Geopolitical tensions between the United States, China and Taiwan are forcing significant changes in server manufacturing, according to Asian market research firm TrendForce, which predicts that core parts of the server supply chain will eventually shift to Southeast Asia and the Americas.
According to research by TrendForce, Taiwanese original design manufacturers (ODMs) currently account for about 90% of global server motherboard production. One notable exception is Supermicro, which has a 1.5 million square foot facility in Fremont, California. It also owns an 800,000-square-foot facility in Taiwan.
Since the start of the Sino-US trade dispute in 2018, server ODMs have begun to consider moving production lines from mainland China to Taiwan. Subsequently, as data center construction exploded throughout the Asia-Pacific region, motherboard manufacturers began to look to Southeast Asian countries such as Malaysia and Thailand to expand production capacity.
Beijing’s saber-rattling and increasingly bellicose tone toward Taiwan, as well as the U.S. Department of Commerce’s rather harsh sanctions on semiconductor sales, have increased incentives to withdraw from China and Taiwan. According to TrendForce, this has led some U.S. cloud service providers, such as Google, AWS, Meta and Microsoft, to consider adding server production lines outside Taiwan as a precautionary measure.
There are many other initiatives. In the United States, Intel is spending $20 billion to build a fab in Arizona and another $20 billion to build a fab in Ohio. TSMC is also spending $40 billion to build a wafer fab in Arizona, while Apple is moving production to the United States, Mexico, India and Vietnam.
TrendForce also noted a phenomenon known as “fragmentation,” an emerging pattern in server supply chain management. In the past, server production and assembly processes were entirely handled by ODMs. In the future, the assembly task of server projects will not only be handed over to ODM partners, but also to system integrators.
TrendForce said the rationale for seeking the assistance of system integrators is to enhance the stability of the supply chain and avoid the risk of shortages caused by geopolitical crises.
In the long term, TrendForce believes that the share of server production lines in China and Taiwan will shrink, production lines will become more geographically dispersed, and operations will become more regionalized. This will allow server vendors to spread risk and meet specific local needs.