Foxconn Reports Record Revenue but Profit Falls as AI Shift Accelerates

Foxconn’s AI Gamble: Can It Escape the Profit Trap?

A Record Quarter with a Profit Problem

Foxconn, the world’s largest contract electronics manufacturer and Apple’s key supplier, just delivered a paradox: a record-breaking 15.2% revenue surge in Q4 2024, yet a 13% decline in net profit. While AI server sales are booming, the company’s traditional consumer electronics business—especially iPhone assembly—is struggling.

Foxconn’s financial results highlight an industry at an inflection point. The pivot toward AI infrastructure is accelerating, but does it come at the cost of profitability? Investors are watching closely to determine whether Foxconn’s AI bet will pay off—or if the company risks trading one low-margin business for another.

AI Boom vs. iPhone Drag: Breaking Down the Numbers

• Revenue: Q4 revenue hit a record T$46.33 billion ($1.41 billion), up 15.2% year-over-year.
• Profit Miss: Net profit fell 13% to T$46.33 billion—falling short of analysts' estimates of T$54.4 billion.
• AI Strength: The cloud and networking division, including AI servers, saw explosive demand, benefiting from Nvidia-driven growth.
• Consumer Electronics Weakness: Traditional consumer products, particularly iPhone assembly, lagged, weighing down overall margins.
• Stock Performance: Foxconn shares dipped 0.8% on the day of the announcement and have fallen 8.7% YTD, as investors gauge the balance between short-term profitability pressures and long-term AI potential.

Foxconn’s Strategic Pivot: High-Stakes AI Expansion

Foxconn’s AI-focused expansion is not just a trend-following move—it’s a survival strategy. Chairman Liu Young projects that AI server sales will double in the next quarter and surpass T$1 trillion in 2025, potentially making up over half of the company’s total server sales.

Foxconn is betting big on AI infrastructure, aligning itself with the surging demand for high-performance computing. This transformation is evident in:

• Scaling AI Server Production – Meeting increasing demand from cloud giants and AI chipmakers.
• Expanding Manufacturing in Mexico – Foxconn is building a new facility for Nvidia’s superchips, reducing geopolitical risk and diversifying beyond China.
• Shifting Revenue Composition – Aiming to offset declining consumer electronics margins with high-value AI products.

The pivot is ambitious, but there’s one major question: Will AI servers deliver the margins needed to offset consumer electronics losses?

Geopolitical and Supply Chain Pressures Loom Large

Foxconn operates in a politically charged landscape. U.S.-China trade tensions and potential tariffs could disrupt its supply chain, particularly with its major manufacturing hubs in China and Mexico. While diversifying AI production into Mexico is a strategic move, the uncertainty surrounding global trade policy remains a wildcard for investors.

Additionally, AI server expansion requires massive capital investment. The costs of building advanced manufacturing facilities, securing supply chain stability, and ensuring high-yield production could strain Foxconn’s margins before AI-related revenue fully compensates.

Investor Take: Is Foxconn a Value Play or a Margin Trap?

Foxconn’s AI transition presents both an opportunity and a risk. Investors should keep an eye on three key areas:

1. Profitability Trends – Revenue growth is promising, but whether AI servers will offer sustainably higher margins remains unclear.
2. Capital Expenditure Impact – AI manufacturing requires heavy investment, and short-term profitability may remain under pressure as a result.
3. Geopolitical Risks – Trade policies and supply chain disruptions could affect Foxconn’s ability to execute its AI expansion efficiently.

Foxconn’s stock performance reflects this uncertainty. While AI tailwinds are strong, execution risks—combined with weakening iPhone assembly profits—could limit near-term upside.

A Make-or-Break Transition

Foxconn is at a crossroads. The company is no longer just Apple’s assembly line; it’s positioning itself as a key AI infrastructure player. However, the transition comes with short-term financial strain. If Foxconn successfully scales AI server production while controlling costs, it could emerge as a major AI manufacturing leader. If not, it risks replacing one low-margin business with another.

Investors should watch Q1 2025 closely. The doubling of AI server sales will be a key test—one that could determine whether Foxconn’s AI gamble is a goldmine or just another margin trap in disguise.