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# Foxconn Industrial Internet (601138.SS): Chairman Fireside Chat: AI servers in expansion; leading position with enhancing margins; Buy

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We hosted FII's Chairman for a fireside chat on Jan 14 in Hong Kong. Management remains positive on AI servers ramp-up with enhancing profitability via improving yield rate, efficiency, and focusing on CSPs (cloud services providers) clients. As we highlighted in our Hon Hai deep-dive report, we are positive on Hon Hai / FII on (1) strong R&D, global production and power of scale to secure the leading market position in AI servers, (2) smartphone form factor changes to drive end demand, Hon Hai / FII's allocation, and dollar content, and (3) Hon Hai / FII to enjoy valuation re-rating on the back of enhancing fundamentals in coming years. Maintain Buy on both Hon Hai (on CL, most recent close: NT$227.00) and FII.

## Key takeaways

1. Positive tone on future growth: Management remains positive on their future growth, highlighting the company is in a fast growth industry (AI servers) and need to run very fast. Overall, AI servers have become the company's major revenues stream to drive the growth, with GPU-powered AI servers racks as the main driver, and CSPs are their major servers customers. Management continues to expect both total revenues and profits to see significant YoY growth in 1Q26 driven by AI servers despite smartphone mechanical parts entering slow season. The AI servers ramp up in 1Q26 is mainly for CSPs customers, and across various architectures (e.g. rack-level / baseboard-based; GPU / ASIC). The following quarters should enjoy new models contribution, including Rubin, and AMD's ever-first AI servers racks. Management highlights Rubin architecture is similar to GB300 but in pure liquid cooled without cables and fans, driving level of automation of production. On switch, management remains positive on 800G switch, and stated the CPO switch is ready to move to production any time.

2. Leading market position: Management highlights the fast migration in AI servers leading the company's continuous capacity expansion, finding more space and power to run the production and testing. Management highlights the AI infrastructure is not only AI servers, but a total solution across compute, storage, accelerators, and networking, in which FII offers or has partners to join the growth together. As a global leading ODM in AI servers, management remains positive on their strong R&D on design (product design based on GPU/ASIC suppliers' development kit, production process design), strong logistics and supply chain management, last mile capability (given the AI servers are too heavy to ship and need to be made in local markets), automated production and global presence.

Verena Jeng +852-2978-1681 | verena.jeng@gs.com Goldman Sachs (Asia) L.L.C.

Allen Chang

+852-2978-2930 |

allen.k.chang@gs.com

Goldman Sachs (Asia) L.L.C.

3. Profitability: Management remains positive on margins enhancement on AI servers through improving yield rate and efficiency: production getting more smooth, turnaround time getting shorter, and less re-working. Automated production could also drive the yield rate and efficiency, alongside the rising scale, as FII will continue to add new customers and increase allocation in existing customers to enlarge the scale. The company also focuses on better margin projects, continuing toward leading CSP clients, who tend to offer better margins vs. brand customers given CSPs offer cloud services, which are enjoying better margins. Besides this, FII will also manage their exposure to competitive markets, to avoid pricing competition. The company's revenues increased by 21% QoQ in 3Q25 driven by growing AI servers, while GM enhanced from 6.5% in 2Q25 to 7.0% in 3Q25, reflecting its improving AI servers profitability.

## Price Target Risks and Methodology - Foxconn Industrial Internet

Our 12m target price of Rmb92.9 is based on 30.3x 2026E P/E. Our target P/E is set in line with peers' regression of P/E and forward year fundamentals (NI YoY and OPM).

Key downside risks: (1) Worse-than-expected demand and profit from the AI server business; (2) Worse-than-expected iPhone component business expansion due to strong competition; (3) Slower-than-expected capacity ramp-up in new factories; (4) Lower-than-expected iPhone shipment given FII provides components for iPhone.

<table><tr><td>601138.SS</td><td>12m Price Target: Rmb92.90</td><td>Price: Rmb54.75</td><td>Upside: 69.7%</td></tr></table>

## Buy

Market cap: Rmb1.1tr / $157.4bn

Enterprise value:

Rmb1.1tr / $155.7bn

3m ADTV: Rmb10.8bn / $1.5bn

China

Greater China Technology

M&A Rank: 3

Leases incl. in net debt & EV?: No

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GS Forecast

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<table border="1"><tr><td></td><td>12/24</td><td>12/25E</td><td>12/26E</td><td>12/27E</td></tr><tr><td>Revenue (Rmb mn)</td><td>609,135.4</td><td>948,844.4</td><td>1,583,591.4</td><td>2,235,267.7</td></tr><tr><td>EBITDA (Rmb mn)</td><td>31,887.1</td><td>46,027.8</td><td>77,714.0</td><td>95,745.4</td></tr><tr><td>EPS (Rmb)</td><td>1.17</td><td>1.69</td><td>3.07</td><td>3.87</td></tr><tr><td>P/E (X)</td><td>19.0</td><td>32.3</td><td>17.8</td><td>14.1</td></tr><tr><td>P/B (X)</td><td>2.9</td><td>6.5</td><td>5.6</td><td>4.7</td></tr><tr><td>Dividend yield(%)</td><td>2.9</td><td>1.7</td><td>3.1</td><td>3.9</td></tr><tr><td>N debt/EBITDA(ex lease,X)</td><td>(1.0)</td><td>(0.3)</td><td>(0.1)</td><td>0.2</td></tr><tr><td>CROCI(%)</td><td>11.1</td><td>22.2</td><td>32.3</td><td>33.7</td></tr><tr><td>FCF yield(%)</td><td>2.8</td><td>(0.0)</td><td>2.5</td><td>1.2</td></tr><tr><td></td><td>9/25</td><td>12/25E</td><td>3/26E</td><td>6/26E</td></tr><tr><td>EPS(Rmb)</td><td>0.52</td><td>0.56</td><td>0.58</td><td>0.65</td></tr></table>

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 13 Feb 2026 close.