Intel collaborates with Foxconn, Microloops, and Inventec to introduce a new cooling technology. Boasting superior performance compared to conventional liquid cooling, this initiative, alongside Gigabyte and Wiwynn, aims to enter the server immersion liquid cooling technology market, positioning themselves for potential orders.

TrendForce’s Insights:

1. Intel Teams Up with Taiwanese Manufacturers to Pave the Way for Liquid Cooling Technologies, Targeting Immersive Water-Cooled AI Server Orders

Intel, in collaboration with Foxconn, Microloops, and Inventec, introduces a brand new Liquid Cooling solution. This technology, capable of managing Thermal Design Power (TDP) exceeding 1500W, utilizes the principles of physical pressurization to facilitate rapid liquid flow for efficient heat dissipation.

With a threefold improvement in performance over conventional liquid cooling, the liquid cooling plate circulates water to dissipate heat. Future developments include non-conductive liquid solutions to mitigate leakage risks.

Simultaneously, Gigabyte’s subsidiary, GIGA Computing Technology, partners with liquid cooling experts CoolIT and Motivair to unveil cutting-edge liquid cooling solutions. The strategic focus on liquid and immersive liquid cooling aims to enhance the sustainability and energy efficiency of data centers.

Wiwynn, also keenly interested in liquid cooling technology, has secured substantial orders from Middle Eastern clients by prioritizing two-phase immersion cooling technology, with rumors suggesting the order’s value is approximately USD 4 billion.

The advantages of two-phase cooling technology include fanless operation, rapid heat dissipation, noiseless and vibration-free performance, and higher cooling energy efficiency. Moreover, it is less susceptible to environmental influences, ensuring normal usage.

On the other hand, Taiwanese manufacturers, AURAS Technology and AVC (Asia Vital Components), are actively developing and mass-producing open-loop liquid cooling and immersion liquid cooling technologies.

Due to the novelty of immersion cooling technology, the current market demand visibility is relatively low. However, major Taiwanese contract manufacturers are increasingly focusing on the technical development and introduction of immersion cooling solutions. This is primarily driven by the growing demand for high-end AI servers, which require efficient computation and often generate high power consumption.

At present, only immersion liquid cooling can provide a cooling solution surpassing 1500W, meeting the requirements of large-scale data centers. Consequently, numerous Taiwanese manufacturers are actively engaging in the development of this technology to seize the opportunities presented by the initial wave of immersion liquid cooling products.

2. Short-Term Dominance of 3D VC Air Cooling and Open Liquid Cooling Technologies in Heat Dissipation Solutions

Due to the need for adjustments in facility structure, including the layout of cooling spaces, immersion liquid cooling comes with higher construction costs. Cases of immersion liquid cooling in large-scale data centers are also relatively rare.

In consideration of cost, many enterprise users still opt for 3D VC (Vapor Chamber) air cooling technology to establish their data centers, aiming to save on the significant costs associated with facility modifications.

3D VC air cooling and open liquid cooling technologies are the current primary options for heat dissipation solutions. The retrofitting cost for 3D VC is twice that of traditional cooling modes, while the cost for liquid cooling solutions can be up to 10 times higher than traditional modes.

Therefore, enterprise users need to tailor their server deployments based on specific requirements, taking into account the Thermal Design Power (TDP) to choose the corresponding heat dissipation solution.

For instance, AI servers with power consumption ranging from 1000 to 1500W can utilize open liquid cooling solutions, while those below 1000W may adopt the 3D VC cooling approach.

With the target of achieving net-zero emissions by 2050, both China and Europe impose restrictions on the Power Usage Effectiveness (PUE) of data centers, limiting it to no higher than 1.4.

In anticipation of this, server OEMs and cooling solution providers are expected to increase the development and offerings of liquid and immersive liquid cooling products. This trend aims to provide data centers with customized solutions and services, aligning with the evolving energy efficiency requirements.

GIGABYTE held an online earning call on November 1st, during which General Manager Etay Lee expressed optimism about the company’s performance. The growth momentum in server and motherboard sectors remains robust, allowing GIGABYTE to potentially reach the significant milestone of NT$100 billion in annual revenue ahead of schedule. Additionally, the company is increasing its server revenue contribution this year, aiming for a remarkable double-digit growth.

As reported by Anue, Lee focused on the server sector, noting that the third quarter demonstrated impressive server revenue, and this momentum is expected to continue into the fourth quarter. The company is poised for high double-digit revenue growth in the server sector this year, with the ambition to challenge triple-digit growth. These developments have led to an upward revision of the annual revenue target.

Etay Lee emphasized the current high demand for AI servers, with a majority being shipped as units or racks. These include high quality networking, high efficiency storage, and High Performance Computing (HPC) integration. The increased components in AI server systems has led to a boost in revenue and gross profit; however, there is a slight decrease in the gross profit margin.

Regarding the expanded chip ban controls imposed by the United States, Lee clarified that GIGABYTE’s AI server products have a limited presence in the Chinese market, thereby minimizing the impact of these restrictions. Furthermore, in regions such as the Middle East and Vietnam where approvals are required, the company will also submit applications, and the overall impact is minimal.

In terms of graphics cards, GIGABYTE reported that inventory adjustments are completed, and channels have returned to normal levels. This, coupled with competitive pricing for the company’s main products, the 4060Ti and 4070, has generated strong demand starting from late in the third quarter. Notably, the European and American regions have witnessed a resurgence in growth, with demand surpassing that of the Asia-Pacific region.
(Image: GIGABYTE)

US-based CSPs have been establishing SMT production lines in Southeast Asia since late 2022 to mitigate geopolitical risks and supply chain disruptions. TrendForce reports that Taiwan-based server ODMs, including Quanta, Foxconn, Wistron (including Wiwynn), and Inventec, have set up production bases in countries like Thailand, Vietnam, and Malaysia. It’s projected that by 2023, the production capacity from these regions will account for 23%, and by 2026, it will approach 50%.

TrendForce reveals that Quanta, due to its geographical ties, has established several production lines in its Thai facilities centered around Google and Celestica, aiming for optimal positioning to foster customer loyalty. Meanwhile, Foxconn has renovated its existing facilities in Hanoi, Vietnam, and uses its Wisconsin plant to accommodate customer needs. Both Wistron and Wiwynn are progressively establishing assembly plants and SMT production lines in Malaysia. Inventec’s current strategy mirrors that of Quanta, with plans to build SMT production lines in Thailand by 2024 and commence server production in late 2024.

CSPs aim to control the core supply chain, AI server supply chain trends toward decentralization

TrendForce suggests that changes in the supply chain aren’t just about circumventing geopolitical risks—equally vital is increased control over key high-cost components, including CPUs, GPUs, and other critical materials. With rising demand for next-generation AI and Large Language Models, supply chain stockpiling grows each quarter. Accompanied by a surge in demand in 1H23, CSPs will become especially cautious in their supply chain management.

Google, with its in-house developed TPU machines, possesses both the core R&D and supply chain leadership. Moreover, its production stronghold primarily revolves around its own manufacturing sites in Thailand. However, Google still relies on cooperative ODMs for human resource allocation and production scheduling, while managing other materials internally. To avoid disruptions in the supply chain, companies like Microsoft, Meta, and AWS are not only aiming for flexibility in supply chain management but are also integrating system integrators into ODM production. This approach allows for more dispersed and meticulous coordination and execution of projects.

Initially, Meta heavily relied on direct purchases of complete server systems, with Intel’s Habana system being one of the first to be integrated into Meta’s infrastructure. This made sense since the CPU for their web-type servers were often semi-custom versions from Intel. Based on system optimization levels, Meta found Habana to be the most direct and seamless solution. Notably, it was only last year that Meta began to delegate parts of its Metaverse project to ODMs. This year, as part of its push into generative AI, Meta has also started adopting NVIDIA’s solutions extensively.

As the struggle between China and the United States continues, in order to avoid upcoming geopolitical risks, not only have Taiwanese ODM manufacturers begun to shift some production locations, but market research firm TrendForce has also observed that American OEM companies have started to take action, discussing with partners how to reduce the proportion of Chinese supply chains and components.

TrendForce points out that, at present, American cloud service providers (CSPs) and OEM manufacturers have not yet been able to completely cut ties with Chinese-produced components. Among these, passive components and mechanical assemblies are more difficult to relocate due to factors such as cost and yield. However, other components (such as PCBs and power management control ICs) have plans to move out of China.

But where will these component manufacturers go if they want to move out of China? According to TrendForce’s analysis, PCB manufacturers are currently eyeing shifts to Thailand, Malaysia, Vietnam, and India; power management ICs and control ICs have already moved out of China and relocated to Taiwanese factories; mechanical assemblies and MLCC capacities still mainly come from China, with the former being requested to move but facing challenges due to cost and yield considerations.

TrendForce notes that the aforementioned production line and material shifts are primarily led by American CSPs. The overall server supply chain’s subsequent changes still need to be observed. For example, major players like Google, AWS, and Meta have not only moved most of their L6 production lines to Taiwan but also plan to establish bases in Southeast Asia after 2024 to handle cases within the United States, and reserve flexible production lines along the US-Mexico border, which will significantly increase utilization within this year.

Current U.S. sanctions on China have extended their reach to strike at HPC and sectors such as aerospace, automotive market, and military industry. TrendForce indicates, the market for high-end computing chips (including CPU, GPU, etc.) has borne the brunt of these restrictions at this stage, while those providing related storage such as DRAM and NAND Flash also face potential supply disruption. At present, this not only includes domestic companies in mainland China but also extends to related US-based suppliers. Among them, server companies that rely on high-intensity computing will face greater scrutiny.

Impact analysis on server terminal shipments

In terms of server terminal shipments, since relevant component suppliers have not yet been able to confirm whether services provided by the four major cloud service providers (CSPs) in China, Baidu, ByteDance, Alibaba, and Tencent, involve military use, before CSPs sign MOUs (memoranda of understanding), component manufacturers may temporarily delay shipments to the Chinese market. However, TrendForce believes, due to the fact that current CSP buyers’ component inventories remain sufficient, the short-term impact on global server market shipment performance is relatively low and long-term impact depends on the evolution of the US Department of Commerce’s rules.

Huawei and Sugon, two companies that have received attention at this stage due to the US ban, have previously withdrawn from the x86 server market and turned into cloud business providers and whole server delivery has been transferred to other domestic OEMs and outsourced computing power leasing, so as not to be affected by sanctions. However, due to the previous CPU ban, Sugon has turned to AMD to obtain authorization for localized chips, which may be significantly curtailed by this ban. In 2022, Sugon’s market share in the overall server market will be approximately 2.3% and 8.5% of the Chinese market.

TrendForce believes, it cannot be ruled out that relevant Chinese OEMs may have server products that may be rendered to government supercomputing centers in the future. Inspur, H3C, and Lenovo will face more exacting future scrutiny and, if consequences intensify, the mainland Chinese industrial chain may feel direct effects. Although commercial servers are not currently on the list of directly restricted items, if friction between the United States and China intensifies in the future, it cannot be ruled out that the U.S. Department of Commerce will add more potentially risky Chinese server OEMs and CSPs onto the UVL list. If certification cannot be realized within 60 days of being included in the UVL list, these entities will be included on the entity list. The worst case scenario will be a future trend of negative growth in Chinese server demand.

Since the restrictions enumerated in this ban are primarily concentrated in the HPC field, the greatest factor affecting Sugon is the company largely providing server OEM to government departments including in supercomputers, military aerospace, and government server farms. At present, there are 8 national-level supercomputing centers in mainland China and the supercomputer located in the center of Wuxi is the headquarters of China’s self-developed chips including the self-developed Sunway TaihuLight. As the U.S. Department of Commerce continues to strengthen its sanctions, China’s supercomputing technology and domestic research capabilities will be severely damaged in the future.

Impact analysis on GPU and CPU sectors

At present, companies utilizing high-end graphics cards are primarily concentrated in the HPC sector. In terms of CSPs, Alibaba and Baidu are the largest companies in mainland China. These two CSP companies account for up to 60% of the market share of GPU usage in China. Before the previous ban at the end of August, Chinese CSP operators had to submit purchase applications before procurement but they could not apply at all after the ban. However, based on the premise that buyer inventory levels on hand remain high and the supply of goods through distribution channels is sufficient, no effect on demand is forecast until 1H23. Nonetheless, it will be a challenge in the long-term. Since the ban expressly prohibits supercomputing center applications such as HPC, TrendForce assesses that GPU servers used by supercomputing centers will be directly affected, which accounts for up to 30% of China’s GPU market.

In terms of chip computing performance control, ECCNs 3A090 and 4A090 are newly added sanctioned items and chips with a total processing performance of more than 4,800 (inclusive) calculated by TOPS will be restricted. GPUs are usually used to directly assist in performing complex operations. Basically, NVIDIA’s A100 PCIe Gen4 and AMD’s MI250 OAM Module exceed the 4,800 limit. With new high computing performance products restricted in the future, development of server acceleration computing in China will take a hit.

However, the computing performance of most server CPU products is generally lower than the provisions of the ban. Only Chinese-made chips such as Tianjin Haiguang face direct restrictions and other CPUs such as Intel and AMD servers will not be subject to prohibition. At this stage, Intel and AMD will sign MOUs with relevant mainland Chinese manufacturers to ensure that related products cannot be used in military and supercomputing fields before shipment. In today’s server CPUs, the computing performance of the commonly used Intel Ice Lake CPU series does not reach the limit imposed by U.S. sanctions.

Impact analysis on the memory sector

At present, Samsung and SK hynix have also suspended their supply of product to Sugon. If Sugon can clarify procured memory is not used for supercomputing, domestic server products, etc., the parties will be able to reach a consensus for shipment. In the long run, Korean companies are evaluating whether they need a written commitment from each customer to disavow using purchasing memory products in supercomputers. Therefore, some memory shipments may be affected before documents are signed. The industry generally believes that market inventory remains relatively abundant and there will be no substantial damage to the market in the short term. As far as SSD is concerned, the greatest utilization remains in the category of AI/DL (Deep Learning), since most of the data trained from DL must be stored in faster and more convenient SSDs for use in inference scenarios. If the suspension of shipments caused by the current ban cannot be rectified by relevant buyer agreements, the development of Chinese server manufacturers in related AI/DL fields may be hamstrung and a calamitous decline in the market penetration rate of enterprise SSDs from international manufacturers cannot be ruled out.

Impact analysis on the networking sector

There are three reasons for a relatively minor impact assessment on the well-connected suppliers in the networking sector. First, there are numerous networking suppliers and many of them are in China. Since the demand for key components is relatively small, Chinese suppliers should be able to keep up. Second, the mainstream process in this field is a mature process and future expansion is less restricted. Third, from the perspective of supplier shipments, after foundry assembly, packaging, and testing, there are multiple distribution channels for the circulation of the final product and it will be difficult to determine whether terminals are military use. However, from the perspective of long-term impact, there is a high probability that Chinese manufacturers will give priority to China’s local supply chain in the future to ensure future supply. This move will undoubtedly deepen the resistance of other suppliers’ shipments to China, so it is necessary to open up multiple shipping channels to stabilize market share.

（Image credit: iStock）