Foxconn predicts its AI server business will at least double in the second half of this year, making the world’s largest contract electronics manufacturer – best known for making the iPhone – the latest beneficiary of the meteoric rise of generative artificial intelligence systems like ChatGPT .
Foxconn chairman Young Liu said at the company’s annual meeting on Wednesday that it expected triple-digit growth in AI servers in the second half. Demand for processors in such servers has propelled chip designer Nvidia to become the most valuable semiconductor company, with a market cap briefly surpassing the $1 trillion mark on Tuesday.
Liu said the rapid proliferation of generative AI systems, such as ChatGPT, and users’ increasing reliance on these systems has increased demand.
While Foxconn is best known as Apple’s largest manufacturing partner, the group makes a wide variety of other electronic products and components, from computers and industrial robots to electric cars and semiconductors. Along with rivals like Quanta Computer, it also manufactures a large portion of the servers sold by branded vendors like Dell, while also making them directly for major data center users like Google and Amazon.
Of Foxconn’s NT$6.6 trillion ($215 billion) revenue last year, NT$1.1 trillion came from production servers, of which it has a 40 percent global market share, and 20 percent 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 center capacity needed to train AI systems. Nvidia forecast revenue of $11 billion in the three months to the end of July, more than 50 percent higher than analysts’ expectations — an upgrade that propelled it to its trillion-dollar valuation this week.
Taiwan Semiconductor Manufacturing, the world’s largest contract chip maker, has also talked about “structurally higher demand”, in part due to AI-driven growth.
Foxconn’s bullish forecast contrasted sharply with the 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 earnings would be flat compared to last year.
Since electronics manufacturing service providers like Foxconn focus on assembling tech gadgets and making a range of lower end components, they receive a much smaller share of revenue from the rise of AI servers than chip design companies like Nvidia.
Assembly and testing accounts for just $495 of the $10,424 cost of an Intel Sapphire Rapids AI server, according to chip research firm SemiAnalysis. Other components that Foxconn makes, such as connectors, chassis, cooling systems, and motherboards, are also small parts of an AI server’s BOM.
“But we have a very wide footprint, as you know,” said a person close to Foxconn. “So when you add it all up, it’s a lot of momentum.”