At a glance. Foxconn's AI position before the rack-power question existed: 100% share of GPU modules and about 50% of GPU baseboards — the highest-value pieces upstream of an AI server. Everything in the later notes, including in-housing busbars and cooling, is Foxconn extending outward from this base.
What changed this quarter
All three margins rose together. Gross 6.66%, operating 2.99%, net 2.79%, each better than both the prior quarter and the prior year. The drivers were mix — CSP and AI server content, plus rising penetration of titanium phone housings and camera modules — helped by a weaker New Taiwan dollar.
Semiconductor milestones landed. The wafer fab obtained automotive IATF16949 certification, Foxconn presented its first in-house automotive MCU test chip, and launched a full range of 1200 V SiC modules for EV drivetrains.
The EV pipeline was quantified: 23 projects in discussion or execution across 14 potential customers, with Model C certified in Taiwan and deliveries from January 2024.
The numbers
| Q3 2023 | Value | Change |
|---|---|---|
| Revenue | NT$1.5432tn (~US$49bn) | +18% QoQ, −12% YoY |
| Gross profit | NT$102.8bn | +23% QoQ, −5% YoY |
| Operating profit | NT$46.2bn | +49% QoQ, −5% YoY |
| Net income to parent | NT$43.1bn (~US$1.37bn) | +31% QoQ, +11% YoY |
| EPS | NT$3.11 (~US$0.10) | from NT$2.80 |
Nine-month revenue was NT$4.3tn with a cumulative gross margin of 6.37%, better than 6.2% a year earlier. Capex was set to exceed NT$90bn for 2023, with 2024 similar.
NVIDIA 800V read-through
No 800 V content — this call is a year and a half early. Two things are still relevant.
Position. Foxconn claimed 100% share of GPU modules and roughly 50% of GPU baseboards, with semiconductor and packaging bottlenecks easing and very strong 2024 AI server shipment growth expected. AI-related revenue was still single-digit as a share, but its higher margin was already helping the mix.
Silicon. The 1200 V SiC modules launched here for EV drivetrains matter because NVIDIA's whitepaper explicitly credits the maturity of SiC and GaN devices, and the EV industry's migration from 400 V to 800 V, as the reason 800 VDC is feasible in data centers now. Foxconn was building EV-grade high-voltage silicon before it needed data-center-grade.
Management also stated that AI rack assembly would not dilute gross margin, putting it at high single digit to double digit against mid single digit for branded servers.
Segments that moved
Consumer electronics was 54% of Q3 revenue, entering peak season on a major US customer's launch.
Cloud and networking was 22%, with stable CSP demand and branded servers recovering after about a year of inventory digestion. AI servers were the main growth driver; networking had not yet recovered.
Computing was 18%, boosted by back-to-school and new products, with Q4 expected flat.
Components and others was 6%. Core component lines such as titanium housings and camera modules stayed strong; the full-year downgrade came from non-core logistics and leasing businesses, not components.
Guidance
- Q4 2023: significant sequential growth, still down year on year. Consumer and components up strongly; cloud and computing flat.
- Full year 2023: revenue slightly down, but gross margin expected to beat 2022's 6.04%.
- 2024: neutral initial view across all four segments pending macro conditions, with AI servers the standout growth driver and Model C deliveries adding revenue.
- Long term: the 10% gross margin by 2025 target was reaffirmed, via components, EV, semiconductors, and AI servers, with EV vertical integration targeted above 40% in-house content.
Management Q&A
Q: Why did third-quarter gross margin recover, and how much came from mix versus currency?
A: Foxconn does not split the two, but said they were the two largest factors. Mix help came from titanium-aluminium phone housings, a higher camera-module attach rate, and AI-server parts — GPU modules at 100% share and baseboards at about 50% — while a weaker NT dollar versus the US dollar was a tailwind, though that FX help may fade if the rate-hike cycle is ending.
Q: Why was the full-year "components and other products" outlook cut from significant growth to flat, and which demand is weak?
A: The cut is not from core components, which remain strong. Weakness is in non-core services sitting in the same bucket, such as logistics and leasing. Core work in housings, optics, acoustics, EV components and semiconductors is still expected to grow; internally produced components are about US$33bn, or roughly NT$1tn, though most of that is eliminated into finished goods and only third-party sales hit the reported line.
Q: Can you put a more concrete number on AI-server growth?
A: Foxconn would not give a percentage on behalf of customers. Subsidiary FII's Q3 gross-margin jump is the tell, GPU and packaging bottlenecks are easing, and 2024 AI-server shipments are expected to be very strong, because Foxconn sits upstream with 100% of the GPU-module process once TSMC finishes the chips.
Q: What bargaining power does Foxconn have in the GPU chain, and can it help downstream customers get more GPUs?
A: The near-term priority is the higher-margin upstream GPU module and baseboard book, plus capacity, technology and local production as servers become strategic goods; whole-rack assembly is not the priority yet, though the long-term aim is AI-server assembly share in line with general servers, above 40%. Management would not claim it can secure extra GPUs for customers, but noted that during the pandemic IC shortage it used supply-chain leverage to help customers get chips, suffer less, and take share — a capability it would try to extend if assembly grows.
Q: GPU baseboard share was cited at about 50%, which looks higher than before — why?
A: After the foundry ships GPUs, Foxconn builds each into a module (100% share) and then six to eight modules onto a baseboard (about 50% share); both steps need customer engagement, technology and automation. It would not comment on rumours of share shifts, said the module book looks steady, and still sees growth room in baseboards on capability and global footprint.
Q: What is the recovery outlook for PCs and smartphones next year?
A: The stance is neutral. Third-party reports already point to low-single-digit global smartphone growth, but inflation and rates still weigh, especially on entry-level phones, while Foxconn's premium mix has limited the hit. PCs and enterprise servers have been digesting inventory for several quarters and look near a trough — branded servers already picked up in October — so they should turn gradually, with macro, rates and geopolitics still the swing factors.
Q: What is the longer-term sales mix from outside China?
A: Capacity follows customer request; there is no fixed out-of-China revenue-share target, and a full local supply chain takes a long time to build. Higher-margin new work such as EVs and semiconductors is being kept in Taiwan and China, while other lines diversify over time to India, Vietnam, the United States, Mexico and elsewhere, as fast as customers ask.
Q: The 10% gross-margin target for 2025 was restated — what is the path?
A: The 10% target is unchanged and is enforced in every new order and price decision through mix: more components (housings, acoustics, cameras), then EV parts and semiconductors. EV is the key, with the same kind of vertical integration as ICT — more than 40% in-house content — aimed at high-double-digit EV gross margin; AI servers, still only a single-digit share of group sales, have already moved the margin and are expected to keep helping through 2025.
Q: Does AI-server whole-rack assembly dilute group gross margin?
A: No. AI whole-rack margin is described as comparable to CSP servers, at high single digit to double digit, better than branded servers at mid-single digit, so the mix effect is positive. That CSP premium is tied to a different business model — charging for content and caring about power and efficiency rather than only box cost — and Foxconn does not expect that margin to reverse just because NRE fades.
Disclaimer
English notes on Hon Hai Precision Industry's investor conference of 15 November 2023, covering Q3 2023. Figures are as presented by management and have not been independently verified. USD equivalents are approximate at about NT$31.5 to the dollar. For reference only; not investment advice.