Made-in-China servers attracting more buyers

Chinese servers are taking a larger chunk of server shipments from U.S. vendors, Gartner says

Servers are facing the same fate as PCs and mobile devices, with a growing number of them made in Asian countries like China and Taiwan, a Gartner analyst says.

Much like PCs and mobile devices, it's cheaper for companies to buy servers made in Asia than in the U.S., and buyers can get servers customized to meet their specific requirements, said Jeffrey Hewitt, an analyst at Gartner. Companies like Google, Facebook and Amazon, which build mega data centers, design servers in-house and have them made in China or Taiwan.

Most of these servers are customized for hyperscale environments, in which companies deploy public and private clouds and deal with heavy Web traffic.

The seven largest public cloud providers are going directly to Chinese and Taiwanese manufacturers, said Patrick Moorhead, principal analyst at Moor Insights and Strategy.

One of those companies is Google, one of the largest server buyers in the world. Large Chinese companies like Alibaba, Tencent and Baidu also prefer to buy from local companies for security and "nationalistic" reasons, Moorhead said.

Those companies are bypassing traditional U.S. server makers Hewlett-Packard Enterprise and Dell, Gartner's Hewitt said.

Companies ask Asian companies to strip down server configurations to the bare minimum, while U.S. vendors resist shipping stripped-down machines, Hewitt said.

The bare-bones configurations don't include extra features like security chips and management engines, Hewitt said. Facebook and Google are also able to bring down hardware costs by buying components in volume.

"They don't need the support that the OEM provides. They do it themselves," Hewitt said.

Worldwide server shipments totaled 2.96 million units during the fourth quarter of 2015, growing by 9.2 percent from the same quarter a year ago, according to a study released by Gartner Wednesday.

Growth was driven by Chinese server vendors Lenovo, Huawei and Inspur Electronics. Those three server makers were ranked behind the top two, HPE and Dell, whose shipments declined.

HPE shipped 626,000 units, declining by 2.6 percent compared to the fourth quarter in 2014. Dell shipped 528,000 units, a 0.3 percent decline.

In contrast, Lenovo's shipments went up by 5.9 percent to 257,000 units and Huawei's shipments went up by 27 percent to 150,000 units. Inspur's shipments exploded, growing 53 percent to 140,000 units.

A group of other server makers shipped 1.26 million units during the fourth quarter, outnumbering the shipments of both HPE and Dell combined. That group included Taiwanese server makers Quanta, Wistron and Inventec.

However, HPE and Dell are adapting to the changing trends. For example, HPE is partnering with Foxconn -- which has factories in Taiwan and China -- to make low-cost cloud servers for hyperscale environments. Foxconn also makes PCs, iPads and iPhones.

The U.S. server makers are also moving away from the old days of building servers with commodity hardware. The companies are introducing creative server designs and adding value by integrating more storage and networking elements. Customers who need support will also rely on servers from Dell or HPE, Hewitt said.

HPE, Dell, IBM, Lenovo are also closely tying software and cloud services to their servers, Moorhead added. This includes Red Hat with OpenStack, Microsoft's Azure HybridCloud and Nutanix, which is bundled in Lenovo servers. Also bundled with some servers is software from VMWare; Dell is in the process of buying EMC, which owns VMware. 

China is becoming a battleground for server chip makers. Intel's x86 server chip rules the China market, but Qualcomm and IBM are trying to push their chips, based on ARM and Power architectures respectively, into more servers.

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