U.S. tech giants want to reduce their dependence on China and turn to Mexico to produce AI hardware, Foxconn and others responded to the call

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  Several top U.S. AI companies are urging Taiwanese manufacturing partners to produce more AI-related hardware in Mexico.

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  Foxconn, Pegatron, Wistron, Quanta, Compal and Inventec have all set up factories in Mexico.

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  There are many risks associated with using Mexico as a production hub, including rampant crime, unstable water and electricity supplies, and a lack of skilled workers.

Tencent Technology News reported on April 1 that according to foreign media reports, a number of top artificial intelligence companies in the United States are urging their Taiwanese manufacturing partners to expand the production scale of artificial intelligence-related hardware in Mexico.

Industry executives and analysts revealed that as the world's largest electronics OEM manufacturer, Foxconn and other Taiwanese companies are actively responding to this call and further increasing investment in Mexico.

These companies are taking advantage of the U.S.-Mexico-Canada Free Trade Agreement, which has been in effect since 2020. The agreement has succeeded in attracting billions of dollars in funding from manufacturers to move their operations elsewhere to Mexico, a trend known as nearshoring.

Local officials in Taiwan said North American countries were "desperate to reduce their dependence on Asian imports and seek more alternatives." Under this shared goal, Mexico will be the most critical manufacturing base under the USMCA. ”

Caption: Foxconn's plant in San Jerónimo, Mexico

In February, Foxconn announced that it had acquired land in the western Mexican state of Jalisco for about $27 million. According to people familiar with the matter, the move marks a major expansion of the company's AI server production space. In fact, over the past four years, Foxconn's investment in Mexico has reached about $690 million.

It is reported that Foxconn's factory in Mexico manufactures artificial intelligence servers for American tech giants such as Amazon, Google, Microsoft and Nvidia. However, when asked if they had purchased Foxconn's Mexican-made servers, the U.S. companies either declined to confirm or did not respond.

Francisco Cervantes, head of Mexico's largest private sector organization, said last year that Taiwanese companies are growing in Mexico and that this process "will significantly change Mexico's industrial structure over the next 10 years."

The hardware used in AI applications mainly includes powerful computer servers, storage systems, cooling units, connectors, and other devices. From the looks of it, these machines don't seem to be much different from devices that handle non-AI tasks. However, in terms of the underlying technology, they are designed to handle the complex computational tasks required by artificial intelligence and are often equipped with cutting-edge processing units.

Caption: Mexican official Cervantes said the presence of Taiwanese companies would help change Mexico's industrial structure

As production of such devices continues to climb, American companies are trying to avoid a repeat of the smartphone boom of about 15 years ago. At that time, most of the core manufacturing bases for smartphones and their components were eventually moved to Asia, especially at iPhone assembly plants operated by Foxconn and other companies.

However, Mexico's role as a new production hub also faces a number of risks, including the threat of criminal activity, unstable water and electricity supplies, and fierce competition for skilled workers needed to assemble high-tech products.

Some Taiwanese executives admit that they have had to rely on private security to prevent local gangs from looting chips or other high-value equipment from factories. They also mentioned that Mexican workers tend to be more resistant to long overtime hours than Chinese counterparts. In addition, when Mexican workers join a union, factories must strictly adhere to the labor provisions of the USMCA.

Taiwan-based Inventec, one of the companies that makes servers for artificial intelligence and other features for major U.S. tech companies, is also aggressively expanding in Mexico.

Arch Chen, Inventec's country manager for Mexico, revealed at a conference in Taiwan last December that one of his customers, a top U.S. brand with influence in AI development, had initially expressed a desire to produce equipment in the United States. However, after inspecting the facility in Mexico, the customer was impressed by the level of technology and decided to start production there.

Caption: Jensen Huang, founder and CEO of Nvidia

Major U.S. server makers such as Dell and Hewlett Packard Enterprise have asked suppliers to shift production of some servers and cloud computing equipment to Southeast Asia and Mexico, according to people familiar with the matter. Both companies said the move is aimed at strengthening the stability of their supply chains and promoting their diversification.

Equipment manufacturing, which is closely linked to artificial intelligence, is one aspect in which Mexico is playing an increasingly important role in several advanced manufacturing sectors. It is worth noting that Mexico has signed as many as 14 free trade agreements with 50 countries and territories in the world, a number more than any other country in the world. These agreements not only attracted automakers from Asia, Europe and the United States, but also catapulted Mexico to become the world's fifth-largest exporter of automobiles.

Some EV manufacturers, including Tesla, are actively seeking to establish production bases in Mexico. At the same time, Taiwanese companies are also investing in central and southern Mexico to meet the demand for parts and components in the automotive industry. It is estimated that about 300 Taiwanese companies employ 70,000 people in Mexico.

These Taiwanese OEMs are mainly concentrated in several important hubs in Mexico, which are close to Texas in the United States, such as Juarez and Monterrey. Among them, Foxconn, Pegatron, Wistron, Quanta, Compal and Inventec, which are known as the "six brothers of electronics" in Taiwan, have production bases in these regions.

Analysts at market research firm TrendForce point out that Taiwanese manufacturers account for about 90 percent of global server motherboard production, led by these six companies. As the core component of the server, the server motherboard carries the key components of the server.

Liu Yangwei, chairman of Foxconn, said in August last year that Foxconn alone accounted for more than 70% of the upstream market share of graphics processing units. The graphics processing unit is a key component in the circuitry required to manufacture AI servers.

According to the U.S. Census Bureau, Chinese-made products accounted for 13.9 percent of U.S. merchandise imports last year, down from 21.5 percent in 2015. At the same time, Mexico's share of imports rose 2 percentage points to 15.4 percent, making it the largest source of U.S. merchandise imports. (Compiler/Golden Deer)