AI servers overtook the iPhone as Foxconn's biggest business
Its quarterly print is now a live gauge of AI infrastructure capex rather than consumer electronics, and the fight investors are pricing is whether it keeps any margin or just passes Nvidia's volume through.
Richard Tangtwo-minute read
Foxconn−0.83% — Foxconn, down 0.83 percent today, formally Hon Hai Precision Industry, said cloud and networking gear, the segment that assembles AI servers, passed smartphones as its biggest source of revenue 14. The segment took 54 percent of third-quarter sales, up from 51 percent the quarter before 1.
The quarter that made the flip official also produced a record profit of NT$77.5 billion (US$2.4 billion), ahead of the NT$70.3 billion analysts expected 2. Chairman Young Liu says capacity is booked for at least 18 months, with AI rack shipments guided to high double-digit growth again this quarter 1. Orders are booked, which settles the demand question and leaves margin as the open one.
Server gear is swallowing the assemblers' revenue mix
Foxconn just passed half; Quanta's servers are already above 80 percent of revenue
- Share of revenue
- Estimate
Data
| Share of revenue | |
|---|---|
| Foxconn Q2 | 51% |
| Foxconn Q3 | 54% |
| Quanta Q3 | 80% |
| Quanta 2027 (guided) (estimate) | 87.5% (85–90%) |
Operating profit outran revenue, which answers the pass-through charge
The bear case treats Foxconn as plumbing: Nvidia−5.64% — Nvidia, down 5.64 percent today-linked volume passed through at thin assembler margins. The income statement now argues back. Gross margin narrowed to 6.02 percent 3. Operating income still grew 64 percent, faster than revenue, on better product mix and scale, and net profit lagged only because non-operating items collapsed 3. Scale is converting into core profit, not just into sales.
Foxconn's operating income grew faster than revenue last quarter
Scale converted into core profit; the net line lagged on non-operating items
Data
| Value | |
|---|---|
| Revenue | 46% |
| Operating income | 64% |
| Net profit | 34% |
The cash statement is the qualification. The first nine months consumed NT$287 billion of free cash as capex and receivables grew 3. Foxconn is financing part of the AI buildout from its own working capital, and that line decides how durable the margin story is.
Supply, not demand, is the bottleneck now
Liu expects demand to keep outpacing supply into next year, with tight conditions persisting 2, and names component shortages, geopolitics, inflation and monetary policy as the 2027 risks 4. The buildout runs from Nvidia's chips through racks to the electricity feeding data centers, and the constraint has moved from orders to parts and power: DIGITIMES reports that Quanta−6.54% — Quanta, down 6.54 percent today, the other big rack maker, is shifting its 2027 capex toward power 5. Quanta more than doubled revenue the same week on a gross margin of 4.75 percent 6. That is where next year's winners get decided.
Shares are up 4 percent while Taiwan's index gained 49
Foxconn builds roughly 40 percent of the world's AI servers and aims for half 1, yet its shares are up 4 percent this year 7, while Taiwan's broader index gained 49 percent 7. The builders who turn Nvidia's silicon into working racks are the ones closing the gap between AI capability and what people actually use, and this quarter the operating line started to show it. Watch whether the margin holds as racks become the whole company, and whether cash comes back before the order book turns.
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More about NVIDIA
NVDAFiscal Q2 2027Revenue rose 106% to $96.2B, 92.5% of it from Data Center, “driven by the ramp of our Blackwell Ultra infrastructure”. Gains on equity stakes of $7.8B lifted net income to $59.7B.
Show as a table
| Line | Value |
|---|---|
| Revenue | $96.2B |
| Gross margin | 75.0% |
| Operating margin | 66.2% |
| Net income | $59.7B |
| Hyperscale | $48.7B |
| AI clouds & enterprise | $40.3B |
| Data Center | $89.0B |
| Edge Computing | $7.2B |
| Gross profit | $72.1B |
| Cost of revenue | $24.1B |
| Other income | $7.8B |
| Operating income | $63.7B |
| Operating expenses | $8.4B |
| Tax | $11.8B |
| R&D | $7.1B |
| SG&A | $1.4B |
