Hon Hai Precision Industry Co., widely known as Foxconn, has reported stronger-than-expected revenue growth, attributed primarily to rising demand for artificial intelligence (AI) infrastructure. According to a recent report from Bloomberg, the company experienced a 15% increase in revenue, amounting to NT$2.13 trillion (approximately US$64.6 billion) over the last three months. Notably, December 2023 revenues surged by 42%, surpassing analysts' projections and prompting a rise in its shares, which increased by as much as 3.6% during trading in Taipei.
The company, which is also the largest supplier of iPhones for Apple Inc., is benefiting from significant investments in data centre servers from major U.S. technology firms, including Alphabet Inc. and Microsoft Corp. Despite this optimistic growth, some analysts express concern over the future of the AI market, citing the current absence of a compelling use case for the technology, which may leave investors wary about the longevity of this expansion.
Goldman Sachs analysts have responded positively to the company’s performance, updating their earnings estimates for 2024 with a 1% increase based on revenue figures from December. They have also raised their revenue projections for the current year and the subsequent two years, linking these adjustments to increased demand for AI servers. "Sequential revenue growth in the cloud supports our positive view on increasing shipment of next-generation rack-level AI servers and demand for general servers and networking equipment," the Goldman Sachs analysts wrote.
Looking ahead, Hon Hai forecasts that revenue from its cloud business, which encompasses AI servers, could potentially match that of its iPhone manufacturing segment by the year 2025. This shift represents a strategic move for the firm as it seeks to diversify its operations away from reliance on Apple, which has historically constituted more than half of Hon Hai's sales.
However, caution is advised, as Citi analyst Cary Liu has indicated that the company's first-quarter predictions may not align with market expectations, suggesting the possibility of a near-term decline in stock value.
In addition to its focus on AI, Hon Hai is also aiming to establish a footprint in the electric vehicle (EV) market; however, this initiative has yet to generate noticeable profit contributions. The company has been in discussions with Renault SA to forge a partnership with Nissan Motor Co., in which Renault holds a 36% stake. Current developments have stalled as Nissan and Honda Motor Co. engage in merger negotiations.
The ongoing dynamics of the AI market, coupled with Hon Hai's diversification efforts, highlight a significant trend in the intersection of technology and business practices, particularly as companies adapt to evolving demand patterns and emerging technologies.
Source: Noah Wire Services