Foxconn, the Taiwanese contract manufacturing giant renowned for assembling Apple’s iPhone, is poised to embark on a significant expansion of its operations in India by commencing the production of AI servers at its existing facilities in Tamil Nadu. This strategic move underscores Foxconn's efforts to diversify its manufacturing capabilities and capitalize on the booming AI technology market.

Foxconn plans to utilize its Tamil Nadu facilities to manufacture high-performance AI servers, which are critical for training and operating artificial intelligence models. The company already produces AI servers for major global tech companies such as Amazon, Google, Microsoft, and NVIDIA. By extending these capabilities to India, Foxconn aims to bolster its global market share in AI servers, which it anticipates will rise to 40 percent this year from 30 percent in 2023.

The move to produce AI servers in India aligns with Foxconn’s broader strategy to diversify beyond its heavy reliance on smartphone manufacturing. Foxconn chairman Young Liu, at the company’s annual shareholders' meeting in Taipei, emphasized that AI servers could soon become Foxconn's next trillion-revenue product. Industry analysts echo this sentiment, viewing the manufacture of AI servers and electric vehicle (EV) components as high-margin growth areas for the company in India.

A source within the industry highlighted Foxconn's versatility, stating, “Foxconn can make pretty much anything since they are contract manufacturers. It could be phones, servers, or EV components. They are very nimble that way and currently, servers are what they are bullish about”.

Foxconn’s expansion is further supported by India’s production-linked incentive (PLI) scheme for IT hardware, which encourages manufacturing growth within the country. This scheme has been instrumental in facilitating Foxconn’s plans, including discussions with Google to produce Pixel smartphones locally in Tamil Nadu.

Foxconn is aggressively increasing its investments in India. In February, the company announced that its Indian arm would invest approximately Rs 1,200 crore to construct a new factory. Additionally, a separate mega factory is being built outside Bengaluru, primarily for Apple’s products, including the iPhone. The company has also committed to a $37.2 million investment in a joint venture with IT major HCL Group to establish a chip packaging and testing facility in India, following the collapse of a previous joint venture with Vedanta Group.

Despite these ambitious expansion plans, Foxconn is currently facing allegations of discriminatory hiring practices at its Tamil Nadu manufacturing units. The Ministry of Labour and Employment has requested a detailed report from the state’s labor department on the matter. Addressing these concerns will be crucial for Foxconn to maintain its reputation and operational smoothness in India.

Foxconn's diversification efforts are showing promising financial results. The company reported a 72 percent surge in net profit in the first quarter of 2024, driven by robust demand for AI technology. Revenue from AI servers alone grew nearly 200 percent year-on-year in the first three months and is projected to continue its upward trajectory. During an earnings call in May, Foxconn indicated plans to develop new AI products, including servers powered by NVIDIA’s AI chips, which are expected to further drive revenue growth through 2025.

Foxconn’s diversification into AI servers and other high-margin products marks a strategic shift to reduce its dependence on smartphone manufacturing and tap into the lucrative AI and EV markets. With significant investments and expansion plans in India, Foxconn is positioning itself as a formidable player in the global technology manufacturing landscape, poised to benefit from the growing demand for advanced computing solutions.