Foxconn's most profitable quarter ever was paid for by its own cost cuts

A guided beat on a record August

Foxconn says its third quarter will outperform market expectations ¹. August revenue was NT$921.8 billion↗, up 52% year on year, the best August ever, after July set the all-time monthly record ¹².

The June quarter underneath is the one the market calls a mix-shift win: revenue up 41% to NT$2.53 trillion, net profit up 35% to NT$59.97 billion, ahead of the NT$58.22 billion analysts expected ³⁴⁵. Cloud and networking, the AI rack division, passed half of revenue for the first time at 51%; the iPhone side slipped to 29% ³⁶.

The margin that fell, the margin that rose

The cut Hon Hai keeps on what it builds keeps shrinking. Gross margin was 6.12% against 6.33% a year earlier, and the annual series has stepped down from 6.30% in 2023 to 6.25% in 2024 to 6.15% in 2025 ³⁸. Operating margin ran the other way, to 3.75%, its highest in about nine and a half years, on an all-time record NT$94.8 billion of operating profit; net margin still fell, to 2.37% ³⁷⁸.

The gain came off the cost line

Hon Hai does not publish its operating-expense ratio, but it is the gap between the two margins it does publish: 3.17% of revenue a year ago, 2.37% now ⁸. The year-on-year arithmetic closes one way: minus 0.21 points from the product, plus 0.80 points from spreading cost over more revenue, plus 0.60 points at the operating line ⁸.

Gross profit grew 36% while revenue grew 41% ⁸. Management said it first in March 2025: the chief financial officer blamed selling more servers ⁸. Nvidia holds about 60% of TSMC's CoWoS output, pre-committed mostly through 2027; five North American hyperscalers account for nearly 90% of 2026 AI server spend ⁵⁷. The boom pays Hon Hai by the rack, and the rack's price is set elsewhere.

The bulls have receipts

A Japanese brokerage lifted its 2026 to 2028 forecasts by 12.8%, 23.4% and 24.9% and its target from NT$352 to NT$435 ⁸. A published bull model↗ sees a 3.7% operating margin on NT$11 trillion of revenue this year ⁹. Chairman Liu Young-way promises rack capacity doubling to 2,000 a week by end-2026 ⁸.

The ceiling Hon Hai cannot build

None of that buys CoWoS, TSMC's packaging step between a finished GPU die and a rack that can ship. Rotating chief executive Michael Chiang named chip supply, not demand, as the 2027 constraint: volumes "will depend on chip supply" ⁶⁷. TSMC targets 125,000 to 130,000 wafers a month by end-2026, its chief executive calls the line sold out through 2026, and trade reporting had it still short in September↗ ⁷¹⁰. Morgan Stanley, an estimate, has Hon Hai's high-end rack share slipping from 51% to 39% this year as buyers add assemblers ⁶⁸.

Two dates, one pair of numbers

Monthly revenue lands on 5 October 2026; the third-quarter results follow on a date still unannounced as of 25 September ⁸. Watch one pair: gross margin and operating margin. Gross turning up while operating keeps climbing would mean the mix shift finally charges for something. A fourth year of divergence means the model is volume, funded by a cost line shrinking toward zero.