AMD acquires NVIDIA's "core supplier", will the AI server landscape be reshaped?
JP Morgan believes that ZT's strong design capabilities will enhance the deployment of AMD AI servers in data centers. NVIDIA may encourage hyperscale computing companies to outsource NVIDIA AI servers to ODMs other than ZT, which could lead to a more concentrated market competition landscape.
As servers become increasingly important in the AI era, AMD's $4.9 billion acquisition of the "AI server leader" ZT Systems may reshape the server market landscape. In a report on Tuesday, Morgan Stanley pointed out that ZT's strong capabilities in design and services can help promote the deployment of AMD AI servers in data centers. NVIDIA may encourage hyperscale computing companies to outsource NVIDIA AI servers to ODMs other than ZT, which could lead to a more concentrated market competition.
AMD's Acquisition of ZT Systems
AMD announced yesterday that it will acquire server system integrator ZT Systems for $4.9 billion. ZT Systems has strong capabilities and rich engineering resources (about 2,500 employees) in manufacturing, design, and services, shipping hundreds of thousands of servers annually. Its major customers include Microsoft and Amazon, and importantly, ZT holds leading market shares in NVIDIA's Hopper series and AMD's MI300 servers.
AMD expects to complete the transaction in the first half of 2025 and plans to sell its manufacturing business to a strategic buyer. This acquisition demonstrates the importance of ODMs in AI servers, especially in design and system integration, potentially reshaping the server market landscape.
Impact on AI Server Landscape
For AMD, ZT's strong capabilities in design and services can help promote the deployment of AMD AI servers in data centers. AI server system architecture is becoming increasingly complex, with deployment cycles from silicon samples to rack systems getting longer. NVIDIA's AI server product testing time is 1-3 quarters, considering its unique hardware structure, AMD's solution may require more time.
Typically, silicon suppliers can accelerate the learning curve by anchoring customer demand. After this acquisition, we believe AMD can leverage ZT Systems' rich experience and engineering resources in design and services to improve system integration through better reference designs and shorten the time to deploy servers for customers.
Impact on ODM Landscape
The impact on the ODM (server market) landscape is complex:
AMD's acquisition of ZT Systems highlights the core role of ODMs in AI infrastructure construction. NVIDIA may encourage hyperscale computing companies to outsource NVIDIA-based AI servers to other ODMs besides ZT Systems, which could lead to a more concentrated competitive landscape, benefiting Taiwanese AI server ODMs.
Positive Impact on Quanta/Foxconn:
ZT Systems has been a major competitor of Quanta in Microsoft's AI server project. This acquisition is positive for Quanta's market share in the AI server field, especially in Microsoft's AI servers. At the same time, Foxconn sees more opportunities in HGX servers.
Slightly Positive Impact on Wiwynn, Neutral Stance on Wistron:
Wiwynn's stock price had declined due to ZT Systems entering Meta's AI server supply chain, and this deal may alleviate market concerns about Wiwynn. However, Weichuang Technology may face more intense competition in the AMD server business. On the other hand, given that ZT Systems' manufacturing business will cease, the possibility of AMD internalizing the OAM/UBB manufacturing business is limited. This event is neutral for Weichuang.
Negative Impact on Inventec (Taiwanese server manufacturer):
Inventec designs, manufactures, and supplies server CPU motherboards for US cloud service providers (CSPs) through ZT Systems, which is responsible for system integration. Although Inventec may benefit from ZT's stake, we believe this transaction is unfavorable for Inventec due to increased business uncertainty related to ZT Systems. ZT may change its practice of outsourcing AI server orders to Inventec. If Inventec acquires ZT's manufacturing facilities, the company may expand its production capacity and have direct contact with end customers. However, this may require new investments in system design and service support, which have been key factors in ZT winning design orders in recent years.
