Foxconn’s Apple era fades as AI servers drive growth in Taiwan tech sector

About this update from Foxconn Technology Co., Ltd.

By Wen-Yee Lee Taiwan's Foxconn TWSE:2317, which rose to become a global tech manufacturing juggernaut by assembling millions of iPhones, can now say its main business is no longer Apple NASDAQ:AAPL as it takes advantage of the AI-boom to diversify its income. Its revenue from making AI servers and other cloud and networking products, including for major customer Nvidia NASDAQ:NVDA, surpassed smart consumer products such as iPhones for the first time in the second quarter, marking the culmination of a shift that began years ago and has swept through Taiwan’s tech industry.Foxconn's heavy reliance on the smartphone business has long been viewed by investors as a significant risk, as demand growth for new iPhones has gradually weakened since they were first introduced nearly two decades ago, leaving the top iPhone assembler grappling with slowing sales momentum, analysts said. Wary of the risk, Foxconn Chairman Young Liu has been championing new businesses such as AI servers, electric vehicles and semiconductors since taking the top job in 2019.While its expansion into EVs and chips has yet to show a meaningful contribution to its topline, Foxconn's success in AI server manufacturing - the company is Nvidia's biggest server maker - is the result of its early bets before the technology was thrust into the limelight with the advent of ChatGPT in late 2022. Consumer electronics accounted for 35% of Foxconn's total revenue in the second quarter, while cloud and networking business represented 41%. In 2021, consumer electronics represented 54% of its revenue.The firm's prudent wagers years back helped it cultivate a now-prized relationship with the U.S. AI chip firm and other major AI players, analysts said."The company has been in the business for years, meeting higher quality requirements, diversifying assembly and operations across sites, and pursuing vertical integration,” said Ming-Chi Kuo, an analyst at TF International Securities.Foxconn began producing reference designs for Nvidia’s graphics cards around 2002 and started making general-purpose servers for cloud service providers’ data centres as early as around 2009. Its AI server business with Nvidia is in many ways the culmination of that history, analysts said.Foxconn says it is now one of the world’s largest suppliers of both general-purpose and AI servers, with a market share of nearly 40% in each.T...

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