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Foxconn, best known as Apple’s iPhone assembler, is making a decisive pivot into the artificial intelligence data center sector. Its recent alliance with TECO Electric & Machinery Co., a legacy industrial firm, marks a strategic effort to diversify operations and capitalize on rising demand for AI infrastructure. The partnership reflects Foxconn’s broader ambition to become a full-stack supplier to the data center sector, a market expected to exceed $1 trillion globally in the coming years.

Foxconn’s dominance in consumer electronics has long been built on scale, labor coordination, and logistical precision. But that legacy business, particularly smartphone assembly, has matured. Margins are tightening and growth has plateaued. AI, in contrast, offers a newer frontier and an opportunity for Foxconn to apply its industrial capabilities to more profitable sectors.

Its relationship with Nvidia, the chipmaker behind the most in-demand AI processors, is particularly relevant. Earlier this year, Foxconn announced that it would co-develop a 100-megawatt AI data center in southern Taiwan, in phased buildouts beginning at 20 megawatts. The project highlights Foxconn’s expanding infrastructure capabilities and deepening ties to the AI ecosystem.

Revenue from AI servers is expected to double in the second quarter of 2025. With demand from hyperscalers like Microsoft and Meta reaching record levels, Foxconn sees a window to supply compute infrastructure at scale, not just chips or boards, but entire data center systems.

Foxconn’s equity alliance with TECO represents a targeted move to strengthen its infrastructure position. Under the terms of the deal, Foxconn will take a 10 percent stake in TECO via a share exchange, while TECO will receive about 0.519 percent of Foxconn’s outstanding shares. The transaction is expected to close by the end of 2025, pending regulatory approval.

TECO brings decades of experience in industrial electromechanical systems, from HVAC units to turbines, critical components in running high-density data centers. Foxconn contributes server manufacturing and system integration. Together, they plan to offer turnkey AI data center solutions.

Rather than a financial play, the move is a capabilities match. Both companies will jointly target international clients and collaborate on planning, deployment, and long-term support.

Instead of pursuing custom builds, the Foxconn-TECO model is centered on modularity. These pre-engineered or containerized data center units can be deployed quickly across different locations. Modular data centers reduce construction time, lower initial costs, and speed up scaling, all priorities for hyperscale providers racing to meet demand.

Foxconn aims to offer complete services, from AI server production to facility integration. That approach helps clients reduce the number of vendors and compress project timelines.

This shift also offers strategic control. The ability to localize production, respond to regional energy standards, and reduce shipping delays makes this an appealing option as workloads expand globally.

The global AI data center market is projected to top $1 trillion in spending over the next decade. That growth stems from rapid expansion in generative AI, machine learning, and ongoing digital transformation in multiple sectors.

Foxconn’s shift positions it among a small group of firms capable of serving this market end to end. Unlike traditional infrastructure providers that focus on power or cooling, Foxconn offers integrated compute and manufacturing solutions. With a presence in Asia, the United States, and the Middle East, it can support localized deployments and reduce exposure to geopolitical risks.

The TECO deal also addresses a critical need, thermal management and energy efficiency. Partnering with an electromechanical firm gives Foxconn the ability to deliver AI-ready, stable data center operations.

The partnership between Foxconn and TECO reflects a broader strategic transformation already in motion within Foxconn, as the company actively diversifies beyond consumer electronics into sectors such as electric vehicles, semiconductors, and artificial intelligence systems. By bringing TECO into its ecosystem, Foxconn strengthens its infrastructure capabilities, creating a more cohesive and vertically integrated foundation that connects these emerging business lines through physical deployment and operational execution.

Should market conditions continue to align with this strategic direction, Foxconn may evolve from being known primarily as a high-volume electronics assembler to positioning itself as a comprehensive AI infrastructure provider capable of supporting global compute demands. For TECO, the agreement offers an entry point into a fast-growing technology segment that builds naturally on its existing strengths in electromechanical systems, enabling it to participate in digital infrastructure growth without departing from its core engineering competencies.

Sources:

CNBC