Data Center Peak Utilization Rate Declines

The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed. 

 

With the data center peak utilization rate having dropped as of late versus the 1H21 level, server DRAM consumers are starting to take the lead in price negotiations. Also posing a risk to server investment are changes in the global business environment, including regulations surrounding hyperscalers.

Data center peak utilization rate declines

After having been on a rise since March, global hyperscalers’ data center investment has begun to slow in October. The monthly average data center utilization rate at major hyperscalers has slipped from 89% in March to 81% as of now. Considering their inventory of parts (such as memory) and server order lead times, we expect server parts order volume to start declining in earnest from November. These factors are expected to negatively impact DRAM and NAND supply-demand conditions in 4Q21.

Helped by the lower data center peak utilization rate, clients are beginning to take the lead in ongoing tense server memory price negotiations. Recently, they notified memory makers that they would reduce product orders unless DRAM price cuts are made in 4Q21. Responding to both this market situation and low in-house inventories of less than a week, memory makers are devising related strategies.

Regulatory environment growing tougher for internet companies

The recent changes in the environment surrounding hyperscalers are also to be negative for traffic demand. Via an iOS update, Apple recently strengthened its function for blocking the collection of user information. This development will make it difficult to customize advertisements based on user information collected by internet service providers, in turn sapping margins at internet companies and leading to a reduction in investment in the data centers that they operate. Reflecting such are the recent drops in the share prices of major affected players such as Facebook.

Meanwhile, Chinese authorities have filed a lawsuit against Tencent, denying the merger of affiliated game companies. The government also announced regulations on game time for teenagers. The stricter government regulations are raising worries regarding a reduction in future cloud and data center investment in China, which ranks second in the world (next to the US) in data center investment.
 

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