Server makers feeling the squeeze from component firms

Pressure on server makers is set to mount with component costs and stiff competition predicted to increase over the next 12 months. Research by DRAMeXchange (part of TrendForce) revealed that the average contract price of server DRAM modules increased by 40 per cent in the first quarter of 2017, before shooting up a further 10 per cent in Q2.

A spokesman for the researcher said that a large reason behind the price increase was due to ‘tightening of supply’. “Memory suppliers’ shipment fulfilment rates have been around 60 to 70 per cent since the start of the year. The market therefore is still in undersupply.”

And the analysts don’t expect the supply issue to get any better, any time soon. “Procurement contracts coupled with Intel’s Purley-based server will push up demand for DRAM – especially high-capacity modules – and prices,” the analyst added. “Shortage of DRAM modules will not ease any time soon as the server market is expected to get hotter in the second half of 2017.”

Server shipments are expected to rise by 10 per cent in the second half of the year, but prices are also predicted to soar. In Q3 the price of 32GB sever DRAM modules are expected to rise by 3 per cent to $260. Meanwhile second tier buyers are expected to see an 8 per cent rise in cost.

And the short supply is all having a major impact on makers. In Q1, most makers reported declining shipments and a drop in revenues, according to data from Gartner. Hewlett Packard Enterprise CFO Tim Stonesifer said that ‘Dram is causing a pressure point’ for the industry that has resulted in ‘competitive behaviours’. "When you look at the Americas, we did not gain as much traction as we had anticipated, particularly in the US, and that’s driven some very difficult competitive behaviours and challenges," said Stonesifer. "We saw those same types of competitive dynamics in EMEA as well, so the overall pricing mitigation… came in lighter than we had expected."

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