Summary of Foxconn Industrial Internet (FII) Conference Call Company Overview - **Company**: Foxconn Industrial Internet (Ticker: 601138.SS) - **Industry**: Technology, specifically focusing on AI servers and ASIC (Application-Specific Integrated Circuit) technology Key Points and Arguments 1. **Market Position and Growth**: - FII is expected to maintain a leading market position due to its comprehensive AI server offerings and global production sites, benefiting from the rising trend in ASIC AI servers [1] - Estimated that FII's ASIC AI servers will contribute to 30% of AI server shipments by 2026 [1] 2. **Revenue Projections**: - Anticipated that AI server revenues will exceed 50% of total revenues in 2025 and reach up to 81% by 2028 [1] - Net income is projected to grow at a 37% CAGR from 2025 to 2028, compared to a mere 5% CAGR from 2021 to 2024 [1] 3. **Gross Margin (GM) Expectations**: - The diversification trend in AI server chipset platforms is expected to support FII's gross margins due to higher customization levels [1] - Improvement in production efficiency and scale ramp-up in rack-level AI servers will also contribute positively to gross margins [1] 4. **Earnings Revision**: - New estimates for 2028E introduced, including AMD's rack-level AI servers starting in 2H26, with expected shipments of 3k, 7k, and 7k racks from 2026 to 2028 [2] - FII is projected to be a major supplier for AMD's rack-level AI servers due to its strong R&D capabilities and global production sites [2] 5. **Financial Metrics**: - Revenue estimates for 2025E revised to Rmb 948.84 billion, 2026E to Rmb 1,583.59 billion, and 2027E to Rmb 2,235.27 billion [6] - Net income estimates for 2025E revised to Rmb 60.94 billion, 2026E to Rmb 76.98 billion, and 2027E to Rmb 86.70 billion [6] 6. **Valuation and Price Target**: - Target price set at Rmb 92.9 based on a P/E multiple of 30.3x for 2026E, reflecting a slight decrease from the previous target of Rmb 95.5 [8] - The target P/E is considered reasonable given the company's diversification into data centers and the smartphone market's evolving demands [6][8] Risks and Considerations 1. **Demand Risks**: - Potential for worse-than-expected demand and profit from the AI server business [9] 2. **Competition Risks**: - Strong competition could hinder the expansion of FII's iPhone component business [9] 3. **Capacity Risks**: - Slower-than-expected capacity ramp-up in new factories could impact growth [9] 4. **Shipment Risks**: - Lower-than-expected iPhone shipments could affect FII's revenues, as it provides components for iPhones [9] Additional Insights - FII's growth strategy includes a focus on R&D to capture the diversifying AI server trend, which is crucial for long-term growth [2] - The company is positioned to benefit from the shift in demand from traditional smartphone markets to data center solutions, indicating a strategic pivot in its business model [6] This summary encapsulates the essential insights from the conference call regarding Foxconn Industrial Internet's market position, financial projections, risks, and strategic direction.

Summary of Foxconn Industrial Internet (FII) Conference Call Company Overview - **Company**: Foxconn Industrial Internet (FII) - **Ticker**: 601138.SS - **Target Price**: Rmb77.2 - **Recommendation**: Buy Key Industry Insights - **AI Servers Market**: FII is expected to gain market share in AI servers due to strong R&D and execution, positioning it as a leader in delivering next-generation rack-level AI servers [1][5] - **Modularized AI Data Centers**: Partnership with TECO is anticipated to accelerate the deployment of AI data centers, supporting FII's AI server shipments [1][5] - **Networking Equipment**: Increased demand for high-speed connections is expected to drive up shipments of networking equipment and enhance dollar content through product mix upgrades towards 400G/800G [1][5] - **Smartphone Market**: The smartphone market is entering a peak season with strong new model ramp-up expected in September [1][5] Financial Performance and Projections - **Revenue Growth**: FII's revenues are projected to increase significantly, with net income estimates raised by 3% for 2025, 3% for 2026, and 4% for 2027 due to higher AI infrastructure demand [1][5][8] - **Operating Expenses**: Operating expenses (opex) are expected to remain disciplined, leading to a lower opex ratio of 1.9% in 2025, 1.3% in 2026, and 1.2% in 2027, compared to 2.3% in 2Q25 [7][8] - **Earnings Revision**: The net income for 2025E is revised to Rmb33.632 billion, reflecting a 3% increase from previous estimates [8][9] Comparative Analysis - **Valuation Metrics**: The target P/E multiple has been raised to 29.4x from 26.9x, reflecting a positive market re-rating on AI servers supply chain and stronger fundamentals [9][15] - **Peer Comparison**: FII's projected 2026E trading P/E is 24.5, compared to peers like Hon Hai at 13.3 and Gigabyte at 10.2, indicating a premium valuation based on growth prospects [11] Risks and Considerations - **Demand Risks**: Potential risks include worse-than-expected demand and profit from the AI server business, as well as competition affecting iPhone component business expansion [15] - **Capacity Ramp-Up**: Slower-than-expected capacity ramp-up in new factories could impact growth [15] - **iPhone Shipments**: Lower-than-expected iPhone shipments could affect FII's revenue, given its role as a component supplier [15] Conclusion - FII is positioned for strong growth driven by advancements in AI servers and networking equipment, with disciplined cost management supporting profitability. The company is recommended as a Buy with a target price reflecting significant upside potential.