Hon Hai Precision reported on Thursday that its net profit for the third quarter ended September rose 34% year-over-year to NT$77.5 billion (approximately US$2.4 billion), surpassing the analyst consensus estimate of NT$70.3 billion, with sales growing 47%. The company's results once again exceeded market expectations, driven by both surging demand for AI servers and robust consumer demand for high-end iPhone Duo models.
However, as NVIDIA (NVDA.US) CEO Jensen Huang finds himself mired in scandal and questions mount over the outlook for AI infrastructure investment, Hon Hai—a major server assembly partner for NVIDIA—has seen its share price fall more than 20% from its June high.
AI servers emerge as the biggest growth engine
Hon Hai is a key server assembly partner for NVIDIA, assembling AI servers equipped with NVIDIA GPUs, including next-generation Rubin chips. This has become the company's single largest growth driver, helping it reduce its traditional reliance on consumer electronics.
Hon Hai Chairman Young Liu said in October that the company aims to capture half of the AI server market within two years and to raise its gross margin to approximately 10% by producing more high-value components.
Analysts Steven Tseng and Sean Chen noted that based on monthly disclosure data, Hon Hai's third-quarter revenue is estimated to have surged 47% to a record NT$3.03 trillion, up 20% quarter-over-quarter, with cloud and networking businesses leading the way. This was supported by continued shipments of NVIDIA GB-series AI server racks, rising spending from hyperscale cloud providers, and capacity expansion.
The growing share of high-value AI servers will continue to dilute gross margin, but selective adoption of consignment arrangements is expected to ease the pressure. Operating leverage from increased AI server shipment volumes, combined with higher levels of automation and vertical integration, should support profit growth and offset gross margin dilution.
NVIDIA scandal poses potential risks
Hon Hai is one of NVIDIA's key suppliers and now faces potential fallout from the Jensen Huang scandal. Reports allege that Huang has been involved in multiple extramarital affairs, putting the NVIDIA CEO under pressure and raising market questions about the prospects for the massive global AI infrastructure buildout—which has been driven in part by NVIDIA's backing.
Investor concerns about the intensity of AI buildout are mounting: the debt-driven data center industry is already showing signs of stress, major AI developers still need to prove they can achieve sustainable profitability, and capital expenditure growth from hyperscale cloud providers is expected to slow after years of rapid expansion.
Hon Hai's share price has dropped more than 20% from its June high, with its market capitalization shrinking to just over US$100 billion.
iPhone Duo and EV business provide additional support
Beyond AI servers, Hon Hai is also benefiting from solid demand for high-end smartphones such as Apple (AAPL.US)'s foldable iPhone Duo. Apple described the device's initial market reception as "extraordinary."
Hon Hai—better known as Foxconn—is helping Apple assemble the device and the iPhone 18 series at its factories in China and India. With global smartphone shipments overall hovering at their lowest levels since 2013, both Apple and Hon Hai are counting on premium products like the iPhone Duo to boost profit margins. Institutional forecasts suggest iPhone Duo sales could reach as high as 16 million units by next September.
Additionally, Hon Hai has deepened its footprint in the electric vehicle industry over the past three months, agreeing to acquire a 50% stake in Mitsubishi Electric's automotive components business for US$727 million.
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