Nvidia-supplier Hon Hai’s profit misses as AI doubts persist

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 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.

Hon Hai Chairman Young Liu said his company wasn’t seeing a slowdown of AI server demand from cloud service providers. In fact, it was exploring ways to expand production in several US states for customers —  furthering US President Donald Trump’s goal of moving manufacturing back to America.

“We are actively replicating our past experience of globalization and focusing on production in the US,” he told analysts on a post-results call. “We are in close contact with customers...to adjust our production capacity.”

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. The Asian company is continuing to build what it’s called the world’s biggest AI server assembly plant in Mexico as well.

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.

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.

“The strong AI server outlook should be able to make up for sluggish iPhones sales this year,” Bloomberg Intelligence analyst Steven Tseng said. “We expect the cloud hardware business to account for more than 40% of Hon Hai’s revenue this year, up from 30% in 2024, while smart consumer electronics, which is mostly iPhone sales, will fall to below 40% from 46% in 2024.”