Foxconn is charting a new course in its corporate history, shifting the balance of its revenue streams toward artificial intelligence infrastructure as demand for AI servers eclipses that for smartphones. The company’s bullish forecast stems from the accelerating global race to build AI-capable data centers, with orders from cloud giants and enterprise clients driving record growth.

AI Servers Take the Lead Over Smartphones

For decades, Foxconn was synonymous with mass-producing smartphones and other consumer electronics for the world’s leading brands. That dominance is now giving way to a new reality: AI server sales have overtaken smartphone revenues for the first time. This milestone comes as the company posts a 27% year-on-year rise in second-quarter net profit, largely due to surging AI server demand.

In the third quarter, Foxconn expects AI server revenue to jump more than 170% from the previous year. The surge is being fueled by hyperscale cloud providers and AI developers racing to secure high-performance computing infrastructure, particularly GPU-powered server clusters critical for training and running large AI models. These clients are investing heavily to expand data processing capacity, and Foxconn has positioned itself at the center of this supply chain.

Cloud and networking products now make up 41% of Foxconn’s total revenue, surpassing the 35% share from consumer electronics. This marks a structural shift in the company’s business model and reflects a long-term pivot toward enterprise and infrastructure solutions rather than consumer-focused devices.

Strategic Expansion in the United States

Foxconn’s confidence in its AI-driven growth trajectory is matched by aggressive investment in manufacturing capacity. The company plans to raise capital expenditure by more than 20% this year, channeling much of it into server production facilities in Texas and Wisconsin.

In addition to these flagship U.S. plants, Foxconn is expanding output from facilities in Mexico, Ohio, and California. This diversified footprint allows the company to better serve North American clients while reducing exposure to geopolitical tensions, tariffs, and supply chain disruptions. For hyperscale customers—many of which prefer servers to be manufactured closer to deployment—Foxconn’s U.S.-based production offers a strategic advantage.

One symbolic move was the sale of its Lordstown, Ohio electric vehicle factory to SoftBank, while retaining usage rights for server manufacturing at the site. This reflects a deliberate reallocation of resources from slower-developing sectors like EVs toward high-growth opportunities in AI infrastructure.

Market Response and Competitive Advantage

Foxconn’s transformation has been well received by investors, with its shares climbing over 8% this year, outperforming Taiwan’s local index. Analysts attribute this rally to expectations of higher margins in AI servers compared to smartphones, as well as the company’s strengthened negotiating position with global enterprise clients.

The competitive landscape is shifting alongside Foxconn’s business model. In the AI server market, the company competes with both traditional electronics manufacturers and specialized data center hardware providers. Its advantage lies in its ability to deliver complete, ready-to-deploy systems rather than just components. Collaborations with chipmakers, software firms, and data center operators further enhance its position, allowing Foxconn to integrate more deeply into AI ecosystem supply chains.

Despite its robust growth outlook, Foxconn faces several operational and macroeconomic risks. The possibility of renewed U.S. tariffs, currency fluctuations, and global economic uncertainty all have the potential to impact profitability. A stronger Taiwan dollar could reduce export competitiveness and erode margins, particularly for shipments to the U.S. and Europe.

To mitigate these threats, Foxconn is accelerating diversification beyond China and Taiwan, expanding manufacturing capacity in India and Southeast Asia. This not only aligns with client strategies to reduce dependency on single-country sourcing but also spreads production risk across multiple geographies.

On the operational side, the shift toward AI servers brings its own challenges. Manufacturing these systems requires precision engineering, stringent quality control, and the ability to rapidly scale production. As demand fluctuates with technological breakthroughs and customer project cycles, Foxconn must ensure it can meet deadlines while maintaining high standards.

Long-Term Outlook and Industry Implications

Foxconn’s pivot toward AI infrastructure could redefine its place in the global technology supply chain. Financially, the move promises more stable and higher-margin revenue streams than the volatile consumer electronics market. Strategically, it deepens relationships with enterprise and cloud clients, potentially opening opportunities in integrated solutions and end-to-end infrastructure services.

Sustainability and efficiency are also becoming selling points. Customers increasingly demand energy-efficient servers and environmentally responsible manufacturing, and Foxconn is investing in modular designs and green technologies to meet these expectations.

This transformation mirrors broader industry trends. As the world transitions from consumer electronics dominance to an AI- and cloud-driven economy, manufacturers able to adapt quickly are positioned to gain market leadership. Foxconn’s decision to double down on AI servers reflects both the enormous growth potential in this sector and the need to reduce exposure to cyclical downturns in smartphone demand.

The AI boom shows no sign of slowing in the near term. The next few years will reveal whether Foxconn can sustain its momentum while navigating geopolitical risks, evolving technology requirements, and operational complexities. Key metrics to watch will be quarterly AI server revenue growth, the pace of capacity expansion in U.S. plants, and the company’s ability to maintain profitability amid rising costs.

If Foxconn delivers on its forecast, it will stand as a case study in large-scale corporate reinvention—transitioning from the world’s largest assembler of consumer electronics to a cornerstone supplier of AI infrastructure. Its success would also underscore the broader reality that in the age of artificial intelligence, the hardware powering innovation is as critical as the algorithms themselves.

For now, Foxconn’s bullish outlook suggests the company is not just riding the AI wave—it is building the very servers that make the wave possible.

(Adapted from TheGlobeAndMail.com)