iPhone contract manufacturing business overtaken by AI server business, Foxconn's performance hits a new high

China Economic Journal Reporter Chen Jialan, Guangzhou Report

Famous for iPhone assembly, Foxconn has benefited from the generative AI boom. Today, a major driver of its performance growth is AI servers.

Recently, the major iPhone contract manufacturer Foxconn’s parent company, Hon Hai Precision (hereafter “Hon Hai”), released an impressive annual report. The latest financial results for Q4 2025 and the full year show that the company achieved double growth in revenue and net profit, with revenue reaching a record high.

According to China Business Journal, one focus is that, over the full year, Hon Hai’s “Cloud Network Products” business now accounts for a larger share of revenue than the “Consumer Smart Products” business, which is dominated by iPhone assembly. This shift first appeared in Q2 2025 and has continued to strengthen in subsequent quarters, becoming a key feature of the company’s revenue structure transformation. The main driver is the explosive growth in demand for AI servers.

Rise of AI Servers

Based on official financial reports and investor presentations, Hon Hai’s full-year 2025 consolidated revenue reached NT$8.1 trillion, up 18% year-over-year, surpassing market expectations. Net profit attributable to the parent was NT$189.4 billion, up 24%. For Q4 2025, revenue totaled NT$2.61 trillion, up 22%, while net profit attributable to the parent was NT$45.2 billion, down 2%.

Hon Hai’s revenue composition includes “Consumer Smart Products,” “Cloud Network Products,” “Computer Terminal Products,” and “Components and Others.”

Reviewing Hon Hai’s 2025 financials, it’s clear that the “Cloud Network Products” segment—mainly servers and network communication products—accounts for about 40% of revenue, becoming the largest source of income, surpassing the “Consumer Smart Products” segment, which accounts for about 38%.

2025 is a pivotal year for Hon Hai’s “AI-driven transformation.” Chairman Liu Yangwei noted that driven by strong demand for AI servers, the revenue share of cloud network products rose rapidly from 22% in 2023 to 40% in 2025, becoming the group’s largest revenue source.

This trend was already evident in Q2 2025, when cloud network products (including AI servers) first overtook consumer smart products as the top revenue contributor. By Q3 2025, AI server demand continued to be the core engine behind the unexpectedly strong performance.

Liu Yangwei stated that both Q4 and the full year set new records, exceeding expectations and showing robust growth. Notably, even during the traditional peak season for ICT products, cloud and network products’ revenue in Q4 2025 surpassed that of smart consumer electronics for the first time, making it the largest product category that quarter.

Consumer Smart Products: The Only Declining Segment

It’s worth noting that, even in years with strong iPhone sales, Hon Hai’s consumer smart business experienced slight declines.

IDC’s “Global Quarterly Mobile Phone Tracker” reports that in 2025, global smartphone shipments reached 1.26 billion units, up 1.9% year-over-year. Apple was the big winner. The data shows that Apple’s iPhone shipments grew about 6.3% to 240.6 million units, marking the third consecutive year at the top of the global smartphone manufacturers list. The successful launch of the iPhone 17 series in China also set a new shipment record.

However, the reporter notes that despite good market performance for iPhones, Hon Hai’s consumer smart products—one of its four main business segments—declined by 2.78% in full-year 2025, contrasting sharply with the overall 18% revenue growth. Hon Hai explained that, although the demand for consumer smart products was better in 2025 than in 2024, currency exchange rate effects kept the annual growth rate flat.

Hon Hai’s CFO, Huang Dekai, also said the company will continue to manage inventory and implement risk mitigation measures to minimize the impact of USD depreciation on gross margins. The group also has policies to hedge currency risks, such as including exchange rate adjustment clauses in customer contracts, increasing pricing frequency, and using financial hedging tools to offset risks from operations and financing activities. These measures aim to reduce currency fluctuation risks.

Ding Shaojiang, founder of Ding Technology, told reporters that such fluctuations highlight the external sensitivity of consumer smart business, which is more vulnerable to currency swings and product lifecycle changes, leading to weaker and more fragile financial performance. In contrast, AI server business benefits from the global boom in AI infrastructure investment, showing stronger growth resilience and visibility, and playing a key role in stabilizing overall performance.

Industry insiders also told reporters that, in the future, Apple remains an important customer for Hon Hai—especially for high-end products like iPhone and Mac. Apple’s influence is more about seasonal fluctuations rather than long-term dependency. However, risks remain, such as Apple’s bargaining power and inventory strategies (e.g., the 2018 iPhone X order cancellations), which could cause short-term impacts on Hon Hai’s performance.

Margin Pressure and Profitability via Scale

It’s important to note that high-priced AI servers, which operate on a Buy & Sell model, also put pressure on gross margins. The financial report shows Hon Hai’s gross margin in 2025 was 6.15%, down 0.11 percentage points year-over-year; Q4 gross margin fell to 5.88%, down 0.27 points.

Huang Dekai explained that, although the Buy & Sell model affects gross margin, the company is confident in maintaining operating profit margins above 3% through economies of scale and vertical integration of components.

The full-year 2025 financials show operating margin at 3.20% and net profit margin at 2.34%, compared to 2.92% and 2.23% in the previous year. This indicates that, despite dilution from high-priced AI products, operating profit margins have increased to over 3%.

Looking ahead to 2026, Liu Yangwei said that recent months have seen significant changes in tariffs, geopolitics, and global monetary policies. Driven by strong growth in AI servers, the company expects a robust performance throughout 2026, with AI cabinet shipments expected to multiply and increase quarter by quarter toward the end of the year.

“We expect AI cabinet shipments in Q1 2026 to grow at a high double-digit quarter-over-quarter rate,” Liu said. The company expects AI cabinet shipments to double for the full year. Currently, Hon Hai’s global AI server market share has reached 40%, and with each new product generation, the market share is expected to further expand as new customers are onboarded.

The global “memory shortage” has already affected the smart consumer market, with Apple also facing memory shortages and rising costs.

However, Liu Yangwei stated that, since the company’s product mix mainly consists of high-end models, the impact is relatively small. Market demand remains stable and in line with expectations, and the outlook is gradually improving, with significant growth expected this year.

Ding Shaojiang believes that Hon Hai’s focus on high-end iPhone assembly gives it a resilient cost structure, but other consumer electronics segments will still face pressure.

Regarding computer terminal products, Hon Hai admitted that due to tight storage chip supplies and moderate demand, the PC industry faces challenges, and demand is relatively mild, so this segment is expected to decline slightly.

(Edited by Wu Qing, Reviewed by Li Zhenghao, Proofread by Wan Ling)