iPhone maker Foxconn joins $1 trillion AI data center market with new alliance

• Foxconn said it will take a 10% stake in TECO Electric & Machinery Co as part of a share swap.
• The two companies are teaming up to bring their expertise together to effectively create a one-stop-shop for anyone looking to set up an AI data center.
• It's a play that could unlock Foxconn's access to a potential $1 trillion of spending by companies on data centers in the coming years.

Foxconn on Wednesday said it is taking a stake in TECO Electric & Machinery Co., as it looks to supercharge its efforts to become a key player in building artificial intelligence data centers.

The Taiwanese firm, formally known as Hon Hai, is looking to replicate the success it has had in consumer electronics in the world of AI. It's a play that could unlock Foxconn's access to a potential $1 trillion of spending by companies on data centers in the coming years, according to Counterpoint Research, and will also pit the Taiwanese giant against companies like ABB, Siemens and Mitsubishi Electric.

Foxconn will take a 10% stake in TECO as the result of a share exchange. TECO started life as a engine maker for cars but has since extended into areas such as electric vehicles, energy storage and data center construction. Foxconn meanwhile, which assembles Apple's iPhone and is a key partner for Nvidia, manufactures server racks designed for AI workloads.

The two companies are now teaming up to bring their expertise together to effectively create a one-stop-shop for anyone looking to set up an AI data center.

“The strategic partnership extends the two companies' cooperation in the fields of low-carbon smart factories and energy services, toward being a one-stop solution for data centers going forward,” TECO Chairman Morris Li said.

The assembly of AI servers has become a key focus as Foxconn looks to diversify its revenue beyond the manufacturing of consumer electronics. AI server revenue is expected to have doubled in the second quarter of the year, Foxconn previously forecast. The company has also shown its willingness to expand into new areas including the assembly of electric vehicles and even manufacturing of semiconductors.

“With the AI infrastructure boom, Hon Hai with [a] strategic alliance with TECO aims to extend and tightly integrate the server components and racks value chain from co-design, manufacturing to engineering and infrastructure construction services,” Neil Shah, partner at Counterpoint Research, told CNBC.

“Hon Hai aims to become a one-stop shop for all the datacenter needs.”

Tech giants from Microsoft to Google have already laid out plans to spend billions of dollars this year alone on data centers, which includes chips and servers — a market that Foxconn is targeting.

Foxconn and TECO said they are targeting business in Taiwan and other parts of Asia, as well as the Middle East and the U.S. The two companies pointed to their footprint in the U.S. and said they plan to “expand American manufacturing and reshape the global supply chain.”

“The full data center solutions will give strong impetus to Foxconn's business as it takes to take a bigger slice of the overall data center CAPEX (capital expenditure) which includes servers to physical infrastructure,” Counterpoint Research's Shah said.