Hon Hai Precision_ AI momentum accelerating, no peak in 2025; lower PT to reflect weaker iPhone demand. Sun Mar 16 2025

Summary of Hon Hai Precision's Earnings Call Company Overview - Company: Hon Hai Precision (also known as Foxconn) - Industry: Technology and Telecoms - Date of Call: March 16, 2025 Key Points Financial Performance - 4Q24 Results: - Sales: NT$2,131 billion, up 15% YoY [20] - Gross Profit: NT$131 billion, GM at 6.2% [20] - Operating Profit: NT$64 billion, OPM at 3.0% [20] - Net Income: NT$46 billion, down 13% YoY [20] - 2025 Estimates: - Revenue expected to grow to NT$8,435 billion, a 23% increase YoY [10] - Adjusted EPS for 2025 revised to NT$14.14, down from NT$15.03 [6][23] AI Server Demand - AI Server Growth: - Expected to grow 100% YoY in 1Q25, with a forecast of 166% growth for the entire year [9][11] - AI servers projected to constitute over 50% of total server mix in 2025 [36] - Hon Hai aims to capture 40%+ market share in AI servers [36] - General Server Growth: - Regular servers expected to grow at 10% in 2025, driven by CSP refresh activity [9] Consumer Segment Challenges - iPhone Demand: - Guidance for Smart Consumer products is conservative due to sluggish iPhone demand, expected to remain flat in 2025 [9][17] - Concerns over delays in Apple product launches and tariffs impacting consumer demand [17] Strategic Developments - EV Manufacturing: - Anticipates signing an MOU with Japanese OEMs for outsourced EV manufacturing [17] - EV remains an optionality for Hon Hai's growth story [17] - Cloud and Networking Revenues: - Expected to approach or exceed Smart Consumer revenues in 2025 due to AI server strength [2] Market Outlook - 2025 Projections: - Overall revenue growth expected despite geopolitical uncertainties [26] - Cloud segment anticipated to be a key revenue contributor, driven by AI server demand [26] - Capex Plans: - Capex expected to grow 20% YoY in 2025, focusing on global expansion [42] Valuation and Price Target - Price Target: - Reduced to NT$225, reflecting weaker iPhone and PC momentum [2][14] - Valuation Multiple: - Target based on 13x FY26E earnings, higher than the five-year average multiple [14] Additional Insights - Operational Efficiency: - AI server production is expected to improve operational margins due to lower OPEX and higher leverage [9] - Long-term Strategy: - Focus on R&D, vertical integration, and maintaining strong customer relationships as key competitive advantages [42] Risks and Considerations - Market Risks: - Potential impact of tariffs and economic conditions on consumer demand [17] - Supply Chain Challenges: - Ongoing issues with component supply for AI servers, but visibility on orders is improving [37] This summary encapsulates the critical insights from Hon Hai Precision's earnings call, highlighting the company's performance, market outlook, and strategic initiatives.