U.S. Tech Giants Ask Makers of AI Gear to Use Mexico

"Some of the biggest U.S. companies in artificial intelligence have asked their Taiwanese manufacturing partners to step up production of AI-related hardware in Mexico, seeking to diminish reliance on China.

Foxconn, the world's largest contract electronics manufacturer, and other Taiwanese companies are heeding the call and investing more in Mexico, according to industry executives and analysts.

They are taking advantage of the U.S.-Mexico-Canada Agreement, the free-trade deal that took effect in 2020. It has attracted billions of dollars from manufacturers aiming to move operations from China to Mexico, a process known as nearshoring.

The North American nations "hope to replace products imported from Asia as much as possible," said James Huang, chairman of the Taiwan External Trade Development Council. "Based on this consensus, Mexico is poised to become the most important manufacturing base for the USMCA."

In February, Foxconn said it spent about $27 million to acquire land in western Mexico's Jalisco state, in what people familiar with the plan described as a major expansion of the company's AI server production. Foxconn said it had invested about $690 million in Mexico over the past four years.

Foxconn's Mexico facilities manufacture AI servers for U.S. giants such as Amazon.com, Google, Microsoft and Nvidia, said people familiar with the operations. The U.S. companies either declined to confirm whether they have servers made in Mexico by Foxconn or didn't respond to requests for comment.

The rising presence of Taiwanese firms in Mexico is part of a process that will "dramatically modify the industrial structure of Mexico in the next 10 years," said Francisco Cervantes, head of Mexico's largest private-sector organization, last year.

The hardware used in AI applications consists of powerful computers called servers, storage systems, cooling units, connectors and other equipment. From the outside, the machines look similar to those that handle non-AI tasks. Under the hood, they are designed to tackle the complex calculations needed in AI programs and often incorporate cutting-edge processing units.

As production of such gear increases, U.S. companies are looking to avoid repeating the history of the smartphone after it took off some 15 years ago. Much of the core manufacturing of smartphones and their parts ended up in China, in particular at the factories run by Foxconn and others to assemble iPhones.

Mexico presents its own risks as a production hub, including crime, insufficient water and electricity supply, and intense wage competition for workers skilled at assembling high-tech goods.

Some Taiwanese managers said they rely on private security to keep local gangs from robbing plants of chips or other valuable equipment.

Taiwan-based Inventec, which manufactures servers for AI and other functions for major U.S. tech companies, is one company expanding its footprint in Mexico.

Arch Chen, Inventec's regional manager in Mexico, told a conference in Taiwan in December that one of his clients, a top American brand involved in AI development, initially said it wanted its equipment produced in the U.S. After inspecting facilities in Mexico, the client was impressed by the technology and opted to produce there instead, Chen said.

It is getting harder to make cutting-edge equipment in China because the U.S. bans the export to China of advanced chips for AI applications such as those designed by Nvidia.

Major U.S. server manufacturers such as Dell and Hewlett Packard Enterprise have asked their suppliers to move some server and cloud computing production to Southeast Asia and Mexico." [1]

1. U.S. Tech Giants Ask Makers of AI Gear to Use Mexico. Yang, Jie.  Wall Street Journal, Eastern edition; New York, N.Y.. 01 Apr 2024: B.1.