Foxconn: party animal is latest tech group to become an AI lister

Some uncool people have a knack of turning up at all the coolest parties. In the world of tech, that applies to Foxconn. On Wednesday it became the latest business to feature as an AI lister, via its relationship with US artificial intelligence chip group Nvidia.

Foxconn is a theoretically prosaic contract manufacturer listed in Taiwan as Hon Hai Precision. It made a windfall working for Intel in the PC boom of the early 2000s. Then it became Apple’s key manufacturing partner. Now, with smartphone sales slowing, it is moving on to the next big thing.

Foxconn expects sales to at least double in the second half on surging demand for servers with AI capabilities. Sales from the division reached NT$1.1tn ($36bn) last year.

The Taiwanese group struck a partnership with the US AI chip developer seven years ago to create AI-ready servers. Back then, AI was a niche obsession rather than an investment frenzy.

Consumer electronics, including smartphones, still account for nearly 60 per cent of total sales. A slowdown here forced Foxconn to post a 56 per cent decline in first quarter net profits. Operating margins remain razor thin at just 2.8 per cent.

These could fall further. The global tech battle could make it harder for Foxconn to make US smartphones in China. Heavy investment in contract electric vehicle manufacturing is already a drag. Some relief should come from listing the electric car unit Foxtron in Taiwan.

But the biggest boost should come from AI. This will bolster the server division in the short term and orders for new AI-equipped devices in the medium term.

Foxconn has turned up at more than one warehouse anticipating a party that never kicked off. It cancelled a plan for a $10bn advanced display plant two years ago, switching its focus to servers.

Shares are up a fifth from an October low at the top of its five-year range on a forward earnings basis. The rally should continue as long as the AI rave rolls on.

Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore