Could memory chip shortage imperil FIH Mobile’s return to the black?

The smartphone arm of electronics giant Foxconn benefited from increased shipments to a key customer last year, as it reported an annual net profit of $52.73 million

Key Takeaways:

• FIH Mobile returned to the black in 2025 with a profit of $53 million, reversing a loss the previous year
• The smartphone arm of Taiwanese electronics giant Foxconn is facing a major new challenge this year from soaring memory chip prices

By Bai Xin Rui

Years after they were first introduced, smartphones have shown rapid signs of aging. That’s presenting challenges for leading brands, as better quality and slowing technological advances mean the average consumer replacement cycle has grown from 18 to 24 months in the past to a current average of 33 months. The end result for manufacturers has been a ramping down of growth, which stood at an anemic level of less than 3% last year.

Despite stagnating industry sales, FIH Mobile Ltd. (2038.HK), a leading contract manufacturer of mobile phones, impressed investors this month with annual results showing it returned to the black last year. How long it can stay in the black remains an open question, however, as prices for memory – a key phone component – remain stubbornly high amid a global shortage.

Focus on non-Apple devices

Established in May 2003 and listed in Hong Kong two years later, FIH Mobile is a subsidiary of Taiwan’s Hon Hai Technology, also known as Foxconn. Hon Hai ranks first globally in the electronics manufacturing services (EMS) sector with a dominant market share exceeding 40%. Within the Hon Hai empire, FIH Mobile focuses on mobile phones, specifically targeting models developed by companies other than iPhone maker Apple.

Benefiting from increased shipments to a major customer, FIH’s revenue rose 16.7% to $6.66 billion last year. That rise, combined with termination of unprofitable and low-margin businesses, helped lift FIH Mobile to a net profit of $52.73 million for 2025, reversing a $20.31 million loss in 2024.

The turnaround stemmed not only from dumping unprofitable operations but also the company’s strategic decision to focus more on higher value-added products. Concurrently, it shifted its customer and product portfolios towards automotive electronics, production line equipment, and high value-added robotics. That pivot drove an increase in FIH Mobile’s gross margin last year to 3.08%, up 0.72 percentage points year-on-year.

Surging memory prices

Despite the notable move to the black, the company was less optimistic about its outlook. It said the past year has been marked by severe challenges in its supply chain, specifically highlighting shortages in DRAM and NAND flash memory chips. It pointed out the overall average selling price of DRAM surged by 50% last year. That caused the proportion of memory costs within its smartphone bill of materials (BOM) to rise sharply from a historical range between 10% and 15% to the current 15% to 25%.

The DRAM shortage stems from explosive growth related to AI. The extremely high-speed operation of graphics processing units (GPUs), often called AI chips, historically stood in contrast to relatively slow data delivery speeds from conventional DRAM. That created a bottleneck in the overall computational process for AI applications, often called the “memory wall problem.”

But a new generation of high-bandwidth memory (HBM) can resolve the issue. HBM is made by stacking multiple DRAM dies using through-silicon via (TSV) stacking technology, and it commands a price premium of two to three times a comparable amount of conventional DRAM. HBM’s superior profit margins have led major global manufacturers to shift some production originally allocated for smartphone- and PC-use DRAM towards producing HBM for AI servers. That shift has reduced the supply available for smartphones, which in turn has led to shortages and big increases in smartphone DRAM prices.

DRAM capacity expansion faces obstacles

Expanding DRAM production capacity would solve the problem. But that could be extremely difficult in the short-term because DRAM, as a type of semiconductor chip, must be manufactured in specialty cleanrooms. And the sudden, massive surge in demand for AI-use DRAM has filled existing cleanroom space to capacity.

Constructing new cleanrooms is also challenging because such facilities and the specific production equipment they contain require long lead times, often taking several years to complete construction. Consequently, most industry watchers estimate that DRAM chip prices are unlikely to retreat before 2028 at the earliest.

Reflecting that, Citigroup recently revised down its 2026 global mobile phone shipment forecast by 17% to 1.04 billion units, citing substantial price increases for memory chips. As phone makers pass on the costs to consumers, higher handset prices are expected to disproportionately affect sales of low- to mid-range smartphones, since customers in that segment are especially price sensitive. Consistently high DRAM prices, as many expect, could put additional pressure on FIH Mobile’s already-slim gross margin and profit, potentially drawing the company back into the red if it’s forced to absorb some of the higher memory costs.

At the same time, the ongoing conflict in the Middle East poses additional risks. The Strait of Hormuz, which handles 20% to 30% of global oil and gas transit, has seen near-total disruption in shipping due to the war. According to a Nomura report, India currently holds less than one month’s worth of oil inventories. That could be problematic for FIH Mobile if India is forced to resort to energy rationing, since the company operates manufacturing facilities in the country.

Heavy customer concentration

The overwhelming majority of FIH Mobile’s revenue comes from its mobile phone business, with its top five customers contributing approximately 86.8% of the total. That concentration presents another significant business risk, which the company is trying to mitigate by attracting non-mobile product customers in areas like automotive electronics.

Notably, FIH Mobile’s Mobile Drive automotive technology subsidiary signed on car giant Stellantis as a client in 2021. Stellantis injected an additional $40 million into Mobile Drive, transforming it into a 50-50 joint venture. Mobile Drive specializes in intelligent cockpits and automotive infotainment system software, offering comprehensive in-vehicle solutions. While prospects for the collaboration look promising, the business remains at an early stage and thus is unlikely to make a major contribution to FIH’s business in the near-term.

The big picture is that FIH will remain heavily reliant on mobile phones for at least the next few years, even as memory chip prices cast a cloud over that sector. Its Indian manufacturing facilities also face potential disruptions due to the Middle East conflict, while contributions from its non-mobile businesses are likely to remain low for now. That could constrain the company in the year ahead, quite possibly pushing FIH back into the red.

To subscribe to Bamboo Works weekly free newsletter, click here