Semiconductor industry: investment status of data center players


The author is an analyst for NH Investment & Securities. He can be reached at [email protected] – Ed.

With the peak data center utilization rate recently falling from the 1:21 level, consumers of server DRAM are starting to take the lead in price negotiations. Changes in the global business environment, including regulations regarding hyperscalers, also pose a risk to investing in servers.

Peak data center utilization rate decreases

After rising since March, investment in global hyperscalers data centers began to slow in October. The average monthly utilization rate of major hyperscalers’ data centers has fallen from 89% in March to 81% today. Given their stock of parts (such as memory) and server ordering times, we expect server part order volume to start dropping seriously from November. These factors are expected to have a negative impact on DRAM and NAND supply and demand conditions in 4Q21.

Helped by declining peak data center utilization rates, customers are beginning to take the lead in the ongoing tense negotiations over server memory prices. Recently, they informed memory manufacturers that they will be reducing product orders unless DRAM price cuts are made in 4Q21. Responding to both this market situation and the low internal stocks of less than a week, memory manufacturers are strategizing about it.

Increasingly Strict Regulatory Environment for Internet Businesses

Recent changes in the environment surrounding hyperscalers are also expected to be negative for traffic demand. Through an iOS update, Apple recently stepped up its feature of blocking the collection of user information. This development will make it difficult to personalize advertisements based on user information collected by Internet service providers, which will undermine the margins of Internet companies and lead to reduced investment in the data centers they operate. This is evidenced by recent declines in the share prices of major players such as Facebook.

Meanwhile, Chinese authorities have filed a lawsuit against Tencent, denying the merger of the affiliated game companies. The government has also announced play time regulations for teens. Stricter government regulations are raising concerns about a reduction in future cloud and data center investments in China, which ranks second in the world (next to the United States) for data center investments.

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