TLDR
- Foxconn reported third-quarter profit of $1.89 billion, up 17% year over year, and beat analyst expectations by $330 million.
- AI server production now generates 42% of total revenue, overtaking iPhone assembly for the second quarter in a row.
- The company has brought in a total of $31 billion in AI server revenue and expects continued growth in the fourth quarter.
- New factories in Mexico and Texas will produce AI servers for Nvidia as part of its geographic expansion.
- Recent partnerships with Nvidia, Stellantis, Uber and Mitsubishi Electric focus on autonomous vehicles and AI data centers.
Foxconn posted third-quarter profit of $1.89 billion on Wednesday. The 17% year-over-year increase crushed Wall Street estimates.
Analysts had expected a profit of about $1.56 billion. The company exceeded that forecast by about $330 million.
Sales rose 11% to $63.5 billion from July to September. The cloud and networking division led the gains.
AI servers have become Foxconn’s biggest source of revenue. They now represent 42% of the company’s total sales.
This is the second quarter in a row in which AI servers overtake smart consumer electronics. The electronics category includes iPhone production, historically Foxconn’s bread and butter.
The company has generated $31 billion in revenue from AI servers. Major customers include Amazon and Nvidia.
Foxconn’s chairman met with OpenAI’s CEO in October. Although no deal was announced, the stock jumped to an all-time high after the meeting.
New production facilities
Foxconn is building factories in Mexico and Texas dedicated to the production of AI servers. These factories will supply Nvidia with server hardware.
The geographical spread aims to reduce delivery times and production risks. Most iPhone assembly still takes place in China, but Indian facilities now produce the majority of iPhones destined for the US market.
Strategic partnerships
The company joined forces with Nvidia, Stellantis and Uber to develop Level 4 autonomous vehicles. These cars drive without a human safety driver present.
A joint venture for AI data center solutions was established through a November 6 agreement with Mitsubishi Electric. The partnership focuses on energy-efficient systems for global deployment.
Both companies will combine technological resources to explore new business opportunities. The focus extends beyond data centers and also focuses on other collaboration solutions.
Counterpoint Research’s Ivan Lam called Foxconn’s approach a “follow the cash” strategy. The company is letting go of some of its consumer electronics work to pursue higher-margin server contracts.
Lam noted that the shift is “clearly paying off,” despite the trade-offs in traditional business units.
Management expects the activities to show continued quarterly growth in the second half of the year. Supplies of AI servers and demand for information technology products are the main drivers.
The company warned about global economic uncertainty and currency fluctuations. These factors will require continued attention throughout the remainder of the year.
Fourth-quarter results should remain strong, according to Lam. Component pricing issues and logistics issues may put pressure on margins, but overall trends remain positive.
Foxconn sold a car factory in Ohio for $375 million in August. The company had bought the factory in 2022 for the production of electric vehicles, but shifted priorities.
HNHPF shares fell 0.95% to $15.98 on Tuesday. Analysts give the stock a moderate buy rating with an average price target of $20, indicating an upside potential of 25%.
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