ODMs are nabbing larger market shares. According to IDC, they held 28.8% of it in 2Q 2020.
Poor quarters for Intel, Inspur and New H3C
Recently, some companies that produce server components disclosed their 3Q results. In particular, Intel (INTC:NASDAQ), the chips dominator in this area, reported an unexpected revenue decline in its data center group segment. China's leading cabinets brand Inspur Electronic Information Industry (000977:SZ) also uncovered its 3Q revenue, which glided for the first time in its history. In the case of another famous server manufacturer, New H3C Technologies Co., Ltd., its parent company Tsinghua Unisplendour (000938:SZ) released a much smaller expanding figure on topline in the third quarter of 2020. Also, Lenovo's Data Center Group revenue missed CICC analyst Mr. Leping Huang's forecast.
Due to the unpleasant news, Intel and Inspur's stock prices dived by around 10% on the next trading day. Tsinghua also slipped by 5.21%.
The CPU giant attributed the performance to weak downstream demand, which is proved by Inspur's claim of soft procurement from cloud players. Similarly, CICC analyst Mr. Leping Huang 'blamed' on Lenovo's hyperscale clients.
Supply chain dissection
The companies mentioned above are critical competitors located in the production process of servers. Enterprises like Dell, H3C, Inspur purchase components, for instance, processors, graphic cards, memory from Intel, Nvidia and Seagate, then sell them to cloud clients or individuals with colocation demands. The terminal users of cabinets make up of various sectors. Many of them adopt cheap public cloud solutions from large cloud service providers.
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US cloud players seem stagnant. Why?
To address cloud demand, glancing through large cloud companies' recent performances provides more insights. For Amazon in 3Q 2020, its cloud arm sales topped by 29% to USD 11.6 billion. Google Cloud topline increased by 45% to 3.4 billion. But the two colossi announced less upbeat outlooks for the rest of the year.
We consider the outlook stemming for two main reasons: first, most companies that need cloud deployment have finished the process amid the pandemic. Future needs are decreasing. For example, among AWS's top customers, we see the growth rates of clear winners are declining.
Specifically, we check out the downloads of these applications, finding that downloads boomed just after February and peaked in the next few months. But we also observed that the figures have begun to sink more recently. All the downloads have started to fall. One possible reason for this is that most of the COVID-19-spurred users have finished their downloading sprees.
Another possible scenario is that having been frightened by the new wave of infection, sectors such as logistics and retail can quickly launch the digital transformation. But they have to spend more related to COVID-19 as Amazon stated and reminded investors of likely erosion of profitability in the 3Q earnings. So they have been motivated to cut costs, which may affect infrastructure spending. On the contrary, it is the timing that losers in the pandemic like oil, car rental, aircrafts entities are burning cash close to zero, waving to bankruptcy. They have to seek more strict cost control initiatives.
China's story can be different
Chinese cloud players’ customers are mostly active in the government, finance, online shopping, among a few other sectors. These industries were less impacted amid the pandemic. For instance, government clients-focused cloud service provider Kingsoft Cloud (KC:NASDAQ) expected its 3Q revenue to grow by 67% to 74% year-on-year, which is higher than the former two-quarters’ actual growth of 64.5% and 64.1%.
Another cloud startup-UCloud (688158:SS) also showed signs of increasing growth rate.