Nvidia supplier Foxconn posts 17% rise in Q3 profit, beats forecasts
![Item 1 of 2 The logo of Foxconn is seen outside the company's building in Taipei, Taiwan November 10, 2022. REUTERS/Ann Wang [1/2]The logo of Foxconn is seen outside the company's building in Taipei, Taiwan November 10, 2022. REUTERS/Ann Wang Purchase Licensing Rights, opens new tab](/_next/image?url=https%3A%2F%2Fwww.reuters.com%2Fresizer%2Fv2%2FLL52H2VBGBOTDBLBXUH6NYZREE.jpg%3Fauth%3D13be41ccaa4beb4a00e011d37735ff9b864fc1690ce43aedbf54fcac1a575df0%26width%3D1200%26quality%3D80&w=1920&q=75)
News Summary
Foxconn (Hon Hai Precision Industry), the world's largest contract electronics maker, reported a 17% rise in third-quarter net profit to T$57.67 billion ($1.89 billion), surpassing LSEG's consensus estimate of T$50.4 billion. This growth was primarily fueled by sustained strong demand for AI servers, which the company expects to drive continued growth into 2025. For the second consecutive quarter, revenue from Foxconn's cloud and networking business, which includes AI servers, exceeded that from its smart consumer electronics segment, such as iPhones. The company forecasts significant year-on-year revenue growth for both Q4 and the full year 2025, with AI server revenue specifically expected to increase quarter-on-quarter. To meet Nvidia's demands, Foxconn is building new AI server factories in Mexico and Texas. Concurrently, Foxconn is also expanding its footprint in electric vehicles (EVs), although this venture has faced challenges, as evidenced by the sale of its former Lordstown, Ohio car factory for $375 million in August, which it had acquired in 2022.
Background
Foxconn, formally known as Hon Hai Precision Industry, is the world's largest contract electronics maker, a primary server manufacturer for Nvidia, and the leading assembler of Apple's iPhones. Its diverse operations span smart consumer electronics, cloud and networking products, computing, and components. In recent years, as global demand for AI computing power has surged, the AI server market has become a pivotal battleground for tech giants and hardware suppliers. Foxconn is actively leveraging its strengths in precision manufacturing and supply chain management to capitalize on this market opportunity. Concurrently, the company is pursuing diversification, identifying electric vehicles (EVs) as a major future growth driver, although this transition has presented challenges and required strategic adjustments.
In-Depth AI Insights
What does Foxconn's pivot towards AI server manufacturing imply for its Apple contract business? - Foxconn's cloud and networking business (including AI servers) revenue surpassing smart consumer electronics like iPhones for two consecutive quarters signals a structural shift in its business focus. - This indicates a strategic reduction in Foxconn's reliance on Apple's contract manufacturing. Its capacity expansion beyond mainland China (e.g., iPhone lines in India) and the establishment of AI server factories in the US (Mexico and Texas) demonstrate a move towards more independent, high-value production capabilities in Western markets. - For Apple, this could subtly diminish its leverage in supply chain negotiations due to Foxconn's diversification. It might also prompt Apple to seek more dispersed manufacturing strategies or invest further in Foxconn's new business areas to maintain the partnership. Given US tech export restrictions on China, what are the deeper considerations behind Foxconn building AI server factories in the US? - Foxconn's construction of AI server factories for Nvidia in Mexico and Texas is a direct response to the US and its allies' ongoing efforts in technological 'de-risking' and supply chain localization. - This move is not merely about fulfilling client demand (Nvidia) but represents Foxconn's strategic imperative to mitigate geopolitical risks and secure access to critical Western markets. By manufacturing advanced AI hardware domestically, Foxconn can better comply with 'Made in USA' requirements and circumvent potential export controls and tariff impacts. - Such a strategy will inevitably accelerate the regionalization and fragmentation of global tech supply chains, compelling other key suppliers to consider similar localization efforts, thereby reshaping the landscape of global electronics manufacturing. What are the true motivations and potential risks behind Foxconn's diversification into AI servers and electric vehicles? - The core motivation for Foxconn's diversification is to reduce its over-reliance on a single client (Apple) and product (iPhone), seeking markets with higher profit margins and greater growth potential. Both AI servers and EVs fit the profile of high-tech, high-value-added sectors. - While the AI server business is progressing well, the EV venture faces challenges (e.g., the sale of the Ohio factory). This reflects the complexity and inherent risks of expanding into new business areas, particularly crossing into the highly competitive and capital-intensive automotive industry. - Investors should closely monitor how Foxconn balances cash flow from traditional businesses with investments in new ventures, and critically assess its execution capabilities in these emerging sectors. Persistent setbacks in the EV business could potentially drag down overall profitability and investor confidence.