In many industries companies start supplying one company and fortunately that company gains market share and becomes dominant in the industry. The rise of the company lifts all the suppliers and investors are happy. Eventually sales level out, new suppliers come in and then investors examine the suppliers and see how connected they are to the one company and stock prices go down because the dominance is beginning to fade. Often times this takes a couple of decades but it happens regularly.

In an article by Wen-Yee Lee of Reuters, Taiwan’s Foxconn became a global giant by assembling millions of iPhones for Apple. The rise of Foxconn was Apple was conceived and designed in the USA but manufactured in a Foxconn plant in Taiwan. Foxconn has announced in will be manufacturing iPhones in India so there is more diversification for them. The rise of iPhone this year is iPhone 16 has been very good for suppliers such as Foxconn.

Recently Foxconn has been diversifying into making AI servers and other cloud and networking products so these products are its main business. The AI servers are going to companies such as Nvidia which is one the cutting edge of AI silicon chips.

For Foxconn, consumer electronics accounted for 35% of total revenue in the 2nd quarter down from 54% in 2021. While cloud and networking business represented 41% of total revenue.

Foxconn has been the manufacturing choice of chips for Nvidia since 2002 starting with producing reference designs for Nvidia’s graphic cards. The AI servers and cloud service for data centers started in 2009. At the moment, Foxconn is one of the world’s largest suppliers of both general-purpose and AI servers with a market share of nearly 40% in each category.

Foxconn has announced plans to build new production facilities in Houston and in Mexico.

Foxconn is expecting its AI server revenue to grow 170% in the 3rd quarter of this year.

Linking to dividend paying stocks, when a company is the dominant market share, investors examine the suppliers because the company does not do everything. As long as the company retains it dominant share it lifts the supplier companies, but for the supplier company you need to pay attention to diversification of revenues otherwise as some point alternatives need to be found through your homework.

There are more questions than answers, till the next time – to raising questions.