Citi: FII’s third-quarter profit beats buy-side concerns; Citi cuts target price to RMB 67

Where did third-quarter results outperform, and where did they fall short?

Foxconn Industrial Internet (FII) reported third-quarter 2026 revenue of RMB 384 billion, up 25% quarter on quarter and above Citi’s forecast and the Bloomberg consensus by 4% and 6%, respectively.
Net profit was RMB 16.6 billion, up 27% quarter on quarter and 60% year on year. It was 8% above the Bloomberg consensus and also exceeded the relatively pessimistic expectation of RMB 16 billion that Citi learned of in discussions with buy-side investors. However, the result was still 5% below Citi’s own forecast.
Gross margin was 7%, flat both year on year and quarter on quarter, and 0.3 percentage points below both Citi’s forecast and the Bloomberg consensus. Operating profit was RMB 21 billion, 4% below Citi’s forecast but 3% above the Bloomberg consensus.

The company said third-quarter cloud computing revenue rose 75% year on year and 25% quarter on quarter; the year-on-year growth rate was close to the 76% recorded in the first half. GPU AI rack shipments rose 70% year on year and 15% quarter on quarter, while ASIC AI rack shipments grew 1.5 times year on year and 80% quarter on quarter.
Third-quarter networking equipment revenue grew 1.2 times year on year and 25% quarter on quarter. Shipments of switches at 800G and above rose 80% year on year and 25% quarter on quarter; their year-on-year growth was below the 1.4-fold growth recorded in the first half.

After factoring in third-quarter results, the Rubin delay and changes to Apple product launch timing, Citi cut its 2026 net profit forecast by 4% to RMB 59 billion. Its forecasts for 2027 and 2028 remained broadly unchanged at RMB 89 billion and RMB 115 billion, respectively.
Citi lowered its target price from RMB 99 to RMB 67 and maintained its Buy rating. The valuation benchmark fell from 22 times forecast 2027 earnings to 15 times: the target multiple for the AI business was cut from 25 times to 15 times because sentiment toward the AI sector had weakened recently; the multiple for the non-AI business remained at 15 times.

Citi believes FII, as a server designer and manufacturer, stands to benefit from cloud service providers deploying AI servers in 2025–2026. Market-share gains from an expanded customer base could help it achieve faster revenue growth than its peers.
The bank also expects a higher share of AI revenue to help improve margins. In contrast to that assessment, the company’s overall gross margin in the third quarter remained at 7%, with no improvement year on year or quarter on quarter.