On October 31, 2023, Apple held a product launch event for its M3 chips. Reports suggest that Foxconn has secured a portion of existing MacBook Pro and iMac orders from Quanta. This marks the first time Foxconn has taken orders for higher-end MacBook Pro models.

The order distribution between Foxconn and Quanta has shifted, resulting in a more balanced competition. Quanta may need to expedite the introduction of new factory automation projects and relocate production facilities to reduce labor costs and regain its share of MacBook Pro and iMac orders.

TrendForce’s Insights:

1. Foxconn’s Notebook Factories Excel in Materials, Automation, and Factory Management

Up until 2022, Apple’s computer assembly supply chain was primarily served by two Taiwanese companies, Foxconn and Quanta. In the second half of 2022, Chinese company Wingtech Technology entered the Apple computer assembly supply chain for the first time, initially securing a small portion of orders for MacBook Air products. While they currently hold only a fraction of the orders, they will undoubtedly pose a significant challenge to Foxconn and Quanta in the future.

Quanta, favored by Apple for its tech-oriented approach, faces tough competition from Foxconn, known for its high degree of factory management and production line automation.

The reason for Quanta losing a portion of its high-end notebook orders might be linked to the minimal design differences between the new models featuring the M3 chip and their predecessors.

Moreover, their assembly, testing, and packaging processes remain alike. Hence, Apple adjusts order proportions in its supply chain according to the production yield and quotes from assembly factories as part of risk management. Material costs, labor expenses, and production-related costs are the main elements in the product cost structure. At this stage, labor costs in Shanghai are higher than in Chengdu.

Additionally, Foxconn is one of Apple’s computer case suppliers, giving it priority in material usage. Given Foxconn’s extensive projects for production line automation, their acquisition of Apple’s high-end M3 chip orders for the MacBook Pro has significantly bolstered their standing.

In the future, as long as Apple’s computer designs undergo minimal changes, Foxconn can enhance its output by accelerating the replication of similar production lines. This strategy aims to satisfy customer demands across production volume, costs, quality, and delivery time. Consequently, Foxconn’s aim to capture a share of Quanta’s orders is just a matter of time.

2. Quanta Needs to Accelerate Factory Automation and Establish Vietnam Facilities

Quanta’s factory in Shanghai, producing computer goods, operates within a labor-intensive industry. With the continual rise in local labor costs, recruiting in Shanghai, primarily an area with a service and finance-oriented workforce, becomes increasingly challenging. This scenario significantly impacts the overall workforce deployment in the production line.

Despite having facilities in Chongqing, the company’s strong presence of Apple repair centers in Shanghai anchors its focus there. Moreover, the ongoing establishment of Quanta’s Vietnamese facilities abroad will take time to address production capacity. Hence, Quanta might need to expedite factory automation in Shanghai to reduce labor usage, effectively cutting costs, and potentially regaining Apple orders.

Apple’s computer assembly has long been centered around China, but due to geopolitical influences, Quanta has ultimately shifted to establish production facilities in Vietnam

Vietnam has emerged as an electronic industry hub in the “China+1” strategy. Quanta should leverage local resources to transfer small-scale production lines to Vietnam for manufacturing. By obtaining brand verification for these products beforehand, they aim to shorten the preparation time before mass production, with the goal of reducing costs, improving yields, and regaining customer confidence.

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(Photo credit: Pixabay)

According to TechNews’ report, Foxconn announced its October revenue on November 5th, reaching 741.2 billion NTD (New Taiwan Dollars). This represents a 12.20% month-on-month increase and a 4.56% year-on-year decrease, marking one of the highest revenues for the same period in recent years. For the accumulated revenue in the first ten months of this year, Foxconn achieved 5.494 trillion NTD, marking a 7.21% year-on-year decrease but still staying relatively high compared to past years.

Examining the performance by product categories on a monthly basis, the “Computing Products” category exhibited robust growth, benefiting from pre-holiday stockpiling due to the Chinese “Double 11” Shopping Festival and the Thanksgiving holiday in North America. The “Cloud and Network Products” category also saw strong growth as a result of increased demand from American server brand clients.

The “Smart Consumer Electronics” category experienced growth due to demand for new products, as well as early holiday stockpiling in preparation for Chinese Double 11 and the North American Thanksgiving. In contrast, the “Components and Other Products” category remained relatively stable month-over-month, as increased shipments of components for consumer intelligent products were offset by reduced demand in non-core business segments.

Looking at annual performance by product categories, the “Components and Other Products” category experienced substantial growth, attributed to an increased share of supply in consumer intelligent products and growth in shipments of automotive electronic components. The “Consumer Intelligent Products” category remained relatively steady.

In contrast, the “Cloud and Network Products” category displayed a more conservative momentum in client pull-ins, and the “Computer Terminal Products” category showed signs of weakening due to a slowdown in PC market demand.

Foxconn’s outlook for the fourth quarter remains positive, anticipating that the latter half of the year will benefit from the traditional peak season in the information technology industry. Therefore, operations are expected to gradually pick up each quarter, and the company maintains its view that the fourth quarter will exhibit significant growth compared to the third quarter.

Recent report from Anue has also suggested that Foxconn secured more than half of the orders for the MacBook series for the first time this year, along with strong sales of the iPhone 15 Pro, which are likely to drive revenue growth in the fourth quarter.

(Photo credit: Foxconn)

According to CTEE, NVIDIA’s forthcoming AI server, the GB200 (B100), slated for a 2024 release, has entered the certification phase in the supply chain. Recent market rumors suggest that Foxconn, originally intended to secure orders for the B100 board, faced certification challenges. As a result, Wistron has maintained its initial order share.

Additionally, it is worth noting that Ingrasys, a subsidiary of Foxconn, is actively manufacturing the H100 product and is a strong contender to secure orders.

Unofficial sources indicate that NVIDIA initially considered making Foxconn the second supplier for AI-GPU server baseboard in the upcoming B100 series. However, due to yield concerns and other factors, Wistron is still expected to receive 100% of the orders. Wistron has also capitalized on the opportunity to secure orders for the front-end AI-GPU module, which appears to be a successful move.

The rapid evolution of AI has intensified competition among assembly plants. Wistron and Foxconn play crucial roles as suppliers for NVIDIA’s current mainstream H100 series GPU modules and baseboards.

Wistron, as the exclusive supplier for H100 baseboards in the NVIDIA DGX and HGX architectures, also holds the exclusive role of providing mainboards and assembling AI servers for DGX. As shipments of the H100 series AI servers, built on the NVIDIA DGX and HGX frameworks, steadily increase in the latter half of the year, Wistron’s AI server-related product business shows consistent growth.

It’s worth noting that Ingrasys is responsible for manufacturing the H100. NVIDIA’s founder, Jensen Huang, and Foxconn’s Chairman, Young Liu, jointly attended a technology event, highlighted the close collaboration in between, underscoring Foxconn’s determination to secure B100 orders.

(Image: Wistron)

Foxconn Technology Group held its Tech Day on October 18, 2023, focusing on three key areas: AI Smart Factories, CDMS (Contract Design and Manufacturing Services), and Model N.

TrendForce’s insights:

1. Increasing EV Adoption Crucial for Sustained Growth

According to an intention survey by Gallup in April 2023, only 4% of respondents in the United States currently use electric vehicles, with an additional 12% considering a purchase. The majority of potential buyers in this category belong to households with an annual income exceeding $100,000. As per the salary survey by the New York Federal Reserve in July 2023, the average annual income for full-time employees in the United States stands at approximately $69,475.

Apart from concerns about driving range, the primary obstacle to the widespread adoption of electric vehicles is their relatively higher cost compared to traditional gasoline-powered vehicles. This pricing differential limits the consumer base for electric vehicles. The growth rate in electric vehicle adoption, which nearly doubled from 2020 to 2023, now faces a “30% plateau” challenge.

With the deadlines for banning gasoline cars in 2025 in Norway and 2035 in the European Union approaching, reducing manufacturing costs to reach a broader consumer demographic will be a critical factor in the successful transition of traditional automakers.

2. Foxconn’s CDMS Model Offers Cost Savings and Addresses Key EV Challenges

Take Volkswagen, the world’s second-largest automaker, for example. The investment in creating the MEB platform for their EVs amounted to approximately $7 billion. For many small or startup automakers, this figure is astronomical.

Furthermore, in recent years, automakers have made substantial investments to ensure the stability of crucial components like batteries and semiconductor chips. These costs are inevitably spread across the overall vehicle cost, which, in turn, affects the growth rate of electric vehicles.

The CDMS  model leverages Foxconn’s Model series of complete vehicle platform production lines. It combines modular component assembly and supply chain resources to offer car manufacturers a comprehensive development service, reducing their upfront development time and costs. This enables manufacturers to concentrate on brand marketing.

Foxconn’s active push into CDMS may prompt many traditional automakers to reevaluate the core value of in-house manufacturing, reduce costs, and expand their customer base, offering a solution to the current challenges faced by the industry.

3. While Automakers Predominantly Continue to Independently Develop Platforms, Foxconn Must Expedite Its Efforts to Compete for Next-Generation Platform Manufacturing Opportunities

Despite the considerable costs associated with platform development, many automakers have already invested resources in creating their initial NEP (New Electric Platform). In the early stages of new energy vehicle development, it attracted various capital investments, with ample development funding and a relatively high fault tolerance.

Consequently, many automakers boldly invested in building their dedicated platforms. However, as market competition intensifies, automakers are likely to exercise greater caution in various investments.

For some automakers, the timing to reintroduce the CDMS model for the next-generation platform planning could be optimal for Foxconn to make its entry. However, outsourcing the production of new energy vehicles may entail sacrificing their uniqueness, which can influence the types and quantities of vehicles that automakers are willing to outsource.

Moreover, automakers tend to be more conservative compared to the electronics industry, and they might have concerns that outsourcing to Foxconn could inadvertently nurture potential competitors.

Furthermore, if automakers only view outsourcing as a financial adjustment or a temporary strategy, the sustainability of such orders becomes uncertain.

While the Luxgen N7, built on the Model C platform under the CDMS approach, has achieved promising results in its presale, marking a successful initial step, expanding the economies of scale for CDMS will require Foxconn to seize the right timing to secure more outsourcing orders from international automakers.

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As Jiwei reported, AMD, although trailing NVIDIA in AI, has recently clinched significant deals, earning the trust of two major clients, Oracle and IBM. Oracle plans to integrate AMD’s Instinct MI300X AI chips into their cloud services, complemented by HPC GPUs. Additionally, as per insights from Ming-Chi Kuo, TF International Securities analyst, IBM is set to leverage AMD’s Xilinx FPGA solutions to handle artificial intelligence workloads.

Oracle’s extensive cloud computing infrastructure faces challenges due to a shortage of NVIDIA GPUs. Nonetheless, Oracle maintains an optimistic outlook. They aim to expand the deployment of the H100 chip by 2024 while considering AMD’s Instinct MI300X as a viable alternative. Oracle has decided to postpone the application of their in-house chips, a project with a multi-year timeline. Instead, they are shifting their focus to AMD’s high-performance AI chip, the MI300X, well-regarded for its impressive capabilities.

Reports indicate that Oracle intends to introduce these processor chips into their infrastructure in early 2024.

Similarly, IBM is exploring chip options beyond NVIDIA. Their new AI inference platform relies on NeuReality’s NR1 chip, manufactured on TSMC’s 7nm process. AMD plays a pivotal role in NeuReality’s AI solution by providing the essential FPGA chips. Foxconn is gearing up for AI server production using this technology in the Q4 2023.

Guo also pointed out that, although Nvidia remains the dominant AI chip manufacturer in 2024, AMD strengthens partnerships with platform service providers/CSPs like Microsoft and Amazon while acquiring companies like Nod.ai. This positions AMD to potentially narrow the AI gap with Nvidia starting in 2025. This collaboration also affirms that AMD remains unaffected by the updated U.S. ban on shipping AI chips to China.

(Image: AMD)