Server sales projected to decline 10% due to coronavirus

Global server sales had been projected to grow by 1.2% compared to the most recent quarter, but the chaos wrought by the coronavirus in China will cause sales to decline 9.8% sequentially, according to DigiTimes Research.

DigiTimes is an IT publication based in Taiwan. Its proximity to Taiwanese and Chinese vendors gives it some good sources, but it can also be way off target. However, the signs are piling up that coronavirus is causing some real mayhem.

For example, DigiTimes also reported that less than 20% of Chinese factory employees would return to work after an extended Lunar New Year break due to the coronavirus outbreak, and that many components plants in China have decided not to restart production until February 25.

The Lunar New Year was January 25, so that means Chinese factories have been idle for a month. That’s a lot of supply not being answered, and DigiTimes notes that server demand from large data centers remained strong in the first quarter of 2020.

Facebook in particular is interested in buying high-density models from white box vendors like Wiwynn and Quanta Computer, but due to the outbreak, these orders, which were originally scheduled for shipment this quarter, have been postponed.

So it’s not like an economic crash is causing sales to go off a cliff like in 2008. Demand is there, but China can’t make the product right now. This year was expected to be a good year for the server vendors, with all of them projecting sales increases over last year. AMD is ramping up Epyc production, and Intel is expected to release its next-generation “Ice Lake” Xeon platform in the third or the fourth quarter of 2020.

The good news here is that Wuhan isn’t a major tech manufacturing hub. It does have five display fabs, both LCD and OLED, but so does Shanhai. However, Wuhan has the most advanced display fabs, producing flexible OLEDs, and has the largest capacity, according to David Hsieh, senior director, displays, at Omdia.

Vladimir Galabov, principal analyst for data-center compute in Omdia’s cloud and data-center research practice, also expects to see server shipments impacted by the coronavirus driving a prolonged holiday period in China.

“I think the majority of the hit will be in the Chinese market,” he said. “This does impact server shipments globally as China represents about 30% of server shipments worldwide. So, I expect the quarterly decline to be more significant than the seasonal 10%. I expect that China will have a 5% additional downward impact on the growth.”

He added that Q4 of 2019 did significantly overachieve his expectations due to cloud service providers making massive purchases. Omdia expected servers shipped in 2019 to be flat compared to 2018 based on data from 1Q19-3Q19. Instead, it was up 2% to 3% for the year, thanks to the fourth-quarter spurt.

And servers aren’t the only products taking a hit. DigiTimes says that should the outbreak of the coronavirus last until June, sales of smartphones in the country would be slashed by about 30%, from a projected 400 million units to 280 million units in 2020.

Also, Mobile World Congress in Barcelona is cancelled due to concerns about the global coronavirus outbreak. The official cancellation came after a number of big-name companies, including Intel, Cisco, Amazon, Sony, NTT Docomo LG, ZTE, Nvidia, and Ericsson, bowed out of various events that were set for the show.