After a dip due to surplus inventory and economic concerns, server CPU market expected to rebound.
AMD continues to gain ground in the data center, grabbing CPU market share from leader Intel despite a significant decline in server processor shipments.
Overall, the processor market took a hit in the fourth quarter of 2022, as well as for the full year 2022, due to lower demand, ongoing inventory corrections, and a slowing economy, according to analyst firm Mercury Research.
For 2022, total unit shipments (client and server, excluding ARM) were 374 million and revenues came in at $65 billion, down 21% and 19%, respectively, compared to 2021.
Specific to server processors, sales for the year came in at 36.1 million units, down 4.2% from 37.7 million in 2021. Revenues were $24 billion in 2022, down 7.7% from $26 billion in 2021. Mercury’s principal analyst Dean McCarron attributes the sharper drop in revenue versus units because the average selling price (ASP) declined.
AMD’s total share of the CPU market (excluding IoT and custom silicon) rose from 23.3% in 2021 to 29.6%, while Intel’s share fell from 76.7% in 2021 to 70.4% in 2022.
In the server market, AMD’s total market share grew from 10.7% at the start of 2022 to 17.6% at the end of the year, while Intel fell from 89.3% at the start of the year to 82.4%.
Interestingly, the server chips that are selling the most aren’t the newest and greatest models. Rather, they’re a few generations old. It’s again a reflection of slower turnover in the server market when compared to the client side.
“This is a business where products go into the market and they stay in the market for a really long time,” McCarron said. “With AMD, it took a really long time for their share to start climbing. AMD has just been super consistent with their execution for years now, and it’s paying off.”
Inventory and economy to blame for downturn
Most of the downturn in shipments is due to excess inventory shipping in prior quarters, according to Mercury Research. But there are other factors at play as well. CPU suppliers are deliberately limiting shipments to help increase the rate of inventory consumption, for example. Macroeconomic concerns are also driving PC OEMs to reduce their inventory, the firm says.
On the server side, McCarron attributed the sales slowdown to the usual “down” portion of a data-center purchasing cycle. Typically, there are 6 to 8 quarters of buying for the data center, followed by a slowdown in sales for a similar amount of time, as customers install and deploy the servers they bought.
“We had a really good run up in 2021,” McCarron said. “So, the peak of the cycle pretty much was right at January 2022. And now we’re heading into the very bottom of the cycle, which will probably be in Q1 . It’s looking like we’ll have a little bit of a deeper-than-the-typical down part of the cycle and hopefully hit bottom in Q1, but we’ll see.”
Intel and AMD had new chips in the pipeline for 2022, but McCarron does not believe that the Osborne Effect (a term that describes falling sales of a soon-to-be-replaced model) is at play because purchasing cycles in the server market are much longer than those of consumers.
“It’s not like consumers who say ‘oh, there’s something new, I’ll hold off my purchase this month to buy next month.’ There’s a lot of planning that goes into [server purchases],” he said.
And while inventories are up for server vendors, they don’t keep a lot on hand in the first place, McCarron said. “The client inventory is probably at the level of a quarter or so of total PC demand. Server inventories are nowhere near that kind of level. It’s difficult to know what they actually are, but it’s probably a few weeks, not months of inventory.”
McCarron said we should see growth return after Q1, barring any economic concerns. He expects concerns about the economy will capture server buyers’ attention more than the Intel-versus-AMD debate. “I will say it’s looking like, because of the economic concerns, that this next cycle may not be as strong as the past cycles, so purchasing behaviors may be a little bit cautious,” he said.