The market will still face a shortage of AI (artificial intelligence) chips this year. On February 4, Liu Yangwei, chairman of Foxconn's parent company Hon Hai Precision Industry Co., Ltd. (Hon Hai, 2317.TW), said that Hon Hai's AI server business has been very good this year, but the overall AI server industry is still facing a large shortage of AI chips. Even if the supply of AI chips eases in the second half of the year, it still cannot keep up with demand. It must wait until the capacity of new upstream factories is opened to solve the problem of material shortage in the industry chain.
According to media reports, Hon Hai will hold its annual meeting on February 4. Hon Hai’s year-end bonus will be increased by 15%. The maximum prize is NT$1 million (approximately 229,000 yuan) and Hon Hai’s own Model C electric car. Liu Yangwei said in an interview with the media that geopolitics and the international economy will affect the demand for consumer electronics this year. It is expected that Hon Hai’s overall performance this year will be slightly higher than last year.
Liu Yangwei said that Hon Hai's performance in the AI server business is quite good, but the supply of Nvidia AI chips this year is seriously insufficient. Only a few leading factories can get enough. Second- and third-tier factories, even though they cannot get the chips, claim that the performance of AI servers this year will be quite good. "I have questions and puzzles about this situation."
Regarding the topic of AI servers, Liu Yangwei once introduced the supply chain of the entire industry: From the perspective of generative AI products, they can be roughly divided into GPU modules, GPU substrates, AI servers, cabinets, advanced cooling solutions, and AI data centers. Hon Hai is the only manufacturer that can provide complete solutions. It has achieved a high market share of more than 70% in GPU modules and substrates at the front end of the AI server industry value chain. In the back-end value chain such as AI server cabinets, the market share is less than 50%, and the market share of the entire server market is also less than 50%.
Hon Hai won the first order for NVIDIA's HGXAI server chip substrate in August 2023. In addition to the previous order for NVIDIA's other DGXAI server chip substrate, Hon Hai has already obtained NVIDIA's two most important AI server substrate orders. At the same time, the proportion of supply is gradually increasing, becoming the largest supplier of NVIDIA's AI server chip substrate, occupying more than 50% of the market share.
In November 2023, Hon Hai released its third quarter report for 2023. Hon Hai's third quarter revenue was NT$1.54 trillion (approximately 347.42 billion yuan), a year-on-year decrease of 12%, slightly lower than market estimates; net profit was NT$43.13 billion (approximately 9.730 billion yuan), a year-on-year increase of 11%, higher than market estimates.
At the third quarter report conference call, Liu Yangwei looked forward to 2024 and said that the strength of demand recovery is the focus of the market. With the current visibility, he maintains a relatively neutral view of next year's outlook. Looking at Hon Hai's four major product categories, Liu Yangwei predicts that cloud servers will be the main source of growth, especially the growth in customer demand from cloud service providers (CSP) and the strong demand for AI servers. However, Hon Hai AI servers do not account for a large proportion of Hon Hai's overall server performance.
Liu Yangwei said that it is expected that GPU (graphics processing chip) related businesses can steadily increase market share in 2024, and the AI server market share target should be increased to the same as the overall server market share.