Hon Hai Precision Industry Co. has recently announced its optimistic forecast for strong growth in its AI hardware sales this year, leading to a significant surge in its shares. The Taiwanese firm anticipates a 40% increase in its artificial intelligence server business and aims to capture a 40% market share. Referred to as Foxconn, the company has witnessed robust profit growth for two consecutive quarters thanks to its flourishing AI hardware sales, which counterbalanced the decline in demand for iPhones and consumer electronics.
This positive projection has translated into a 9.5% jump in Taipei shares, further bolstering Foxconn’s confidence in its potential to benefit from the surging demand for AI. Although Foxconn wasn’t initially among the select group of companies capitalizing on the AI frenzy, investors and analysts now foresee its market share steadily growing. Additionally, Foxconn recently secured a significant order from its long-standing US partner, Hewlett Packard Enterprise Co.
In the quarter ended December, Hon Hai recorded a remarkable 33% rise in net income, amounting to NT$53.2 billion ($1.7 billion). This exceeded the average analyst estimates of NT$43.8 billion, largely credited to a substantial one-time gain. Although Hon Hai expects a decline in sales for the current period, it attributes this to a high comparison base from the early post-pandemic recovery period last year. The profitability of AI sales has allowed the company to navigate through a turbulent year for its flagship product, the iPhone.
Bloomberg Intelligence analyst Robert Lea comments on Foxconn’s performance, stating, “The business saw a good sequential rebound into Q4 partly driven by the AI-focused side, but if you take a step back and look at 2023 as a whole, it was a relatively weak year. The company should have a much better year as their main customers start to rebuild inventory.”
Analysts, including Gokul Hariharan from JPMorgan, predict that Foxconn’s rally is set to continue, with increasing market confidence in its prospects for AI server infrastructure in the second half of the year. They estimate that Hon Hai’s AI revenue and gross profit exposure will likely fall within the 10-12% range by 2025.
Despite this positive outlook, challenges persist for Foxconn, particularly in relation to its dependence on Apple, which contributes to over half of its revenue. Counterpoint Research recently reported a surprising 24% decline in iPhone sales in China during the first six weeks of this year. To stimulate demand, Apple resorted to rare discounts on its web store in January, and online resellers are now slashing prices by as much as $180.
These dynamics reflect the intricate balance Foxconn must achieve between its AI endeavors and its strong association with Apple’s fortunes. While Foxconn stands to benefit from the anticipated growth in AI demand, it is crucial for the company to diversify its revenue sources and continue expanding its customer base to mitigate potential risks.