HON HAI PRECSN's AI business is quietly shifting gears. According to a report from May 13, market sources indicate that HON HAI PRECSN's "all-optical CPO switch cabinet" has been delivered to its major customer NVIDIA ahead of schedule. Furthermore, the shipment target has been significantly revised upward from the initial estimate of over 10,000 units by 2026 to a combined total of over 50,000 units for the 2026-2027 period. Industry insiders reveal that the supply of all-optical CPO switch cabinets produced at HON HAI PRECSN's factory in Vietnam is extremely tight. Even demonstration units have been fully delivered to NVIDIA, leaving "not a single cabinet behind." The CPO switch cabinet originally planned for display at this year's Taipei International Computer Show (Computex) may not be available for physical viewing. In response, HON HAI PRECSN officially stated that it "does not comment on individual customers or products." Gross Margin Doubles, CPO Becomes HON HAI PRECSN's Second Growth Engine Why is the market paying such close attention to this business? The key lies in the change in profit structure. The gross margin for traditional server contract manufacturing is only 5% to 8%, while the gross margin for CPO switches reaches double digits. This means that with the same revenue scale, the CPO business can generate significantly more actual profit. The company forecasts that by 2026, the CPO business will contribute over 15% of the revenue for HON HAI PRECSN's subsidiary, Foxconn Industrial Internet (FII), establishing it as the second growth curve following AI servers. The report indicates this will bring a structural change to the overall profitability of HON HAI PRECSN. What is CPO? Why Does NVIDIA Need It? CPO (Co-Packaged Optics) is a technology that directly packages optical modules with chips. Simply put, as AI data centers scale up, the volume of data that needs to be transmitted between servers is increasing dramatically. Traditional electrical signal transmission faces bottlenecks in both speed and power consumption. The role of all-optical CPO switches is to use optical signals instead of electrical signals for data transmission—resulting in faster speeds and lower energy consumption. FII has previously stated that to support the growth of AI computing power, four key technological changes are occurring in AI infrastructure, with all-optical CPO switches being one of them. FII also noted that 2026 will be a pivotal transition year for the development of optical communication in data centers. HON HAI PRECSN is NVIDIA's Sole CPO Contract Manufacturer According to reports, HON HAI PRECSN is the exclusive contract and design manufacturer (ODM) for NVIDIA's all-optical CPO products. This exclusive position means that any increase in NVIDIA's CPO shipments will directly translate into orders for HON HAI PRECSN. NVIDIA plans to ship over 50,000 CPO switches from 2026 to 2027, with HON HAI PRECSN being the sole manufacturer responsible for executing this target. The previously disclosed timeline by FII was: prototype shipments in the first quarter, mass production launch in the third quarter, with an annual shipment target of 10,000 units, and positioning 2026 as the "first year of CPO." However, the latest market information suggests that actual progress has already exceeded the original plan.
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