Abstract
With the downturn in the global economy and the heyday of e-business fading away, the worldwide server industry posted only slight growth in the first quarter of 2002. Despite these obstacles, the Taiwanese server industry's production volume and value still managed to climb. With their cost-down, high quality products, Taiwanese server manufacturers have been able to gain the confidence of large international vendors as they increase outsourcing in an effort to generate demand with value-line servers.
In the coming five years, increasingly ubiquitous broadband and home networking will drive stronger demand for servers beyond the corporate sector. As the worldwide industry matures, Taiwanese server makers will play a larger role in addressing the increased need for outsourcing solutions while lowering a long-standing dependence on PC products.
This report will give an analysis of the Taiwanese server industry in the first quarter of 2002 and provide an in-depth examination of the major Taiwanese server manufacturers. Finally, MIC will present a forecast for the second quarter of 2002.
Shrinking Profit Margins for OEMs
Although current economic conditions are not especially favorable, demand for Internet access devices is expected to remain high. There is still strong demand for corporate intranets and from service providers, which will in turn drive further growth in the server market. However, with CPU vendors, such as Intel and AMD, supporting both Microsoft and Linux, and server products gradually moving towards Wintel open architecture, server ASP will steadily decline. The resultant lower profit margins will necessitate increased outsourcing by leading brand name server vendors in order to lower costs. Taiwanese server manufacturers will thus see an even greater increase in production.
Specifications for Intel-based servers are not significantly more sophisticated than those of PCs, and Taiwanese PC manufacturers already possess a strong foundation for extending their offerings to the more lucrative server product lines. These makers can lower their dependence on the increasingly mature PC industry and simultaneously take advantage of their ability to offer competitive prices.
With the newly merged HP, it is expected that previous HP suppliers will lose some business as Compaq's stronger, more diversified server division maintains a stronger say in outsourcing decisions. The new HP will outsource more conservatively, and in an effort to lower costs, the company will shorten its supply chain and lower the number of suppliers, altering the future landscape of the Taiwanese supplier matrix.
In order to attract leading brand name vendors, Taiwanese manufacturers will need to offer the same low-price, low-profit contracts characteristic of the Taiwanese PC industry. As the number of new entrants increases, the Taiwanese server industry is likely to come to this low-price, low-profit stage sooner than originally anticipated.