Foxconn Industrial Internet (601138.SS): Chairman & Vietnam factory tour: AI servers & switches with strong automated production; Buy

Research evidence excerpt

Foxconn Industrial Internet (601138.SS): Chairman & Vietnam factory tour: AI servers & switches with strong automated production; Buy

Goldman Sachs Foxconn Industrial Internet (601138.SS)

ramp up the production. Management highlights their focus: (1) R&D: focusing on latest

technology / high-end models, leading global-tier clients relying on FII for every new

product production, (2) automated production: fully automated production including

testing and the final packaging and ship to warehouse, with digitalization / AI to control

and monitor the quality, realizing light-off factories, (3) capacity expansion: fast

duplication of the automated production lines for the latest models, to capture the

strong AI infrastructure demand. FII would also continue to develop in-house

components for AI servers / CPO switches to facilitate GM, and transit to consign

business model to reduce working capital burden.

3. Vietnam production: Management highlights they have been in Vietnam for over 15

years, bringing them competitive production costs and rich experience of manufacturing

in Vietnam. The company has five campuses in Vietnam and these production sites are

the most profitable ones across the company’s overseas production sites. Various

products are produced in Vietnam, across consumer electronics and AI infrastructure

(e.g. servers, switches), and both are in highly automated production. The high

automation secures product quality, volume, and factory management, enhancing the

yield rate and operation efficiency. FII also adopts generative AI and AR glasses for

labour training and duplicating production lines, accelerating their capacity expansion,

especially in overseas factories.

Price Target Risks and Methodology - Foxconn Industrial Internet