AI Infrastructure Demand Remains Strong Amid US-China Tensions

The demand for artificial intelligence infrastructure remains strong, driven by the growing need for powerful computing capabilities. This is evident from recent interviews with executives from different sectors and earnings calls by server suppliers like Foxconn, Pegatron, Quanta, and Compal.

Quanta, for example, has increased its capital expenditure this year to NT$40 billion from a previous plan of NT$30 billion in order to expand capacity in California, Thailand, and Taiwan. By the end of this year, Quanta expects its global AI server capacity to be double what it was last year, while its orders are already full until 2028. Other companies like Lite-On Technology and Unimicron have also hiked their capital expenditure to record levels.

Production Capacity Expansion

The following companies have expanded their production capacity:

Supply Chain Challenges

However, the massive capacity expansions have resulted in production equipment becoming a bottleneck, with lead times for tools such as testing equipment for power supplies and weaving machines for high-end glass cloth reaching as long as 30 to 50 weeks. China's export controls on certain raw materials and rare earths, plus increasing prices for already expensive metals, have also complicated the delivery of production equipment.

The uncertainty over US-China relations has added to the concerns, with companies worried about the potential impact on their supply chain continuity. Some companies are even considering switching to non-Chinese vendors for their consumer electronics hardware.

Google's China Shift

Google has told suppliers that it plans to end production in China of all of its Pixel hardware next year amid ongoing US-China tensions. This move will make Google the second smartphone company after Samsung Electronics to shift production outside of China. Google also aims to raise Pixel phone shipments by 8% to 10% this year, despite the skyrocketing prices of memory chips amid a supply crunch.

Nvidia's H200 Chips

Small batches of Nvidia's H200 chips have been allowed to enter mainland China, as Beijing tries to aid its leading AI companies in the race to catch up with US rivals. ByteDance and Tencent have each received about 10,000 H200 processors in recent weeks, while a few other Chinese tech groups could soon obtain approval for shipments of similar size. However, the H200 is at least two generations behind Nvidia's most powerful chips, which Chinese customers are not allowed to buy due to US export controls.