Apple Supplier Foxconn Sees Robust Demand Amid AI Boom

Apple supplier Hon Hai Precision Industry Co, which is popularly known as Foxconn sees robust demand in the coming quarters amid the artificial intelligence (AI) boom.

The company also beat the forecast for the June quarter. While Foxconn’s profits were largely in line with estimates, its revenue growth of 19% was ahead of estimates. The revenue beat was largely led by the growth in its business that supplies servers to data center operators. The Taiwan-based company has set itself a goal of securing a 40% market share in the global AI server market.

Foxconn Is the World’s Biggest Electronics Contract Manufacturer

Foxconn is the biggest contract manufacturer for Apple and its earnings are often seen as an indicator of demand for Apple products. The company has also been diversifying its operations and is looking at manufacturing locations beyond China amid the growing US-China rivalry. It is also looking to expand its footprint in electric vehicle contract manufacturing where it hopes to replicate its success in electronic products.

Foxconn Expects Revenue Growth to Rise Further

Foxconn expects its growth to be strong in the back half of the year which would coincide with the launch of Apple’s iPhone 16. The handset would be AI-enabled and analysts expect its sales to be strong due to the exciting new features that brings to the table.

Apple unveiled the features including its “Apple Intelligence” at the Worldwide Developer Conference (WWDC) earlier this year. Meanwhile, during their fiscal Q3 earnings call, Apple said that the AI features would be added in a staggered way. Notably, there is a question mark over Apple releasing these features in China and Europe and Cook said that the company is “constructively engaged” with regulators in both the regions.

Apple Reported Better-Than-Expected Earnings in Fiscal Q3

Meanwhile, Apple reported better-than-expected earnings in its fiscal third quarter of 2024. The company’s revenues rose 5% YoY to $85.78 billion which was higher than the $84.53 billion that analysts were expecting. Its EPS came in at $1.40 which was again ahead of the $1.35 that analysts were expecting.

iPhone revenues fell 1% YoY to $39.3 billion but the metric was ahead of the $38.8 billion that analysts were modeling. Also, the revenues were higher YoY on a constant currency basis.

iPad revenues were $7.16 billion which was much better than the $6.61 billion that analysts were expecting. Mac revenues were $7.01 billion which was slightly lower than the $7.02 billion that analysts were expecting. Importantly, Services revenues rose 14% YoY to $24.2 billion and the metric was ahead of the $24.01 billion that markets were expecting.

Apple’s installed base of devices reached a new record high and while the company did not spell out the exact number, earlier this year it had said that the figure has surpassed 2.2 billion.

Apple Provided Rosy Guidance for Q4

Commenting on the fiscal Q4 guidance, Apple’s CFO Luca Maestri said, Apple said: “we expect our September quarter total company revenue to grow year-over-year at a rate similar to the June quarter.” The company expects Services revenues to grow in double digits at a “rate similar to what we reported in the first 3 quarters of this fiscal year.”

It guided gross margins between 45.5% and 46.5% in the current quarter. The company’s guidance assumes a 1.5% headwind from adverse currency movement.

Analysts Expect iPhone 16 to Drive Demand for Apple

Many Wall Street analysts expect the upcoming iPhone 16 to drive Apple’s growth, which has sagged in recent quarters. Yesterday, Wedbush maintained its overweight rating on the stock and said, “With anticipation from the Street and broader tech industry building for Apple’s iPhone 16 AI driven launch in September, our recent Asia checks this week are giving us more confidence this upgrade cycle will kick off a long awaited renaissance of growth for Cupertino over the next year.”

Warren Buffett has Sold Nearly Half of Apple Shares

Regulatory filings showed that Warren Buffett-led Berkshire Hathaway has sold nearly half of its Apple stake. While the conglomerate has been gradually selling Apple shares, the quantum of the Q2 sale took the market by surprise.

Wall Street analysts are meanwhile not too perturbed by Buffett selling Apple shares. “In our opinion, this could be for diversification or other reasons, and does not change our view on the fundamentals of Apple,” said Bank of America’s Wamsi Mohan said in a note.

However, Bernstein analyst Toni Sacconaghi said that Buffett could have sold AAPL shares due to its valuations which don’t look comfortable for a value investor like Buffett.

Meanwhile, after losing the crown of the world’s largest company to Microsoft and then briefly to Nvidia, Apple has reclaimed the title. Analysts expect the stock to continue its good run in the back half of the year as it starts shipping the iPhone 16.