Server Economy: Foxconn profits surge 27% as AI infrastructure demand booms

Foxconn, the world’s largest contract electronics maker, reported a 27% surge in second-quarter profit to T$44.4 billion ($1.48 billion), beating analyst expectations driven by booming demand for AI servers. The Taiwan-based manufacturer, which assembles iPhones for Apple and servers for Nvidia, expects AI server revenue to jump more than 170% year-over-year in the third quarter as artificial intelligence infrastructure spending accelerates.

Key financial highlights: Foxconn’s Q2 performance significantly outpaced market forecasts, with net profit reaching T$44.4 billion compared to the consensus estimate of T$38.8 billion.

• The company reported record second-quarter revenue last month, primarily fueled by strong AI product demand.
• For the first time, revenue from its cloud and networking business—which includes AI servers—exceeded that from smart consumer electronics like iPhones.
• Foxconn forecasts “significant year-on-year growth” for both Q3 and full-year revenue, though it doesn’t provide numerical guidance.

AI server boom drives growth: The company is capitalizing on the artificial intelligence infrastructure buildout as enterprises and cloud providers expand their computing capabilities.

• AI server revenue is projected to leap more than 170% year-over-year in the third quarter, highlighting the explosive demand in this sector.
• Foxconn serves as Nvidia’s biggest server maker, positioning it at the center of the AI hardware supply chain.
• The company is building new factories in Mexico and Texas specifically to manufacture AI servers for Nvidia.

Geographic diversification strategy: Foxconn is expanding its manufacturing footprint beyond China amid ongoing trade tensions, though Washington and Beijing recently extended their tariff truce for another 90 days.

• Most iPhones sold in the United States are now produced in India, while the bulk of Foxconn’s iPhone assembly still occurs in China.
• The company maintains a major manufacturing presence in China, making it vulnerable to global trade uncertainties.

Beyond traditional manufacturing: Foxconn is diversifying into new growth areas, though with mixed results in some sectors.

• The company sold its former Lordstown, Ohio car factory for $375 million earlier this month after purchasing it in 2022 for electric vehicle manufacturing, though it will continue occupying the facility for potential AI data center use.
• Last month, Foxconn formed a strategic partnership with TECO Electric & Machinery, an industrial motor maker, to build data centers, expanding beyond its traditional iPhone assembly role.
• Electric vehicles remain a target for future growth, despite some setbacks in execution.

Market performance: Foxconn shares have risen 8.4% year-to-date, outperforming Taiwan’s broader market index gain of 5.2%.

• The stock closed up 0.5% on Thursday ahead of the earnings call scheduled for 3 p.m. Taipei time (0700 GMT).