IDC: Chinese server sales will take a hit due to corona virus
With virtually all of China shutdown and under quarantine due to the corona virus, the Chinese IT hardware market will suffer a temporary but significant impact in the first quarter due to demand not being met. While foreign impact is not certain, it does have the potential to spill over into other markets.
IDC now predicts the total 2020 server growth rate will be reduced from original growth projections of 12.4% to 7.4%, and Q1 sales will drop 15% from the same time period last year instead of the original projection of 16.5% growth.
Storage 2020 growth rate will be reduced from 12.5% to 7.3% and Q1 will be down 20% instead of the original projection of 16.6% growth over Q1 2019. The 2020 networking growth rate has been reduced from the original 6.2% to 3.0%.
China represents about 20% of the global IT infrastructure market today, according to Matt Eastwood, senior vice president of several IDC enterprise research groups. “We still don’t have a global roll-up at this point. But as you can see, the impact is not insignificant,” he said via email.
IDC believes the impact will be mainly confined to the first quarter of this year and gradually fade in the second quarter. PCs and smartphones will take a much greater hit than server hardware, while emerging technologies like AI and IoT will suffer a minimal impact. Because Wuhan, the center of the sickness, is primarily a hub for display makers, anything with a display could feel the pinch.
IDC does not have a forecast of the corona virus’s impact on the US yet, and a check with major U.S. IT vendors finds a mixed bag, with some of them avoiding the subject. Case in point, Intel, which sent this statement when I asked about potential impact on supply:
“The safety and well-being of all of our employees is our top priority. As a precaution, we have implemented travel restrictions in line with guidance provided by the Centers for Disease Control recommending against nonessential travel to China. We’re monitoring the situation closely and working to ensure that our employees in China and elsewhere have the information and resources they need to stay safe,” said a spokesperson in an email.
That’s nice but it didn’t answer the question, and AMD didn’t answer at all as of this writing. However, I think I know why. If there is one area where publicly traded companies walk on eggshells it’s anything having to do with financial impact. They aren’t going to say anything publicly unless they absolutely have to.
Nvidia did own up to potential impact in its quarterly earnings report last week, which it pretty much had to since this was a financial filing. It said it expects to take a $100 million hit in revenue next quarter due to the impact of the corona virus outbreak.
“While the ultimate effect of the corona virus is difficult to estimate, the company has reduced its revenue outlook for the first quarter of fiscal 2021 by $100 million to account for its potential impact,” the company said in a statement.
Intel had already reported Q1 earnings before the virus really took off, so if it feels any impact, it will be disclosed when it reports Q2 numbers on April 23. AMD has also already reported Q1 numbers and reports Q2 sales on April 28.
The good news is the semiconductor industry largely appears to have escaped a direct hit because a lot of manufacturing is done outside of China, notes market research firm Omdia. Intel has fabs worldwide, with significant manufacturing in Arizona. AMD uses Global foundries, which has fabs in Germany and New York. Nvidia uses TSMC in Taiwan, which may explain its impact.
“Global chip supply through the first two months of 2020 appears to be largely unaffected by the corona virus outbreak,” said Len Jelinek, research vice president, components & devices, for Omdia in a statement. “There’s plenty of chip inventory in the channel, compensating for any corona virus-related production shortfalls at semiconductor fabs located in the Wuhan area and elsewhere in China. Also, few semiconductor suppliers are located in areas affected by the virus, and all of the parts sold by these companies can easily be sourced from other chip makers.”
Server vendors non-committal
Server vendors didn’t have much to say, either, but they haven’t reported quarterly numbers yet. The period between when their quarter closes and when they report is known as the quiet period and they get very tight-lipped during that time. Case in point, Dell, which reports on February 27, said this:
“We’re evaluating the potential impact of the corona virus on our business operations and are assessing all options and mitigation plans to help ensure our supply chain remains operational and we’re meeting customers’ needs. While the situation continues to evolve, our top priority is ensuring the health and safety of our employees and communities. We will continue to monitor the situation closely and adjust as needed.”
HPE reports February 20 and had a little more to say on the subject.
“We are monitoring events closely and are in constant contact with our suppliers, as well as our joint venture partners at H3C, to understand any impacts they are experiencing and minimize the effects on our customers. This is an evolving situation, with governments and health authorities taking actions to protect the public in response to real-time developments. HPE has a large, global supply chain and robust business continuity plans in place to mitigate disruptions that may be caused by the corona virus, meet customer demands and protect our team members. “
Supermicro, the Fremont-based white-box vendor very popular with hyperscale vendors, reported its quarterly earnings February 6 and made no mention of corona virus in any form. It sent me this statement:
“Supermicro is continuously assessing the impact of the corona virus outbreak. Headquartered in Silicon Valley, we run operations globally with production in the United States, Europe, and Taiwan, which mitigates geographical risk to our supply chain. Based on the latest known information, we currently do not believe this will have a significant impact on our production.”
Not surprisingly, Lenovo, the one major IT vendor based in China, declined to comment.