Hon Hai (Foxconn) is said to have secured a major coup for its AI server business. According to market sources, Hewlett Packard Enterprise (HPE) has been responding to significant demand for its Al servers, which the company has turned to its long-time ODM partner to help produce. When quizzed about these rumors, Foxconn said it could not comment on individual orders or clients.
The generative AI boom has continued to drive high demand for AI servers, but upstream chip shortages have meant that server makers have struggled to keep up, even as orders continue to pile up at brand-name vendors. For example, market sources suggest that HPE has been responding to significant demand for its AI servers valued at billions of US dollars. However, with its limited production capacity, HPE has turned to its long-time ODM partner Foxconn to help with a portion of the orders. For its part, HPE did not spend too much effort on price negotiations with Foxconn, merely requesting timely delivery due to the sudden rise in demand.
As AI continues to be the talk of the day, all four leading global cloud service providers—Amazon Web Services (AWS), Microsoft Azure, Google Cloud, and Meta—have kept pouring cash to purchase AI servers, and suppliers have needed to set up dedicated production lines to meet their massive order volumes.
Meanwhile, edge devices are needed to implement the simulations and modeling done in cloud data centers, which has led to a sustained demand for AI servers on the edge. However, since these use cases may only require a handful of servers, demand in this segment is unlikely to warrant dedicated production lines at ODM systems suppliers such as Foxconn and Quanta, and that is where brand-name vendors come in.
Regarding HPE's recent bulk order to Foxconn, market watchers speculate that this may have come from customers that either do not operate on the scale of CSPs, or internally lack a dedicated support team for follow-up maintenance, and they turn to an established brand name vendor to help them build up their Al capacity. Since Foxconn has long been a manufacturing partner of HPE, the market expects that some production may be transferred to Foxconn.
Foxconn chairman Young Liu recently noted that the company's AI server business is expected to perform quite well in 2024. This continues a growth trend since December 2023 in cloud-related products such as general purpose and AI servers, which is understood to have been driven by orders from brand name server vendors.
Since AI servers command healthy prices due to supply shortages on the market, market watchers say Foxconn will make a sizable profit if they can ship on time.
Article translated by Kevin Wang
