Liquid cooling specialist Asetek, well-known in HPC circles for its direct-to-chip cooling technology that is inside some of the fastest supercomputers in the world, announced today that it is exiting the HPC space amid multiple supply chain issues related to the pandemic. Although pandemic supply chain issues are a confounding factor and a business challenge, the decision to quit the HPC space was made primarily out of an interest to improve profitability and put a stop to losses associated with that business segment.

On a call for investors today, the publicly held Danish company said that expected datacenter revenue has not materialized, which is dragging down profits and margins. It is in this context that the company is making the decision to “sharpen its datacenter focus and get out of HPC,” said Asetek CEO André Sloth Eriksen.

As background for the decision to pull out of HPC, the CEO referenced “increased complexity and demand in the architecture for high-performance computing that’s driven by more powerful GPUs and DIMMs.”

“I would say HPC servers are moving away from general-purpose datacenter servers, so this development is counter-constructive to what we want to achieve,” he said. “But on top of that, we can see that compared to where we are now, we would need to increase our investments even further. We can see our customers want even higher engineering support, which they are not paying for. And we have been able to look into the revenue expectations for the next 24 to 36 months, and they are … significantly lower than they are today, which means that our burn rate would accelerate like crazy. So if we stayed in this market, we would be looking at significant loss.”

“HPC is a niche that has nothing to do with our success in the more general datacenter market,” the CEO continued. “That’s something we entered to keep the lights on, basically to get some revenue, and because we thought we could use HPC as a stepping stone into the more general datacenter, but that turns out not to be the case.”

“So the rationale behind the decision was really to protect our future profitability from increasing losses,” he said.

Asetek was considering waiting until its annual investor meeting next spring to make this announcement, but a customer that needed a binding commitment within the next few days spurred the IT company to move up its timeline. “If we committed to that customer, we would have been committed to the losses,” said Eriksen.

The CEO said Asetek would continue taking orders to support HPC customers until the end of the year with the last shipment possibly occurring into the first quarter of 2022.

As it exits HPC, Asetek will be laying off 15 to 18 full-time employees, primarily in R&D and operations. The company will incur a one-time cost of $2.5 million, a writeoff of IP, inventory and equipment.

Asetek was already working on the HPC exit strategy when the regional situation in China recently became more dire.

Expressing more downbeat expectations compared to guidance given six weeks ago, Asetek cited the effects of new and ongoing COVID-19 shut-downs in China that are disrupting its supply chain. Specifically Asetek has been impacted by the shut-down in the Tongan District of China, just north of the company’s factory, sharply limiting the supply of sub-components, as well as also facing “a challenging COVID-19 situation” in Xiamen, that is hindering deliveries.

“We are losing revenue in the millions because of this shutdown,” Eriksen said.

Asetek is lowering its 2021 guidance to 10-20 percent year-over-year growth (down 10 percent from previous projections) and forecasting an operating income between $0-2 million compared with $11 million in 2020.

“HPC is not our core business,” Eriksen stressed, “What we are looking at right now is getting rid of our loss-making 5-10 percent of our revenue, with the intent of course to improve our profitability.” The CEO put the total accumulated historical losses of HPC in the ballpark of $60 million.

“I do not believe that at this point in time [when] we have invested almost $100 million, and keep investing between $5 and $10 million a year in a niche space that does not bring us to the end goal, I do not believe it’s the right choice; of course there may be disagreement with that, and if there is then for sure it will be another CEO than me because I don’t see it, I don’t see the point,” Eriksen said.

In a statement, Asetek said it “will prioritize the general datacenter market and support legislation increasing adoption of the company’s sustainable datacenter solutions, capitalizing on the company’s liquid cooling technology and long-term investments in the datacenter business segment.”

Asetek has been a mainstay provider of warm water, direct-to-chip liquid cooling technology in use at HPC sites worldwide, partnering with companies such as Cray, HPE, Fujitsu, Supermicro, and Penguin Computing. The year 2018 marked a high point in Asetek’s contributions to the HPC space, when the company counted thirteen installations on the Top500 list with three of those installations in the top 20 segment. Among the big supercomputing systems for which Asetek was a supplier are Japan’s AI Bridging Cloud Infrastructure system (ABCI), Japan’s Oakforest-PACS system and Taiwan’s Taiwania 2.

Founded in 1997 by Eriksen to provide liquid cooling componentry to the gaming and enthusiast space, Asetek entered the datacenter and HPC market in 2011. Eriksen was selected as an HPCwire person to watch in 2014 (read our interview here).

In what is an interesting juxtaposition to today’s announcement from Asetek, privately held competitor CoolIT has on the same day issued a robust near-term forecast. The Canadian liquid cooling company has grown its revenue 43 percent this year so far and expects that growth trajectory to reach 100 percent by year end. In a press release, the company said, “Despite COVID-19 challenges affecting global supply chain and logistics, CoolIT has benefitted from a manufacturing strategy first implemented in 2018 to repatriate a significant portion of manufacturing to their headquarters in Calgary, Alberta, Canada.”

IT analyst Addison Snell, CEO of Intersect360 Research, processed the news in the context of larger market trends. “Our market research studies show liquid cooling on the rise in HPC, with more growth ahead, supported by increasingly dense computing configurations,” he told HPCwire. “Asetek’s decision ‘to exit the HPC niche … to protect Asetek’s future profitability’ seems to be driven by the demands of individual deals. The market is healthy, and CoolIT says it expects its HPC revenue to double in 2021, so perhaps Asetek has just been outcompeted.”