Hon Hai earnings call: Plans to increase capital expenditure by 30% in 2026, annual shipments of CPO switches expected to reach 10,000 units.

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

The world’s largest electronics contract manufacturer said on Wednesday that driven by robust demand for AI cloud products, its 2026 capital expenditure is expected to grow more than 30% over 2025. At the same time, it raised its full-year outlook, with visibility clearly improved compared to three months ago.

Hon Hai’s rotating CEO Chiang Chih-hsiang said during an online investor conference that AI servers now account for over 50% of the company’s total server revenue, with AI rack shipments expected to deliver high double-digit sequential growth in Q2, and the full year likely to double. He maintained a “cautiously optimistic” view on the overall annual performance and pointed out that current visibility is better than what was expected at the March briefing.

The sharp expansion in capital expenditure echoes the strong first-quarter results. According to Hon Hai’s announcement, the company’s Q1 net profit reached NT$49.919 billion, with revenue hitting a record high of NT$2.12 trillion. EPS grew 17% year-on-year to NT$3.56, and gross margin rose to 6.18%. The market’s attention is focused on whether Hon Hai can continue to transform the AI demand dividend into a substantial improvement in profitability.

Accelerated Capital Expenditure, Focusing on Regional Manufacturing and Automation

Chiang Chih-hsiang said capital expenditure in 2026 will increase by more than 30%, mainly focused on three key areas: expanding regional manufacturing layout, introducing automation, and enhancing core capacity.

This expansion will further accelerate from 2025. According to data cited by TrendForce, Hon Hai’s capital expenditure in 2025 will be about NT$174 billion, up 27% year-on-year. If the 2026 increase exceeds 30%, the absolute scale will break through NT$226 billion.

The acceleration in regional manufacturing reflects the broader context of global supply chain restructuring. As Apple’s major assembler and Nvidia’s key server supplier, Hon Hai is diversifying production locations to address geopolitical risks and customers’ localization demands.

AI Rack Shipments to Double, General Servers Outperform Industry

For its AI server business, Hon Hai provided clear quantitative targets. Chiang Chih-hsiang said AI rack shipments will continue to climb quarter by quarter, with total annual shipments expected to double over 2025; the general server business is also expected to realize double-digit growth this year, outperforming the industry average.

For AI solutions, ASIC-based server projects are expected to double shipments in 2026. Currently, most ASIC AI servers adopt a “consignment” business model, which helps reduce inventory and working capital needs and improves capital efficiency.

The outlook for Q2 is also positive. Chiang noted that although the second quarter is typically the off-season for the ICT industry, strong AI application demand is expected to drive significant growth from Q1, with strong annual increases as well.

Silicon Photonic CPO Switches to Start Mass Production in Q3, Strong 800G+ Shipments

In emerging technology deployment, Hon Hai’s progress in silicon photonics is noteworthy. Its 800G+ switch shipments are strong, and silicon photonic CPO (co-packaged optics) switches are expected to enter mass production in the third quarter, with annual shipments expected to reach 10,000 units.

CPO technology is seen as a key solution for next-generation AI data center interconnects, significantly reducing power consumption and boosting data transmission efficiency. Hon Hai’s mass production timeline in this area means the company is extending from traditional contract assembly to higher-value optical interconnect products.

Four Major Product Lines Diverging, Consumer and Computer Terminals Under Pressure

Among the four major product lines, Hon Hai’s performance differentiation is pronounced. Cloud network products (AI servers as the main item) are expected to achieve strong quarter-on-quarter and year-on-year growth both for the full year and in Q2, serving as the core growth engine. Consumer smart products are set for significant full-year growth, with Q2 flat quarter-on-quarter but significantly up year-on-year. Computer terminal products are affected by tight memory supplies and are expected to slightly decline for the year, with Q2 flat year-on-year. Components and other products are expected to remain flat for the year, flat quarter-on-quarter in Q2, but significantly up year-on-year. Key components and camera modules maintain stable shipments.

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

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