Hon Hai's earnings call: plans to increase capital expenditure by 30% by 2026, CPO switches expected to ship 10,000 units throughout the year

Hon Hai Precision Industry is pushing AI infrastructure investments to new heights.

This global leading electronics contract manufacturer stated on Wednesday** that, driven by strong demand for AI cloud products, capital expenditures are expected to grow over 30% in 2026 compared to 2025**, while also raising the full-year performance outlook, with significantly improved visibility compared to three months ago.

Hon Hai’s rotating CEO Terry Gou said online at the investor briefing, AI servers now account for over 50% of the company’s total server revenue, and AI rack shipments are expected to achieve high double-digit quarter-over-quarter growth in the second quarter, with the full year potentially doubling. He maintained a “cautiously optimistic” outlook for overall annual performance and pointed out that current visibility is better than what was expected at the March earnings call.

The sharp expansion in capital spending aligns with strong first-quarter results. According to Hon Hai’s announcement, the company’s net profit in Q1 reached NT$49.92B, revenue hit a record high of NT$2.12 trillion, with earnings per share up 17% year-over-year to NT$3.56, and gross margin increased to 6.18%. Market focus remains on whether Hon Hai can continue converting AI demand dividends into substantial profit improvements.

Accelerated capital spending focusing on regional manufacturing and automation

Gou stated that the 2026 capital expenditure increase will exceed 30%, mainly directed toward three major areas: expanding regional manufacturing footprint, implementing automation, and enhancing core capacity.

This expansion is further accelerated compared to 2025. Data cited by TrendForce indicates that Hon Hai’s capital expenditure in 2025 was about NT$174 billion, a 27% increase year-over-year. If the 2026 growth exceeds 30%, the absolute scale will surpass NT$226 billion.

The acceleration in regional manufacturing reflects the broader context of global supply chain restructuring. As a major assembler for Apple and a key server supplier for NVIDIA, Hon Hai is diversifying production locations to mitigate geopolitical risks and meet local customer demands.

AI rack shipments to double, general servers outperform industry

In the AI server business, Hon Hai has set clear quantitative targets. Gou said that AI rack shipments will continue to climb quarter-over-quarter, with full-year shipments expected to double compared to 2025; the general server business is also expected to achieve double-digit growth this year, likely outperforming industry averages.

Regarding AI solution shipments, ASIC-based server projects are projected to double in 2026. Currently, most ASIC AI servers adopt a “consignment” business model, which helps reduce inventory and working capital needs while improving capital efficiency.

The outlook for Q2 is also positive. Gou pointed out that although Q2 is traditionally a slow season for the ICT industry, strong AI application demand is expected to support significant growth compared to Q1, with robust year-over-year increases.

Silicon photonics CPO switches to mass production in Q3, 800G+ shipments show strong momentum

In emerging technology development, Hon Hai’s progress in silicon photonics is noteworthy. Hon Hai’s 800G+ switches are showing strong shipment momentum, and silicon photonics CPO (co-packaged optical) switches are expected to enter mass production in Q3, with annual shipments reaching 10k units.

CPO technology is regarded as a key solution for next-generation AI data center interconnects, capable of significantly reducing power consumption and enhancing data transmission efficiency. Hon Hai’s production schedule in this field indicates the company’s shift from traditional contract assembly toward higher value-added optical interconnect products.

Four major product lines diverge, with pressure on consumer and PC terminals

Among the four main product lines, Hon Hai’s performance shows a clear differentiation. Cloud network products (mainly AI servers) are expected to achieve strong quarter-over-quarter and year-over-year growth throughout the year, serving as the core growth engine; consumer smart products are expected to grow significantly for the full year, with Q2 remaining flat compared to Q1 but showing notable growth compared to the same period last year; PC terminal products are expected to decline slightly for the full year due to tight memory supply, remaining flat in Q2 compared to last year; components and other products are expected to stay flat for the full year, with Q2 flat compared to Q1 but significantly up year-over-year, with key components and camera modules maintaining steady shipments.

This structural divergence indicates that Hon Hai’s growth momentum is highly concentrated in AI infrastructure-related businesses, while the recovery pace of traditional consumer electronics and PC supply chains remains constrained by supply-demand mismatches.

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