Foxconn Sets Sights on Servers, Storage

Taiwan-based Foxconn, which churns out most of world’s iPhones and iPads, has set its sights on servers and storage that help back up your pictures on Facebook and data on other Internet-based applications.

The company, officially known as Hon Hai Precision Industry, is the world’s largest contract manufacturer of consumer electronics. But the major assembler of AppleAAPL +0.73%’s products has been diversifying its operations and expanding into the corporate market as revenue from key consumer-brand clients slows.

Demand for servers and storages used in data centers continues to rise as Internet-based services such as online storage Dropbox and online computing platform Windows Azure get more popular. The server and storage needs of major Internet companies such as Google and Amazon also continue to grow to support their online applications.

Seeking new avenues of growth, Foxconn—having won orders to make servers and storage for U.S. companies including Facebook and Hewlett Packard, according to a company official—is looking to expand into China’s nascent online-computing market. It formed a partnership with Beijing-based 21Vianet Group, which operates Internet data centers, to provide equipment and design services for its projects both in China and overseas, the two companies said in a statement.

While providing equipment and services for data centers would command a better profit margin than assembling consumer products, analysts are skeptical about Foxconn’s capabilities, notably in the key area of power management.

“Foxconn is trying hard to move away from low-margin pure hardware manufacturing but its ability in system design is still weak compared to other Taiwanese manufacturers such as Delta and Quanta,” said CIMB analyst Wanli Wang.

Mr. Wang also said Foxconn is likely to face political hurdles in China and other markets; for national-security reasons, many governments favor local vendors for data-center equipment and services.

Nasdaq-listed 21Vianet Group is an independent data center company that partners withMicrosoft and IBMIBM -0.31% to sell online computing services in China, which could make it difficult to win “juicy” orders from state-owned and major Chinese companies in the country, he said.

“China wants to build its own data-center supply chain,” said Mr. Wang. “That explained why Lenovo has decided to acquire the low-end server operation from IBM. It is always difficult for foreign companies such as IBM and Microsoft to break into China market.”

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source:Digits