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Foxconn, a Taiwanese AIAI, AI. PCai AI AI GPCAI Your browser does not support the element.electronics manufacturer, is best known for making iPhones in China. Yet in October it announced plans to build a megafactory in Mexico that will churn out servers made with artificial-intelligence () chips from Nvidia, a semiconductor giant. To meet the roaring demand for the plant’s capacity will be, as Young Liu, Foxconn’s chairman put it, “very, very enormous”.That phrase could well describe the ambitions of the contract-manufacturing industry as a whole. The firms, which make gadgets for other companies, are on a tear. On January 5th Foxconn, also known as Hon Hai, announced record fourth-quarter sales of $65bn, up by 15%, year on year. Its smaller rivals, such as Quanta Computer and Jabil, have also reported solid results recently. In the past two years the combined market value of the eight biggest contract manufacturers has roughly doubled (see chart). Buoyed by their impressive performance, the companies are busy expanding into new products and places.Much of their recent success is down to Whereas demand for smartphones and s has stagnated, for data centres it has ballooned. On January 3rd Microsoft said that it would splurge $80bn on infrastructure this year. For Foxconn, a big supplier to the software giant, servers will make up about a quarter of total sales in 2025. For Quanta that share could be half, according to Mizuho, a Japanese bank. Other contract manufacturers, such as Luxshare, a Chinese supplier to Apple, and Compal, a Taiwanese one, are hoping that will revive sales.Contract manufacturers have also been expanding into new industries. In October Foxconn unveiled , to add to the six other models which it will build for companies. Competitors such as Pegatron are now making gear for private 5 networks. Quanta is expanding into wearable medical devices and smart-home gadgetry. Foxconn has blasted two prototype satellites into space.The firms are trying to control more of the value chain as well. Foxconn wants to provide parts, such as liquid-cooling technologies, for the server racks it assembles. Luxshare, which began life as a maker of components for smartphones, is doing more assembly. On December 31st it announced it would acquire the assembly division of Wingtech, another Chinese supplier to Apple.At the same time, a geographic shift is under way, precipitated by Donald Trump’s first round of tariffs in 2018. According to Counterpoint, a research firm, the production of smartphones and s mostly remains in China, though there has been some relocation to places like India and Vietnam. But the manufacturing of other products has moved closer to customers. About two-fifths of Taiwanese contract manufacturers’ server production now takes place in Mexico, reckons JPMorgan Chase, a bank. That cuts the cost of shipping to the American cloud-computing giants, which are their biggest customers.For all the expansion, contract manufacturers face a number of risks. One is competition. The firms are constantly invading each others’ turf. Luxshare was founded by two former factory workers at Foxconn, with which it now vigorously competes. Tata, an Indian conglomerate, bought the local iPhone operations of Wistron, a Taiwanese manufacturer, in 2023, and is acquiring a majority stake in the Indian operations of Pegatron.Another risk is customer concentration. Around 70% of Luxshare’s business comes from Apple. Foxconn gets about 60% of its revenue from the iPhone-maker. Booming sales related to mean some contract manufacturers now rely heavily on Nvidia for their growth.A final risk is trade. Mr Trump has said he will slap tariffs on Canada, China and Mexico. Their dependence on a few customers suggests that contract manufacturers may struggle to pass on higher costs. That could mean thinner margins as gadget-makers absorb the levies or plants are moved to tariff-free countries. During Mr Trump’s first term Apple and Samsung successfully lobbied for exemptions for their supply chains. Contract manufacturers will be hoping for a repeat, perhaps with support from the cloud giants. Despite their best efforts at diversification, Foxconn and friends are still at the mercy of big tech.
