The four major North American cloud service providers (CSPs) have made cuts to their server procurement quantities for this year because of economic headwinds and high inflation. Turning to server OEMs such as Dell and HPE, they are observed to have scaled back the production of server motherboards at their ODM partners. Given these developments, TrendForce now projects that global server shipments will grow by just 1.31% YoY to 14.43 million units for 2023. This latest figure is a downward correction from the earlier estimation. The revisions that server OEMs have made to their outlooks on shipments shows that the demand for end products has become much weaker than expected. They also highlight factors such as buyers of enterprise servers imposing a stricter control of their budgets and server OEMs' inventory corrections.Customers of US-Based Server OEMs Are Slow to Adopt New CPU Platforms, Thus Affecting HPE's and Dell's Shipment Growth Rates for 2023
US-based server OEMs, including Dell and HPE as the long-established leading brands for enterprise servers, will be compelled to significantly lower their annual shipment targets for 2023. As for Inspur that is the world's third largest server OEM, its shipments are going to be mainly influenced by government policies. Looking at Dell, it has to deal with the piles of barebones that have accumulated at its ODM partners and warehouses. A possible temporary solution is to reallocate the orders going to ODMs so as to relieve some of the pressure. However, even if Dell does this, the effect on its bloated inventory will be quite limited. TrendForce has corrected down Dell's server shipments for 2023 and enlarged the estimated YoY decline to 8.1%. As for HPE, it has not made any significant adjustments for now, but its server shipments for 2023 are still projected to drop by 6.2% YoY.

Moreover, TrendForce's latest investigation finds that after the general adoption of Intel's Ice Lake platform, most buyers of enterprise servers want to slow down the migration of server CPUs given the total cost of ownership. Thus, their passiveness will not only directly affect the shipment share of the servers running on Intel's Sapphire Rapids platform in 2023 but also the schedule for the switch to Intel's Emerald Rapids as the follow-up platform. With the advancement of the CPU platform not progressing as smoothly as expected, Dell and HPE remain at risk of experiencing further drops in shipments.

Inspur Will Face Difficulties in Raising Shipments as Chinese CSPs Cut Their Respective Annual Server Procurement Quantities by Half
Regarding the Chinese server market, its demand has been strongly influenced by government policies such as the projects related to the Government Cloud and the East-to-West Computing Initiative. Also, while the Chinese market is undergoing a major transformation at this moment, this development has not significantly affected global server demand as a whole. Nevertheless, a series of changes within the ecosystem will be taking place in the country. As for Inspur, most of its server shipments during this year will go to tenders for national-level projects or from major state-owned telecom operators. Looking ahead, the Chinese server market is expected to remain relatively weak up to the Two Sessions that will be held by the Chinese government in March. After the conclusion of this major political event, server shipments in China are expected to start to gradually pick up in 2Q23. However, TrendForce currently projects that Inspur will continue to experience declining shipments this year. The YoY drop is now estimated around 3.2%.

There are four main factors behind Inspur's YoY drop for 2023. First, the demand from internet-based services was previously huge in scale but has now shrunk considerably. Therefore, the major Chinese CSPs such as Baidu, Alibaba, and Tencent have reduced their respective annual server procurement quantities by about half. Second, the export control rules implemented by the US Commerce Department have caused delays in the tenders related to the Government Cloud and the East-to-West Computing Initiative. Third, Inspur will be facing more intense competition in the domestic market. In additional to newly established domestic server OEMs such as ZTE, H3C, and xFusion, there are also third-party organizations that are supported by government programs for promoting startups and innovations. These competitors will likely take a significant chunk of Inspur's market share. Lastly, even though China is moving on from the COVID-19 pandemic, the positive responses from the demand side of the country's economy have not generated enough momentum for a strong and sustainable recovery. At the same time, inflation is dampening consumer spending, so companies across many sectors have postponed their procurement plans.