Elon Musk’s AI startup xAI has redirected its AI server orders from Supermicro to Dell, delivering a significant lift to Dell and its key suppliers, Inventec and Wistron, according to a report by UDN.
The shift delivers a significant setback to Supermicro, which is already facing the risk of delisting from NASDAQ, compounding its financial and operational struggles.
The company recently lost auditor Ernst & Young — its second auditor resignation in less than two years — and faces accusations from Hindenburg Research of accounting irregularities and exporting sensitive chips to sanctioned entities.
xAI and Tesla have relied on Dell and Supermicro as major suppliers. Supermicro had even secured large orders for its liquid-cooled AI servers from xAI, with CEO Charles Liang publicly showcasing the partnership alongside Musk.
However, as Supermicro grapples with financial difficulties, Musk’s companies have redirected their orders, the report said.
Reasons to choose Dell
Supermicro has been recognized as a significant player in AI servers, largely due to its early deployment of AI-ready server infrastructure.
The company specializes in high-performance, liquid-cooled servers designed for data center racks, catering to the specific needs of AI applications.
“However, the fact that Xai is moving to Dell speaks to the increasing capability of market-leading server companies to support AI workloads at scale,” said Hyoun Park, CEO and principal analyst at Amalgam Insights. “Dell and HPE are the two true heavyweight players in the server space, and the IT market has always assumed it was only a matter of time before these companies entered and dominated the AI space as well.”
Supermicro has also faced challenges in delivering to hyperscaler and cloud computing clients in the past, which may prompt potential AI customers to explore alternative suppliers.
“With the accounting issues that Supermicro faces, it is likely that Dell will be the big winner in the short term in supporting AI workloads, with HPE picking up additional opportunities in 2025 as well,” Park said.
However, this also raises regulatory concerns, as seen recently with many Big Tech companies.
“As Dell and other AI server vendors gain more market share, they may face stricter compliance requirements and oversight,” said Charlie Dai, VP, and principal analyst at Forrester. “Additionally, their supply chains could come under pressure to meet the increased demand resulting from the order shifts.”
Dell’s partners to benefit
Dell’s partners stand to benefit from this. Wistron, responsible for manufacturing motherboards and assembling Dell’s AI servers, is expanding production at its three Hsinchu facilities in Taiwan and its Mexico operations to meet growing demand.
Inventec — another major partner and one of Dell’s top three server assembly providers — is also positioned to capitalize on shifting orders as Supermicro loses its grip on the AI server market.
“Both Wistron and Inventec have been increasing their inventories throughout 2024, with Wistron holding over $5 billion in inventory and Inventec over $2 billion,” Park said. “Global demand for AI servers remains immense, but Wistron and Inventec appear well-positioned to support AI markets while sustaining strong demand.”
A key question now is how the proposed US tariffs by President-elect Donald Trump, which include a potential 10-20% levy on all foreign goods, could impact the AI server market and dampen demand, particularly for Taiwanese infrastructure components, Park noted.
Supermicro, Dell, Wistron, and Inventec have not responded to requests for comment.
Source:: Network World