage systems, and Ethernet switches—contain critical components that may be supply constrained due to the recent shortages. Examples of such components include CPUs and GPUs, network processors, storage and Ethernet controllers, and DRAM and NAND chips. Passive components on the motherboard, such as capacitors and resistors, have longer lead times. While it is unclear how long the current component shortages will persist, there is an expectation in the industry that the backlog for components could be relieved by late 2021. Therefore, we have weighted capex towards the second half of this year and some of that capex rolling over into next year.
- As system vendors scramble to increase component purchases to meet immediate and future demand, the supply chain will continue to tighten, resulting in higher component and logistics costs that will eventually be passed to end-users in the form of higher system ASPs. For 2021, we forecast server ASP to approach double-digit growth. While server ASP grew by an unprecedented rate of 15% in 2018, also due to a high-demand and tight supply environment, we do not expect 2021 ASP increases to approach those of 2018. Consequently, system vendors could see a lift in their topline revenue from these ASP increases.
- Higher server ASPs could have several implications. First, given that the Cloud SPs purchase servers based on unit demand, higher server ASP could directly result in higher server capex. Second, given that enterprise IT budgets are usually fixed for the year, higher server ASP could translate to lower server unit purchases for the year. Thus, even though our 2021 server revenue forecast is relatively unchanged compared to our prior forecast, we have curtailed our projections for server unit growth.
In addition, we will watch out for other developments that could impact data center spending this year, such as, the Intel Ice Lake CPU ramp and delays to Sapphire Rapids, Cloud demand and enterprise recovery, the proliferation of AI, and more. To access the full Data Center Capex report, please contact us at dgsales@delloro.com.
