iPhone maker Foxconn follows Nvidia with forecast for AI sales boost

Foxconn forecasts its AI server business will at least double in the second half of this year, making the world’s biggest contract electronics manufacturer — best known for making the iPhone — the latest beneficiary of the rapid rise of generative artificial intelligence systems such as ChatGPT.

“We could see triple-digit growth in AI servers in the second half,” said Foxconn chair Young Liu at the company’s annual meeting on Wednesday. Demand for processors in such servers has boosted chip designer Nvidia to become the most valuable semiconductor company, with its market capitalisation briefly breaching the $1tn mark on Tuesday.

Liu said the fast spread of generative AI systems such as ChatGPT and users’ increasing reliance on them was driving the boost in demand.

Although Foxconn is best known as Apple’s largest manufacturing partner, the group makes a vast array of other electronic products and components, from computers and industrial robots to electric cars and semiconductors. Along with rivals such as Quanta Computer, it also produces a large proportion of the servers sold by branded vendors such as Dell, while also making them directly for large data centre users such as Google and Amazon.

Of Foxconn’s NT$6.6tn ($215bn) in revenue last year, NT$1.1tn came from manufacturing servers, of which it has a 40 per cent global market share, and 20 per cent of the server business was in AI.

Liu’s forecast for this year comes just a week after Nvidia raised its revenue outlook due to the exponential growth in data centre capacity needed to train AI systems. Nvidia forecast $11bn in sales in the three months to the end of July, more than 50 per cent higher than analysts’ expectations — an upgrade that helped it to the trillion-dollar valuation this week.

Taiwan Semiconductor Manufacturing, the world’s largest contract chipmaker, has also been talking about “structurally higher demand” partly due to AI-fuelled growth.

Foxconn’s bullish forecast sharply contrasted with a very cautious overall outlook. Pointing to a lack of visibility due to inflation and geopolitical tensions weighing on the global economy, Liu reiterated his earlier forecast that 2023 revenues would be flat compared with last year.

As electronics manufacturing service providers such as Foxconn are focused on assembling tech gadgets and making a range of lower-end components, they are receiving a much smaller piece of the revenues from the AI server boom than chip design companies such as Nvidia.

Assembly and testing account for only $495 of the $10,424 cost of an Intel Sapphire Rapids AI server, according to chip research house SemiAnalysis. Other components Foxconn makes, such as connectors, chassis, cooling systems and motherboards, are also minor parts of an AI server’s bill of materials.

“But we have a very broad footprint as you know,” said a person close to Foxconn. “So if you add it all up, it is a lot of momentum.”