Component makers have their server chums by the short and curlies
And the squeeze ain't looking like it'll stop any time soon
Pressure is set to intensify on server makers caught in the vice-like grip of rising components costs and stiff competition for new business.
DRAMeXchange, a unit of researcher TrendForce, said the average contract price of server DRAM modules shot up in the first and second quarters of 2017 by 40 and 10 per cent respectively due to "tight 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," said the DRAMeXchange.
Procurement contracts coupled with Intel's Purley-based server will push up demand for DRAM – especially high-capacity modules – and prices, the analyst added.
It estimated that server shipments will see a comparative rebound in the second half of the year, rising 10 per cent compared to the first six months.
First-tier server makers could see the price of a 32GB server DRAM module, for example, rise 3 per cent sequentially in Q3 to $260, and second tier punters – any vendor outside of the top five biggest sellers – are forecasted to pay around 8 per cent more.
"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," DRAMeXchange predicted.
Hot is not a word that could describe the server sector: most of the major makers reported declining shipments and factory revenues in Q1, according to recent data from Gartner. The component dearth – NAND was also in short supply – didn't help margins.
"DRAM is causing a pressure point," said Hewlett Packard Enterprise CFO Tim Stonesifer during a conference call covering its numbers for Q2 of fiscal 2017.
He said HPE had raised server prices globally but the "results were mixed" with sales in Asia in line with expectations but those in the Americas and EMEA less so.
"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."
Dell, which grew server sales in calendar Q1 according to Gartner's estimations, also highlighted the component squeeze.
On its recent results call with analysts for Q1 of Dell's fiscal 2018, CFO Tom Sweet said it saw a "challenging component cost environment".
He said Dell – like HPE – was not able to fully offset the components issue because there were "instances where pricing commitments" were already in place.
"We can't always bridge that gap with pricing adjustments when the cost environment moves as quickly as we've seen it move recently," said Sweet.
Dell will "continue to move pricing up in servers", the exec added. ®