Global financial markets are feeling the shockwaves from the new US tariffs, and data center equipment providers are bracing for cost increases. These hikes could trickle down to IT buyers, impacting budgets everywhere.
In January, IDC revealed that the server market jumped by over 100% in spending during the third quarter of 2024, mainly due to the booming demand for AI servers from hyperscalers and other large IT buyers. Traditional data center servers also saw an 18.7% increase in unit growth year over year. This surge in sales happened despite high inflation, slowing economic activity, supply chain issues, and geopolitical tensions—all before the recent tariffs hit.
Data center equipment, including servers, networking, and storage products, relies on a complex global supply chain. Key components, especially semiconductors, are crucial. They’re integrated into server chassis through a worldwide manufacturing process. The tariffs will affect every US business trading with other countries. Companies outside the US, including original equipment manufacturers (OEMs), will face new costs for imported products and materials.
Countries may retaliate with their own measures, and businesses worldwide might rethink their sourcing and production strategies to mitigate the tariffs’ impact.
Leading server companies are transparent about their suppliers for sustainability reasons. For example, HPE sources final assembly from China, Mexico, Singapore, Germany, and several other countries. Hitachi supplies storage from the Netherlands and the US, utilizing Foxconn’s facilities in China and Mexico to assemble HPE servers. Dell’s final assembly involves Celistica, with plants in China, Laos, and Mexico, while its parts come from firms like IBM, Intel, and Samsung. Interestingly, Dell primarily sources storage from IBM’s facilities in China, Japan, and Mexico, regions now targeted by tariffs. Lenovo, a Chinese manufacturer, faces significant cost increases for US-bound products amid the growing trade tensions between the US and China.
Component manufacturing has also been affected. Intel recently announced plans to expand its semiconductor fabrication capabilities in various US states as well as in Ireland, Israel, Germany, and Poland. Intel’s CEO emphasized the importance of collaboration within their supplier ecosystem for sustainable scaling.
AMD, in its filings with the SEC, noted its reliance on external manufacturers. They depend heavily on Taiwan Semiconductor Manufacturing Company for high-tech chips and maintain relationships with GlobalFoundries and other producers to ensure adequate supply.
Nvidia, known as a fabless semiconductor firm, relies on TSMC and Samsung for its GPU manufacturing and sources memory chips from Micron Technology and SK Hynix.
The question remains: who will bear the financial burden of these price increases in component sourcing? There’s uncertainty about whether data center equipment manufacturers can absorb the rising costs or if they will pass these expenses onto IT buyers, leading to significant budget overruns. Lenovo is exploring alternatives, employing over 12,000 workers across its Chinese sites and around 1,000 in Hungary, mitigating some costs by diversifying its workforce.
While not every manufacturer will shift production to the US, some Chinese e-commerce firms are already establishing warehouses in Europe to navigate import duties effectively. In this fluid political landscape, relocating production to countries with lower tariffs might be a strategy for datacenter equipment manufacturers to soften the blow of new tariffs.
