Foxconn's profit lags estimates as it forecasts strong revenue growth

(Reuters) - Taiwan's Foxconn (2317.TW), the world's largest contract electronics maker, said on Monday it expected strong revenue growth in the first quarter and the whole of ‌this year, even as it posted a fall of 2% in quarterly profit, lagging estimates.

The technology giant, Nvidia's (NVDA.O) biggest server maker and Apple's (AAPL.O) top iPhone assembler, blamed a rise in its tax rate for the drop, which came despite robust global demand for AI products and a jump of 22% in fourth-quarter revenue.

Foxconn's guidance for both first quarter and full year revenue are for "strong growth", the highest outlook it can give, as the company does not provide a numeric outlook.

"Artificial Intelligence's strong growth was not just for this past year or two," Chairman Young Liu told ⁠an earnings call. "It will last through the next two to three years."

He added, "Our major customers expect the size of the AI industry to hit $1 trillion over the next two to three years."

It is the first time the company, which generates a significant share of revenue from AI servers, has given an outlook for the full year 2026.

Growth would be driven by sustained strong demand for AI servers, in which its market share would reach 40%, it said.

Despite predicting a good 2026, Liu pointed to external issues beyond Foxconn's control.

"The biggest external challenge this year, in my view, is still the global political and economic situation, especially the war in the Middle East," he said, without elaborating.

The escalating conflict in the Middle East has rattled global markets and fuelled concerns over supply chain risks.

Foxconn has been riding a data centre boom as cloud computing firms such as Amazon (AMZN.O), Microsoft (MSFT.O) and Alphabet's (GOOGL.O)

Google spend billions of dollars to expand ‌AI infrastructure ⁠and research capacity.

QUARTERLY PROFIT LAGS FORECASTS

Foxconn's net profit for the period from October to December was T$45.21 billion ($1.42 billion), versus an LSEG consensus estimate of T$63.86 billion.

The electronics giant said it also expected first-quarter revenue for smart consumer electronics to see significant growth year-on-year, although it forecast a decline in the personal computer sector.

"In the smart consumer electronics products segment, there have been concerns about memory shortages and price increases," Liu said.

However, with its product mix skewed toward higher-priced models, the Foxconn saw limited impact, ⁠he added.

"As a result, demand remains unchanged, visibility has been gradually improving, and we expect to deliver significant growth this year."

Formally called Hon Hai Precision Industry, Foxconn reported record fourth-quarter revenue in January, on strong demand for AI products.

Most of the iPhones Foxconn makes for Apple are assembled in China, but it now produces the bulk of those sold ⁠in the United States in India. The company is also building factories in Mexico and Texas to make AI servers for Nvidia.

Foxconn has also been looking to expand its footprint in electric vehicles, which it sees as a major generator of future growth, though its efforts have not always gone smoothly.

In August, ⁠Foxconn said it had struck a deal to sell a former car factory at Lordstown, Ohio, for $375 million, including machinery that it bought in 2022 to make EVs.

Foxconn's shares have dropped 6% so far this year, underperforming a gain of 15% in Taiwan benchmark's index (.TWII).

Its shares closed up 0.9% on Monday ahead of the results.

($1=T$32.0940)

Reporting by Wen-Yee Lee, Faith Hung and Ben Blanchard; Editing by Anne Marie Roantree, Kevin Buckland and Clarence Fernandez

Reuters report

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