Company Coverage
Foxconn Industrial Internet (601138 CH): Takeaways From 3Q26 Hon Hai Precision Earnings Call
BUY (Maintained)
Current price:
Target price:
Upside:
Previous TP :
Rmb43.35
Rmb77.60
+79.0%
Rmb77.60
Analyst
Analyst
Highlights
- Cloud and networking should sustain strong growth, supported by AI-rack share gains, robust CSP capex and additional NeoCloud customers.
- Rapid ASIC growth, consignment and higher vertically integrated content should support gross margin, capital efficiency and long-term earnings quality.
- Maintain BUY with a target price of Rmb77.60.
Analysis
- Cloud & networking remains the core growth driver. 3Q26 performance exceeded management’s already optimistic expectations, underpinned by strong AI-server demand and shipments of new-generation AI racks. Management expects momentum to extend into 4Q26, with AI-rack shipments delivering high double-digit qoq growth and general-server revenue growing moderately. For 2027, AI-rack shipments should maintain high double-digit growth, with further NeoCloud customer additions driving market share gains.
- ASIC growth should support higher value-added and capital efficiency. Many ASIC servers use a consignment model, under which customers provide the chips. As their value is excluded from both revenue and cost of goods sold, reported revenue is lower while gross margin is higher. ASIC servers also demand for greater customisation across system architecture, motherboards, power, liquid cooling and high-speed interconnects allowing Hon Hai to increase component content through vertical integration. In 3Q26, ASIC AI-server shipments rose 150% yoy, outpacing the 70% yoy growth in GPU AI servers, with their ASIC servers’ share of AI-server shipments expected to rise from 27.8% in 2026 to 40% by 2030.
- Management remains cautiously optimistic on 2027, despite strong AI-server demand and order visibility. Key concerns include continued chip and memory shortages across the broader supply chain, as well as macroeconomic uncertainty and geopolitical and policy risks.
Highlights
- Cloud and networking should sustain strong growth, supported by AI-rack share gains, robust CSP capex and additional NeoCloud customers.
- Rapid ASIC growth, consignment and higher vertically integrated content should support gross margin, capital efficiency and long-term earnings quality.
- Maintain BUY with a target price of Rmb77.60.
Analysis
- Cloud & networking remains the core growth driver. 3Q26 performance exceeded management’s already optimistic expectations, underpinned by strong AI-server demand and shipments of new-generation AI racks. Management expects momentum to extend into 4Q26, with AI-rack shipments delivering high double-digit qoq growth and general-server revenue growing moderately. For 2027, AI-rack shipments should maintain high double-digit growth, with further NeoCloud customer additions driving market share gains.
- ASIC growth should support higher value-added and capital efficiency. Many ASIC servers use a consignment model, under which customers provide the chips. As their value is excluded from both revenue and cost of goods sold, reported revenue is lower while gross margin is higher. ASIC servers also demand for greater customisation across system architecture, motherboards, power, liquid cooling and high-speed interconnects allowing Hon Hai to increase component content through vertical integration. In 3Q26, ASIC AI-server shipments rose 150% yoy, outpacing the 70% yoy growth in GPU AI servers, with their ASIC servers’ share of AI-server shipments expected to rise from 27.8% in 2026 to 40% by 2030.
- Management remains cautiously optimistic on 2027, despite strong AI-server demand and order visibility. Key concerns include continued chip and memory shortages across the broader supply chain, as well as macroeconomic uncertainty and geopolitical and policy risks.
BUY (Maintained)
Current price:
Target price:
Upside:
Previous TP :
Rmb43.35
Rmb77.60
+79.0%
Rmb77.60
Analyst
Analyst
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