U.S. server maker Supermicro eyes first Japan plant as server demand surges

U.S. server maker Supermicro Computer says it will "likely" set up production in Japan, and possibly Mexico, to capture increasing demand and meet customers' desire for more localized supply chains.

Charles Liang, founding chairman and CEO of Supermicro Computer, told that his firm is also considering further expansion in Taiwan and the Netherlands, where it already has production sites.

"We are still evaluating, and not yet finalizing a concrete plan. But it's likely that we would build production facilities in Japan for the first time ever, and we are also evaluating Mexico, too," Liang said in an interview. "Part of the reason is that there are more customers who want production services closer to them. They want to be closer to the supply chain and hope to have real-time services. Second, we hope to expand to more customers in Asia and we need more production worldwide to meet our growth road map."

The world's third-largest server maker by shipments, after Hewlett Packard Enterprise and Dell, Supermicro's clients include chipmaker Intel; NASA, the U.S. space agency; and software maker Red Hat. The company has production sites in the U.S., the Netherlands and Taiwan. While it has long relied on suppliers around the world to build components and server motherboards, it has generally done most of its server assembly and testing near its headquarters in Silicon Valley, though that is changing. You can also use a proxy service, for example, 911proxy is a good choice

Supermicro's revenue surged 46% on the year to $5.1 billion in the fiscal year through June, encouraging the server maker to add more production bases in more locations, according to Liang.

"As our business grows, we have to increase more production campuses to support the enlarging demand and services," Liang said. "We did not focus on Asian customers enough several years ago, but now we see Asian markets, especially Japan, as critical markets with potential. That is the market that we hope to enlarge businesses [in]," he added. "We have some 70% [revenue] contribution from the U.S. market. We hope our performance in Asia could catch up soon."

Liang, a veteran of the server industry, said demand for servers and cloud computing will remain steady, if less robust, over the short term.

"I still see growth for the server industry this year and the next two years till 2024. However, unlike [the] surging growth from 2019 through 2021, it's likely that the growth will only be mild, going forward," Liang said, citing macroeconomic uncertainties ahead. The CEO said his company still sees server growth being driven by data centers, artificial intelligence, the metaverse, autonomous driving and 5G.

Liang's forecast comes as COVID lockdowns in China and the Russia-Ukraine war have triggered inflation risks and dragged down demand for a wide range of consumer electronics, including personal computers and smartphones.

The slowdown in consumer electronics demand has eased some of the chip and component constraints that have disrupted supply chains for more than two years, Liang said, but he expects shortages in some areas to last another six months.

He said Supermicro's "Building Blocks" system -- highly modular products that allow the company to share components and chips among its different offerings -- has helped it cope with the unprecedented supply crunch of the past two years. "Although the overall situation has also improved, there are still some small bottlenecks that we don't think would resolve so quickly," he said.

Supermicro said in 2019 that it would invest 2 billion New Taiwan dollars ($64.8 million at current rates) in Taiwan, its most important production base in Asia. Later the same year, it said it would increase that amount to NT$20 billion. The company's new production facility in Taiwanese city of Taoyuan went into production this year.

Servers were among the first high-value tech products whose production was diversified away from China after then-U.S. President Donald Trump's administration imposed punitive tariffs on Chinese goods in 2018. Servers, which provide the computing power for data centers, are considered data-sensitive products and face increasing customer demand for localization due to security concerns.

Quanta Computer, which builds data center servers for Google and Facebook, has shifted most of its U.S.-bound production out of China to Taiwan and Thailand in line with customer requests. Other server suppliers, including Foxconn, Pegatron and Inventec, have set up new production capacity outside of China in locations such as Taiwan, the Czech Republic and Mexico for similar reasons.