Foxconn is now looking at making AI servers in India, expand beyond iPhones

Foxconn is set to begin producing AI servers at its facilities in India, marking a significant expansion of its operations in the country. Known primarily for assembling Apple’s iPhone, the Taiwanese contract manufacturing giant is now looking to diversify its manufacturing capabilities.

According to a report by the Economic Times which quoted multiple sources familiar with the matter, Foxconn will use its existing facilities in Tamil Nadu to manufacture AI servers. These high-performance computing engines are essential for training and running artificial intelligence models. Foxconn, which already manufactures AI servers for major global tech companies like Amazon, Google, Microsoft, and NVIDIA, sees this move as a strategic expansion.

Foxconn can make pretty much anything since they are contract manufacturers, said one source. “It could be phones, servers, or EV components. They are very nimble that way and currently, servers are what they are bullish about.”

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Industry experts view the move to manufacture AI servers in India as a natural progression for Foxconn. The company expects its share in the global AI server market to increase to 40 per cent this year, up from 30 per cent last year. Foxconn chairman Young Liu highlighted at the company’s annual shareholders’ meeting in Taipei that AI servers could soon become the company’s next trillion-revenue product.

Analysts believe that manufacturing electric vehicle (EV) components and servers will be the next growth areas for Foxconn in India, as these products offer better margins compared to mobile phone assembly. “It aligns with their broader strategy for the future as they need to diversify beyond phones,” said another source, noting Foxconn’s heavy reliance on Apple.

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Foxconn is also benefiting from India’s production-linked incentive (PLI) scheme for IT hardware, which further supports its expansion plans. Recently, it was reported that Google is in advanced talks with Foxconn to locally produce Pixel smartphones in Tamil Nadu.

Foxconn is aggressively increasing its investments in India. In February, Foxconn announced that its Indian arm would invest about Rs 1,200 crore to construct a new factory. Furthermore, a different new mega factory is also being constructed outside Bengaluru, primarily for Apple’s products, namely the iPhone.

The company also announced a $37.2 million investment in a joint venture with IT major HCL Group to establish a chip packaging and testing facility in India. This move followed the collapse of Foxconn’s joint venture with Vedanta Group.

Despite these expansion moves, Foxconn is facing allegations of discriminatory hiring practices at its Tamil Nadu manufacturing units. The Ministry of Labour and Employment has requested a detailed report from the state’s labour department on the matter.

During an earnings call back in May, Foxconn indicated that they are planning some new AI prodcuts such as servers which would be powered by NVIDIA’s AI chips would power. Initiatives such as these were expected to drive further revenue growth through 2025.

However, consumer electronics will likely remain the company’s primary revenue source. Foxconn reported a 72 per cent jump in net profit in the first quarter of 2024, driven by robust demand for AI technology. Revenue from AI servers in the first three months grew nearly 200 per cent year-on-year and is expected to continue improving.

Foxconn’s diversification into AI servers and other high-margin products is a strategic move to reduce its reliance on smartphone manufacturing and capitalise on the booming AI and EV markets. With significant investments and expansion plans in India, Foxconn is positioning itself as a key player in the global technology manufacturing landscape.