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The first paragraph was all about spreading the news that Foxconn was moving away.

In fact, Foxconn’s establishment of factories in India, Vietnam and even Indonesia does not mean that Foxconn will move away from mainland China.

BYD is also building a factory in Vietnam. Is BYD running away?

There are two reasons for building factories overseas. On the one hand, Cook and Terry Gou are cunning and want to make multiple bets. On the other hand, the expansion of multinational companies will inevitably require building factories in more regions.

In order to prove that Foxconn has moved away, someone found data showing a sharp drop in exports in Henan Province in the first quarter of 2024.

However, in fact, Foxconn achieved its best performance in history in the first quarter of 2024.

So why did exports drop sharply despite the surge in performance?

The reason is very simple. It’s not that Foxconn is failing, but that Apple is failing.

According to Canalys data, Apple's domestic shipments ranked fifth in the first quarter.

Things got even worse in the second quarter, as Apple became others for the first time in its history.

Apple's global sales also declined significantly, by 9.6%.

Since the market share lost by Apple was taken over by domestic mobile phones, and the total market share of domestic mobile phones is also in a growth stage globally, if Apple really runs away, it will not have much impact on China's mobile phone manufacturing industry.

Foxconn has more than a hundred subsidiaries, and Foxconn in Zhengzhou mainly manufactures Apple mobile phones, so its impact on Henan Province's exports is relatively large.

This actually means that Foxconn's dependence on Apple has decreased, and it does not mean that Foxconn has run away.

Both Foxconn and the local authorities are aware of this problem and are working together to achieve transformation.

01

Gorgeous first quarter report

On July 24, Hon Hai Technology Group announced that its subsidiary Foxconn Technology Group had signed a strategic cooperation agreement with Henan. According to the agreement, Henan will support Foxconn in building a new business headquarters in Zhengzhou. The first phase of the project is located in Zhengdong New District, with a construction area of ​​about 700 mu and a total investment of about 1 billion yuan.

The new headquarters is no longer the Apple mobile phone, but a booming new track: new energy vehicles.

Foxconn said it will give full play to its core competitiveness in the field of smart manufacturing, as well as its advantages in global technology reserves and industrial chain resources, to accelerate the implementation of the electric vehicle, energy storage battery, digital health and robotics industries, focus on Henan, and build a global high-end manufacturing industry chain and strategic emerging industry ecosystem.

Data source: Tonghuashun iFind

In the first quarter of 2024, Foxconn Industrial Internet achieved revenue of 118.688 billion yuan, a year-on-year increase of 12.09%; net profit attributable to shareholders of the parent company was 4.185 billion yuan, a year-on-year increase of 33.77%; net profit attributable to shareholders of the parent company after deducting non-recurring items was 4.272 billion yuan, a year-on-year increase of 33.22%.

This increase is quite strong.

According to the company's first quarter report, the company's cloud computing business revenue accounted for nearly 50% of its total revenue.

It is divided into two parts:

AI servers account for nearly 40% of the total server revenue (in 2023, AI servers account for about 30% of cloud computing revenue), and AI server revenue has nearly tripled year-on-year. Generative AI servers have increased nearly threefold year-on-year, and have also grown at a double-digit rate month-on-month.

General purpose servers achieved double-digit year-over-year growth and single-digit sequential growth.

The company's growth business is mainly servers, and since the server production and manufacturing base is not in Zhengzhou, it has affected Henan's export situation.

02

Combined with the 2023 annual report, the company's operating conditions

Because there is less data in the first quarter report, Mr. Starry Sky opened the company's 2023 annual report and made a detailed analysis.

In 2023, Foxconn Industrial Internet achieved operating revenue of 476.34 billion yuan, a year-on-year decrease of 6.94%, and net profit attributable to shareholders of the parent company was 21.04 billion yuan, a year-on-year increase of 4.82%; non-net profit was 20.209 billion yuan, a year-on-year increase of 9.77%.

The net cash flow from operating activities needs to be mentioned separately, which is 43.084 billion yuan in 2023, a year-on-year increase of 180.39%, indicating that the company's payment collection is relatively good.

There are three reasons for the decrease in revenue and the increase in net profit.

First, structural transformation. Today, Foxconn is one of the largest AI server OEMs. In 2023, the development and application of AI technology drove the company's performance growth. The company's share in the AI ​​server market has increased significantly, driving the increase in operating income and profits.

Second, the company's layout in the fields of high-end intelligent manufacturing and industrial Internet, as well as its cooperation with top global customers, have enhanced the company's market position and profitability. Don't forget that Foxconn's full name listed on the A-share market is: Foxconn Industrial Internet Co., Ltd.

Third, the net cash flow generated by the company's operating activities increased significantly, indicating that the company has achieved remarkable results in operating efficiency and cash flow management.

In terms of sections,

1. Cloud computing

In 2023, the revenue of cloud computing business will be 194.308 billion yuan, of which the proportion of AI servers in cloud computing revenue will increase to about 30%.

The gross profit margin of cloud computing reached 5.08%, an increase of 1.12 percentage points from last year.

2. Communications and mobile network equipment

In 2023, the revenue from communications and mobile network equipment was RMB 278.976 billion, and the operating income from high-speed switches and routers increased by double digits compared with the same period last year.

The gross profit margin of communications and mobile network equipment was 9.80%, an increase of 0.55 percentage points year-on-year.

3. Industrial Internet

The revenue of industrial Internet business will be RMB 1.646 billion in 2023. The company has newly empowered 3 world-class lighthouse factories and helped build 9 lighthouse factories in total.

The company's R&D investment continues to increase, with R&D expenses reaching RMB 10.811 billion in 2023, accounting for 2.27% of operating income. The number of R&D personnel reached 31,792, accounting for 16.6% of the company's total employees.

From the perspective of employee structure, the company's employee headcount has not changed much in the past three years, but the number of production staff has decreased slightly and the number of technical personnel has increased significantly.

03

Foxconn in the AI ​​Era

What has been the biggest impact on Foxconn in the past two years?

It is not that Apple is going to transfer production to India, but that Cook has given part of the iPhone 15 max production capacity to Luxshare Precision.

While they were forced to transfer production capacity to India, they were also giving the new capacity to domestic competitors.

Even if Terry Gou is a fool, he should understand what is going on: Cook is not only worried about Chinese outsourcing, he is also worried about only having Foxconn outsourcing!

What should I do then?

Transformation to prevent being hijacked by Apple. AI servers have become the lifeline for Foxconn's successful transformation.

As we all know, AI's research and development center is in the United States, and the chips are mainly from NVIDIA.

However, few people realize that the assembly base of AI is in China, at Foxconn. Although it cannot earn the most lucrative profits in the hardware industry chain, similar to the mobile phone industry chain, China's production capacity is unparalleled.

The application scenarios of AI are almost mainly concentrated in the Chinese market.

Because AI must eventually be combined with the physical manufacturing industry, and China has the most complete scenarios in this regard.

China's commercial driverless taxis based on AI technology have begun to be boycotted, while driverless taxis in the United States are still being tested on a small scale.

Chinese companies have generated huge demands for AI computing power, and Foxconn is the most competitive one among them that can provide sufficient AI server products.