FILE PHOTO: Young Liu, Chairman of Hon Hai Technology Group (Foxconn), delivers a keynote speech at Computex in Taipei, Taiwan May 20, 2025. REUTERS/Ann Wang/File Photo

By Wen-Yee Lee

TAIPEI (Reuters) -Taiwan's Foxconn, which rose to become a global tech manufacturing juggernaut by assembling millions of iPhones, can now say its main business is no longer Apple as it takes advantage of the AI-boom to diversify its income.

Its revenue from making AI servers and other cloud and networking products, including for major customer Nvidia, surpassed smart consumer products such as iPhones for the first time in the second quarter, marking the culmination of a shift that began years ago and has swept through Taiwan’s tech industry.

Foxconn's heavy reliance on the smartphone business has long been viewed by investors as a significant risk, as demand growth for new iPhones has gradually weakened since they were first introduced nearly two decades ago, leaving the top iPhone assembler grappling with slowing sales momentum, analysts said.

Wary of the risk, Foxconn Chairman Young Liu has been championing new businesses such as AI servers, electric vehicles and semiconductors since taking the top job in 2019.

While its expansion into EVs and chips has yet to show a meaningful contribution to its topline, Foxconn's success in AI server manufacturing - the company is Nvidia's biggest server maker - is the result of its early bets before the technology was thrust into the limelight with the advent of ChatGPT in late 2022.

Consumer electronics accounted for 35% of Foxconn's total revenue in the second quarter, while cloud and networking business represented 41%. In 2021, consumer electronics represented 54% of its revenue.

The firm's prudent wagers years back helped it cultivate a now-prized relationship with the U.S. AI chip firm and other major AI players, analysts said.

"The company has been in the business for years, meeting higher quality requirements, diversifying assembly and operations across sites, and pursuing vertical integration,” said Ming-Chi Kuo, an analyst at TF International Securities.

Foxconn began producing reference designs for Nvidia’s graphics cards around 2002 and started making general-purpose servers for cloud service providers’ data centres as early as around 2009. Its AI server business with Nvidia is in many ways the culmination of that history, analysts said.

Foxconn says it is now one of the world’s largest suppliers of both general-purpose and AI servers, with a market share of nearly 40% in each.

The company has also shown a willingness to commit investment to a project at an earlier stage than other companies, Kuo said, citing its past investments for Apple and similar moves for Nvidia. “In long-term partnerships, Foxconn is more willing to take the initiative,” he said.

Foxconn's plan to build factories in Houston, Texas — part of Nvidia’s $500 billion U.S. investment plan — and in Mexico to produce AI servers for the U.S. client underscores this strategy, analysts said.

Foxconn now expects its AI server revenue would grow more than 170% in the third quarter year-on-year.

Foxconn and Nvidia declined to comment. Apple did not respond to request for comment.

BROADER SHIFT

The shift at Foxconn mirrors a broader trend in Taiwan’s technology sector, where companies once centred on consumer electronics — such as Foxconn with iPhones, and Quanta Computer and Wistron Corp with notebooks — are now investing heavily in AI servers.

Nvidia partner Wistron’s revenue for January to July rose 92.7%, while Quanta’s grew 65.6% in the same period.

"The monthly sales jump for Taiwan ODMs in the first half of 2025 is evidence of this trend,” said Robert Cheng, head of Asia technology hardware research at BofA Global Research, referring to original design manufacturers like Foxconn that contract manufacture products for their clients.

Their fast transition into AI servers is also the result of Taiwanese tech supply chain working closely with U.S. tech giants on data centre infrastructure work for a decade now, according to Chris Wei, industry consultant at Taiwan’s Market Intelligence & Consulting Institute.

He estimates Taiwan accounts for about 80% of global server shipments and more than 90% of AI servers.

Cheng agrees.

"We think this shift toward AI servers, whatever form it takes, is good for Taiwan’s tech industry," he said, noting Taiwanese firms' ability to rapidly shift to cater to changing needs from their customers.

(Reporting by Wen-Yee Lee; Editing by Miyoung Kim and Shri Navaratnam)