PRC X86 Market Overview, 2019Q3 Dec 2019 Agenda

© IDC Visit us at IDC.com and follow us on Twitter: @IDC 2 ▪ Internal Use - Confidential Both WW and PRC server market showed decline trend in 19YTD

WW X86 Server Market Unit Shipment by Vendor, 19YTD/18YTD Unit (K)

2,500 20% WW x86 Server Market Unit Shipment 2,227 by Region, 2019YTD 13.3% 15%

2,000 10%

2.3% 5% 1,499 Others 1,500 34% USA 1293 0% -1.1% 39% -3.0% -4.0% -6.2% -5% 1,000 749 -5.9% -10% 523 -9.6% 415 -15.7% 583 -11.4% -15% 500 399

-17.1% 210 184 162 -20% -20.8% 0 -25% PRC ODM Dell HPE&H3C Inspur Lenovo Super Huawei Cisco Sugon Fujitsu Others 27% Direct Micro

2018YTD 2019YTD YoY Growth Average Growth

WW X86 server market achieved -6.2% YoY growth by unit in 2019YTD, the YoY growth rate is -6.8% in PRC market. PRC market share is 27.4% and 27.2% respectively in 18YTD and 19YTD, USA market share is 39.0% and 39.0% respectively in 18YTD and 19YTD.

3 ▪ Internal Use - Confidential The revenue growth of x86 server market was higher than unit since the configuration continues go high

WW X86 Server Market Factory Revenue by Vendor, 19YTD/18YTD US$M WW X86 Server Market Factory Revenue 18,000 25% 22.1% by Region, 2019YTD 16,000 14,598 20%

14,000 15%

11,566 12,000 10% 10,479 10.8% Others 4.4% 35% 10,000 5% USA 44% 8,000 0.3% -4.3% 0% -1.3% 6,000 -5% -5.8% 4,445 4,000 3,533 3,233 -12.8% 3,342 -10% -10.7% -10.5%2,363 -15.5%1,851 2,000 -13.2% 1,129 859 -15%

-20% 0 4 PRC ODM Dell HPE&H3C Inspur Lenovo Cisco Huawei Super Fujitsu Sugon Others 21% Direct Micro

2018YTD 2019YTD YoY Growth Average Growth

WW X86 server market achieved -4.3% YoY growth by unit in 2019YTD, the YoY growth rate is 0.4% in PRC market. PRC market share is 20.3% and 21.3% respectively in 18YTD and 19YTD, USA market share is 46.2% and 44.2% respectively in 18YTD and 19YTD.

4 ▪ Internal Use - Confidential Market uncertainty will increase significantly in 2019

US$M WW X86 Server Market Growth Over Forecast Period

120,000 40% 34.4% 35% 100,000 30%

25% 80,000 17.0% 20%

60,000 9.8% 15% 10% 8.6% 40,000 7.8% 5.2% 5%

2.6% 1.0% 0% 20,000 -3.7% -5%

0 -10% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

USA PRC Others Growth Rate

5 ▪ Internal Use - Confidential PRC x86 server market face downturn in 19YTD

➢ -6.8% YoY unit growth, 0.4% YoY rev growth in 19YTD Unit China X86 Server Overview, 2017Q1-2019Q3 1,000,000 50% 39.3% 861,529 ➢ -4.2% YoY unit growth, 0.4% YoY rev growth in 19Q3 32.5% 40% 800,000 27.3% ➢ In 19YTD, the growth of unit shipment and rev of X86 slow down 19.3% 30% 600,000 12.8% 11.1% 20% compared with last two years. In 19Q3, the rev of x86 server showed 4.7% growth while unit shipment showed negative growth. 400,000 3.4% -0.7% 10% -4.2% 0% ➢ The demand of internet shrunk after high growth in the last few years. 200,000 -14.6% -10% ➢ Higher specs adopted by internet customers and traditional 0 -20% customers drive ASV growth. 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 18Q4 19Q1 19Q2 19Q3 ➢ More GPU servers have been launched as AI get more attentions. Unit YOY Growth % ➢ Business transformation and cloud construction drive telecom growth.

(Total market unit growth) (Internet) (Gov+Edu) FR(M$) ➢ -4.2% vs -8.3% vs -3.5% vs 6,000 80% (Telecom) (Enterprise) 65.7% 68.6% 59.9% -8.1% vs 3.2% 4,833 70% 5,000 51.7% 60% 4,000 33.5% 35.8% 50% Industy 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 40% 3,000 20.2% 30% 13.5% Internet 59.8% 77.2% 54.1% 27.6% -3.8% -26.3% -8.3% 8.5% 20% 2,000 0.4% 10% Gov+Edu 5.1% 9.3% -5.8% -3.7% -4.9% -12.3% -3.5% 1,000 -9.4% 0% -10% 0 -20% Telecom 60.1% 41.0% 34.9% 5.1% 4.1% -2.0% -8.1% 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 18Q4 19Q1 19Q2 19Q3 Ent 15.7% 22.6% 22.3% 7.3% 5.0% -2.0% 3.2% Factory Revenue YOY Growth % Total 32.5% 39.3% 27.3% 11.1% -0.7% -14.6% -4.2%

6 ▪ Internal Use - Confidential The increasing trend of ASV begin slow down in 2019YTD

China X86 Server ASV Trend, 2010-2019YTD

5,500 22.9% 25%

5,000 17.6% 20%

4,500 13.1% 15%

8.2% 4,000 6.4% 7.0% 10% 5.0% 5.2% 3,500 5%

3,000 0% 0.2% 2,500 -5%

2,000 -10% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019YTD

ASV ASV GR

7 ▪ Internal Use - Confidential Assumptions for market unit growth from 2019 to 2023

China X86 Server Market Forecast by Unit Shipment , 2009-2023 Unit Growth rate ▪ China’s GDP growth may not maintain high growth in 5,000,000 40% next 3-5 years, we expect the economy growth pattern like “L” shape, drop from the peak and maintain flat 34.1% 4,292,045 4,500,000 35% growth. ▪ Government will play even important role and leading 4,000,000 30% 24.0% 26.0% china for next 10 years, and IT is one of the important 21.0% part in agenda. 3,500,000 3,303,936 25% 20.6% ▪ The China-US trade friction brings IT macro environment 3,000,000 20% uncertainty in the future. 2,500,000 12.6% 15% ▪ The DRAM was oversupply starting in early 2019 but 8.7% turned to undersupply from 19H2. This situation will 2,000,000 10.8% 7.9% 7.6% 7.3% 10% 5.9% 10.0% impact the ASV of server directly. 4.4% 1,500,000 5% ▪ Local Brand had great momentum since they penetrated to new industry and began to compete with 1,000,000 0% International Brand in many areas, local vendors will -4.1% also enter oversea market. 500,000 -5% ▪ 3rd Platform and Innovator Accelerators will drive China 0 -10% market growth during the next 3-5 years. 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 ▪ Cloud, AI, Edge Computing, IOT, and 5G will quickly disrupt the market and create new opportunity in 13th Units Annual growth rate Five-year plan.

8 ▪ Internal Use - Confidential Assumptions for market revenue growth from 2019 to 2023

China X86 Server Market Forecast by Customer Revenue, 2009-2023 CR$M Growth rate ▪ China’s GDP growth may not maintain high growth in 35,000 60% next 3-5 years, we expect the economy growth pattern 54.1% like “L” shape, drop from the peak and maintain flat growth. 30,000 29,285 50% ▪ Government will play even important role and leading china for next 10 years, and IT is one of the important 25,000 40.9% part in agenda. 40% ▪ The China-US trade friction brings IT macro environment 30.7% 28.6% 20,000 uncertainty in the future. 30.5% 29.9% 18,342 30% ▪ The DRAM was oversupply starting in early 2019 but 15,000 turned to undersupply from 19H2. This situation will 19.8% 17.4% impact the ASV of server directly. 20% ▪ Local Brand had great momentum since they penetrated 10,000 12.8% 13.1% 11.9% 11.6% 11.1% to new industry and began to compete with International Brand in many areas, local vendors will 10% 5,000 3.8% also enter oversea market. 1.8% ▪ 3rd Platform and Innovator Accelerators will drive China 0 0% market growth during the next 3-5 years. 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 ▪ Cloud, AI, Edge Computing, IOT, and 5G will quickly disrupt the market and create new opportunity in 13th Customer Revenue Annual growth rate Five-year plan.

9 ▪ Internal Use - Confidential Standard server market forecast from 2019 to 2023 (customized content for Dell)

China X86 Server Market Forecast by Unit Shipment (ex. China X86 Server Market Forecast by Customer Revenue (ex. Custom Server), 2009–2023 Growth rate Custom Server), 2009–2023 Unit CR$M Growth rate 3,500,000 25% 20.6% 19.4% 3,177,430 25,000 45.8% 50% 20% 22,196 3,000,000 40% 15% 9.6% 2,461,822 20,000 2,500,000 27.9% 7.3% 26.5% 8.2% 6.6% 10% 30% 6.4% 2,000,000 6.1% 15,000 17.1% 14,473 5% 20% 12.2% 11.4% 11.0% 10.5% 1,500,000 0% 10% 10,000 -5% 1,000,000 0% -10% 5,000 -10.9% 500,000 -10% -16.5% -15%

0 -20% 0 -20% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2015 2016 2017 2018 2019 2020 2021 2022 2023 Units Annual growth rate Customer Revenue Annual growth rate

10 ▪ Internal Use - Confidential Agenda

© IDC Visit us at IDC.com and follow us on Twitter: @IDC 11 ▪ Internal Use - Confidential Internet business make Inspur and Dell performance

China X86 Server Market by Major Vendors, Unit Shipment, 19YTD/18YTD

Unit • Continue growing by the purchase 800,000 127.7% 150% top internet companies, especially 700,000 672,681 Bytedance, Alibaba, and Kuaishou. 100% • 600,000 Traditional industries kept very high growth, especially telecom, finance, 500,000 50% services and manufacturing. 14.3% 18.3% 400,000 13.8% 13.0% 333,665 286,334 284,652 -6.8% 0% 300,000 -10.6% -29.5% -15.3% -8.0% • Dropped more than 50% internet 200,000 -19.4% 209,197 -42.4% -34.8% 184,391 -50.9% -50% business, due to the purchase model 100,000 59,473 58,487 -64.5% 74,372 change of Bytedance and budget cut of 30,989 23,504 13,293 4,811 3,238 JD.com. 0 -100% • Kept advantages in most traditional industries, such as manufacturing, finance, services, transportation, etc.

2018YTD 2019YTD YoY Growth Average Growth

12 ▪ Internal Use - Confidential Lenovo and H3C focus on margin and increase their ASV

China X86 Server Market by Major Vendors, Factory Revenue, 19YTD/18YTD US$M

4,500 90% 4,065 70.5% • Invest on R&D of local model, the share of 4,000 H3C branding continue increase, prompt 60% H3C brand rather than HPE brand in most 3,500 35.4% 23.1% 29.0% SOE or government case. 3,000 30% 28.2% • Harvest major deal by cooperation with 2,500 2,013 0.4% local mobile phone vendor. 1,946 0% 2,000 -12.0% -10.4% -12.2% -15.5% 1,500 -14.9% -30% 1,189 971 1,000 865 -40.2% -39.9% -50.4% -47.3% -60% 414 500 247 143 174 84 42 38 34 • Try to keep margin rather than expend 0 -90% business. • Shipped many tower servers by cooperating with channel.

2018YTD 2019YTD YoY Growth Average Growth • Finance showed high growth in 2019.

13 ▪ Internal Use - Confidential Huawei and Sugon will be impacted by trade war

China X86 Server Market Vendor Market Share Change, Unit Shipment, 19YTD/18YTD

35.0%

30.0% 30.0% • Intelligent Computing BU will turn the business focus to accelerate card for AI 25.0% workload. • Begins to invest on Hisilicon based 20.0% 14.9% 12.8% server.

15.0% 12.7%

MarketShare % 9.3% 8.2% 10.0% 6.7%

5.0% 2.6% 2.7% • Continue serve HPC users. • Has been put into entity list by US 0.0% government, server business will be Inspur Huawei Dell H3C Lenovo Sugon Powerleader ODM Direct Others impacted mostly. 2018YTD 2019YTD

14 ▪ Internal Use - Confidential The share of H3C Server increased significantly

Unit Growth of New H3C Group and Mix of H3C Server and HPE Server, 2016Q1-2019Q3

140,000 60% 54.9% 120,000 50.2% 50%

100,000 40% 37.6% 35.6% 34.2% 80,000 30% 23.5% 60,000 20%

40,000 10% 6.0% 4.4% 4.6% 3.7% 20,000 -0.3% 0%

0 -10% 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3

H3C Server HPE Server Growth Rate

H3C Server share 6.8% 14.9% 6.8% 9.8% 10.4% 23.2% 36.3% 30.6% 31.1% 44.7% 46.2% 45.1% 52.3% 74.6%

15 ▪ Internal Use - Confidential The share of H3C Server increased significantly

Mix of H3C Server and HPE Server by Unit Shipment, Mix of H3C Server and HPE Server by Factory Revenue, 2019YTD 2019YTD

2018 2019YTD 2018 2019YTD

HPE Server H3C Server HPE Server H3C Server 40% 60% 37% 63% H3C Server HPE Server 39% HPE Server H3C Server 61% 55% 45%

16 ▪ Internal Use - Confidential Vertical Mix of H3C Server and HPE Server

Vertical Mix of H3C Server by Unit Shipment, 2019YTD Vertical Mix of HPE Server by Unit Shipment, 2019YTD

Others Manufacturing 19% Others 20% 29%

Government 9% Internet 48% Telecom Government 18% Finance 7% 12% Internet Telecom 9% Finance 12% 17%

17 ▪ Internal Use - Confidential Vendor performance of standard server market in 19YTD (Customized content for Dell)

China X86 Server Market by Major Vendors (ex. Custom China X86 Server Market by Major Vendors (ex. Custom Unit Server), Unit Shipment, 19YTD/18YTD US$M Server), Factory Revenue, 19YTD/18YTD

500,000 40% 3,000 150%

450,000 20% 386,357 2,500 2,429 400,000 11.0% 100%

350,000 0% 70.5% 305,489 -17.6% 2,000 1,909 286,298 -16.9% 300,000 -18.7% -3.5% -12.5% -20% 50% 218,840 1,515 20.7% 250,000 1,500 -26.2% -26.7% 6.9% 5.4% 190,026 -40% 1,188 200,000 -34.5% 832 -13.0% 0% 159,672 150,000 119,218 1,000 -60% -15.0% 761 -25.8% -21.6% 100,000 -39.7% -22.8% -50% 56,790 -80% 500 372 50,000 30,989 224 143

0 -100% 0 -100%

2018YTD 2019YTD YoY Growth Average Growth 2018YTD 2019YTD YoY Growth Average Growth

18 ▪ Internal Use - Confidential Split out traditional and Internet market

Unit China x86 Server Market Vendor Performance in Traditional Industry, 19YTD/18YTD 350,000 129.0% 140% 120% 300,000 100% 250,000 80% 200,000 40.2% 60% 150,000 40% 9.4% 20% 100,000 4.0% -2.0% -14.6% 0% 50,000 -20% -14.2% -16.2% -13.4% -13.6% 0 -40% Inspur Huawei Dell H3C Lenovo Sugon Powerleader ZTE Others

China x86 Server Market Vendor Performance in Internet Industry, 19YTD/18YTD Unit 450,000 60% 41.9% 400,000 24.7% 40% 350,000 5.7% 20% 300,000 250,000 0.3% 3.3% -13.6% 0% 200,000 -2.6% 19 -20% -31.5% 150,000 -18.7% -40% 100,000 -58.9% 50,000 -60% 0 -80% Inspur H3C Huawei Dell Lenovo Sugon ODM Direct Powerleader Others

2018YTD 2019YTD Growth Rate Average Growth

19 ▪ Internal Use - Confidential Agenda

© IDC Visit us at IDC.com and follow us on Twitter: @IDC 20 ▪ Internal Use - Confidential 2 way rack server kept increasing share

Market Split by Socket, 2016-2019YTD Market Split by Product, 2016-2019YTD

2016 11.3% 80.0% 8.4% 0.3% 2016 6.4% 5.5% 78.6% 9.5%

2017 8.4% 84.7% 6.7% 0.3% 2017 6.5% 4.9% 81.8% 6.8%

2018 7.4% 87.0% 5.3% 0.2% 2018 8.4% 3.7% 82.0% 5.9%

2019YTD 7.9% 87.2% 4.7% 0.2% 2019YTD 6.2%2.6% 85.1% 6.1%

0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

Multi Node Blade Rack Optimized 1 Socket 2 Socket 4 Socket 8+ Socket Tower Large System

21 ▪ Internal Use - Confidential Custom Server take 22% share by unit shipment

PRC x86 Server Market by Product PRC Standard x86 Server Market PRC Custom x86 Server Market by Design, 19YTD by Product Detail, 19YTD Product Detail, 19YTD

Multi Node Large System Blade 3% 0% 3% Custom Server Tower Multi Node 22% 8% 18%

Rack Optimized Rack Optimized Standard Server 86% 82% 78%

22 ▪ Internal Use - Confidential Agenda

© IDC Visit us at IDC.com and follow us on Twitter: @IDC 23 ▪ Internal Use - Confidential The major driving force in the past – internet and government both decreased in 19YTD

China X86 Server Market by Vertical, Unit Shipment 2019YTD/2018YTD

Unit 2018YTD 2019YTD YoY growth (%) Average Growth (%) Average growth(%)-exclude Website Industry

1,200,000 25%

18.1% 20% 1,000,000 11.6% 15% 859,625 11.2% 10% 800,000 5.1% 5%

600,000 -2.0% 0% -2.5% -6.5% -6.0% -3.8% -5% 400,000 349,443 -6.8% -10% 276,884 -10.8% -11.0% 177,169 -13.8% -15% 200,000 -13.6% 128,409 -15.7% 112,508 97,624 -22.0% 57,368 46,001 -20% 35,995 30,472 30,206 27,382 10,002

0 -25%

Internet Transportation Government Telecom Finance Manufacturing Services Education Utilities Health Resource Distribution Media Construction

38.4% 15.6% 12.4% 7.9% 5.7% 5.0% 4.4% 2.6% 2.1% 1.6% 1.4% 1.3% 1.2% 0.4%

24 ▪ Internal Use - Confidential Top 3 industries kept nearly 70% share of whole market

China X86 Server Market by Vertical, Factory Revenue, 2019YTD/2018YTD US$M 2018YTD 2019YTD YoY growth (%) Average Growth (%) Average growth(%)-exclude Website Industry 6,000 40% 29.8% 30% 5,000 4,724 21.3% 22.7% 20% 4,000 8.1% 6.2% 10% 3,000 3.8% 5.5% 3.3% 1.0% 0.4% 0% -6.7% -4.7% 1,927 -8.4% -9.3% -8.4% 2,000 1,610 -10% 1,128 1,000 -21.8% 571 563 467 -20% 311 281 177 150 131 124 61

0 -30%

Internet Transportation Government Telecom Finance Manufacturing Services Education Utilities Health Resource Media Distribution Construction

38.6% 15.8% 13.2% 9.2% 4.7% 4.6% 3.8% 2.5% 2.3% 1.4% 1.2% 1.1% 1.0% 0.5%

25 ▪ Internal Use - Confidential Drop of Tencent, Baidu and JD made top 5 share declined in 19YTD

TOP Vendor Market Share in Internet, 16Q1-19Q3 Market Size of Internet Accounts Unit 60% 100% 11.1% 10.9% 90% 17.9% 20.1% 18.1% 50% 80% 20.7% 27.2% 40% 70% 24.0% 22.7% 28.5% 30% 60% 2.8% 20.6% 13.9% 16.8% 50% 20% 3.9%

40% 10% 30% 55.3% 47.4% 45.3% 47.6% 45.1% 0% 20%

10%

0% Inspur H3C Lenovo Huawei ODM Direct 2015 2016 2017 2018 2019YTD

Dell Sugon Powerleader Others BAT BJ TOP50(ex.BATBJ) Others BATBJ include Baidu, Alibaba, Tencent, ByteDance and JD.com.

26 ▪ Internal Use - Confidential Government favor local brand and public security kept growth in 19YTD

19YTD TOP Vendor Market Share, 2019YTD (Unit) Break down 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 YoY Growth Powerleader Others 3% 5% HIKVISION Inspur Public Security 42,312 58,356 59,033 71,051 51,085 60,139 55,032 4.1% 3% 24% Dell 7% Local Government 28,730 33,175 31,995 37,896 23,836 29,424 33,777 -7.3%

H3C Other Central 20,537 23,482 16,525 24,746 13,166 17,046 17,645 -21.0% 7% Government

Military 13,411 16,791 15,851 17,863 12,315 11,702 15,789 -13.6% Lenovo 9%

Sugon Taxation 2,175 2,509 6,943 6,102 1,915 1,686 4,887 -27.0% 22% Huawei Grand Total 107,165 134,313 130,347 157,658 102,316 119,997 127,130 -6.0% 20%

27 ▪ Internal Use - Confidential Industry mix changed for all vendor

X86 Unit Shipments by Vendor and Vertical, 2019YTD Others 9,372 12,538 7,448 14,664 1,630 11,382

Cisco 207 167 714 416 734 40

Tongfang 84 1,423 794 31 1,446 HIKVISION 11,992 138

Super Micro 4,963 4,090 2,546 4,528 805 2,984

ZTE 27,502 1,583153 158235

Powerleader 15,219 11,772 2,3451,548

ODM Direct 51,918 7,555 Sugon 63,242 77,055 2,1771,579 12,204

Lenovo 76,001 32,292 3,975 27,254 9,330 13,455

H3C 91,445 22,653 41,750 39,645 27,783 8,60310,451

Dell 78,709 22,648 25,170 27,646 38,857

Huawei 85,212 68,389 96,357 31,346 6,069 8,657 Inspur 383,237 84,002 51,576 43,36614,114 17,199

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Internet Government Telecom Finance Manufacturing Services Education Transportation Utilities Health Resource Distribution Media Construction

28 ▪ Internal Use - Confidential Industry mix changed for all vendor

X86 Unit Shipments by Vendor and Vertical, 2019YTD

Construction 2,310 1,236 2,485 2,098 464 174 Media 5,560 2,479 6,926 4,686 1,607 1,762 1,671 2,183 Distribution 1,168489 8,340 6,384 5,386 2,462 4,727 Resource 3,317 7,880 6,639 5,159 Health 3,435 3,175 9,017 6,097 5,745 280 5,844 Utilities 12,712 9,849 4,797 5,042 4,806 7,723 Transporta… 12,133 9,973 10,294 11,376 7,727 Education 17,199 8,657 13,955 10,451 13,455 12,204 5,442 11,382 Services 35,802 7,117 29,610 8,603 9,330 12,480 Manufactu… 14,114 6,069 38,857 27,783 1,579 14,664 Finance 43,366 31,346 27,646 39,645 27,254 2,177 Telecom 51,576 96,357 25,170 41,750 3,975 27,502 Government 84,002 68,389 22,648 22,653 32,292 77,055 Internet 383,237 85,212 78,709 91,445 76,001 63,242 51,918

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Inspur Huawei Dell H3C Lenovo Sugon ODM Direct Powerleader ZTE Super Micro HIKVISION Tongfang Cisco Others

29 ▪ Internal Use - Confidential Thanks! Please email us: [email protected] Meng Duan

IDC Consulting (Beijing) Ltd. Rm. 901, Tower E, Global Trade Center, No.36 North 3rd Ring Road, Beijing, 100 013, China

30 ▪ Internal Use - Confidential