(Bloomberg) -- Hon Hai Precision Industry Co. posted a surprise earnings fall after weak Chinese iPhone sales eroded margins, though the Nvidia Corp. supplier forecast a doubling in AI-related revenue this quarter.
The Taiwanese company’s net income plunged 13% to NT$46.3 billion ($1.4 billion), far short of analysts’ estimates for a 2.3% gain. Hon Hai, one of Nvidia’s most important server assemblers, expects revenue to rise in 2025, though it didn’t specify the extent of gains.
Hon Hai’s server manufacturing arm has expanded alongside the boom in demand for the Nvidia chips that drive AI development. But it still derives the majority of its revenue from iPhones, and Apple reported a surprise decline in sales of its flagship device during the holiday quarter. Hon Hai in January revealed a deceleration in December-quarter sales.
While big tech firms from Microsoft Corp. to Amazon.com Inc. have pledged to keep spending on data centers, Chinese startup DeepSeek’s rise has spurred doubts about whether all that expenditure is justified. Hon Hai, which ships electronics to the rest of the world from giant production bases in China, is also grappling with uncertainty surrounding Trump-administration tariffs in 2025.
What Bloomberg Intelligence Says
Sequential growth may have slowed in 4Q due to a model transition, but could pick up again in 1Q. The computing segment could have delivered stronger than expected growth due to AI PC penetration and earlier order pull-in ahead of tariff hikes. The component business might have sustained sales momentum on an expansion of the automotive unit and increasing vertical integration. Yet the smart consumer electronics division could have been muted as iPhone demand tumbled in China. Hon Hai’s profit could jump on rapid sales growth, but gross margin might be diluted due to lower profitability of high-price AI servers.
- Steven Tseng and Sean Chen, analysts
Analysts for now expect AI demand to help revive Hon Hai’s top-line in 2025. Sales for the first two months of this year jumped 25%, quickening from last year. That reflects Nvidia’s $11 billion in quarterly revenue from its most advanced Blackwell chip, which it called “the fastest product ramp” in the company’s history.
Hon Hai has been expanding its investments in the US, to make more AI servers there. Last month, Apple said it will partner with Foxconn to begin producing servers that power Apple Intelligence in Houston. Yet the Asian company is continuing to build what it’s called the world’s biggest AI server assembly plant in Mexico as well.
The company is also an assembler for Nintendo Co. The Japanese company is expected to oversee the biggest launch in game industry history later this year with its Switch 2, and analysts see it selling rapidly even with a higher price than its predecessor.
--With assistance from Mayumi Negishi.
(Updates with outlook from the first paragraph)