US AI Firms Push for AI Hardware Production in Mexico

Leading artificial intelligence (AI) companies in the United States are urging manufacturing partners to ramp up production of AI-related hardware in Mexico. Industry executives and analysts say companies including Foxconn are responding to this push, increasing their investments in Mexico

Leading artificial intelligence (AI) companies in the United States are urging manufacturing partners to ramp up production of AI-related hardware in Mexico. Industry executives and analysts say companies including Foxconn are responding to this push, increasing their investments in Mexico.

Mexico's Advantage

The United States-Mexico-Canada Agreement (USMCA), which took effect in 2020, has made Mexico an attractive destination for manufacturers, a strategy known as nearshoring, which has drawn billions of dollars in investment.

Growing Demand for AI Hardware

AI hardware, which includes high-performance computing servers, storage systems, cooling equipment, and connectors, is purpose-built to handle the complex computations required by AI applications. As AI applications proliferate, demand for this equipment is surging.

Foxconn Leads the Nearshoring Charge

Foxconn, the world's largest electronics manufacturing services provider, is a major player in AI hardware manufacturing in Mexico. The company has announced a $27 million investment to acquire land in the western Mexican state of Jalisco for a major expansion of its AI server production.

US Tech Giants Embrace Mexico

U.S. tech giants including Amazon, Google, Microsoft, and Nvidia source AI servers from Foxconn's factories in Mexico, taking advantage of the country's lower labor costs and proximity to the United States.

Mexico's Challenges

Despite its advantages, Mexico faces challenges in becoming a hub for AI hardware manufacturing, including crime, unreliable water and electricity supplies, and a shortage of skilled workers. Some companies express concerns about having to rely on private security to protect their factories from robberies of chips and other valuable equipment.

Compal and Dell Join the Nearshoring Bandwagon

Companies like Compal are also ramping up their presence in Mexico, manufacturing AI-powered servers for major U.S. tech firms. U.S. server manufacturing giants Dell and HPE have also asked suppliers to shift some server and cloud computing production to Southeast Asia and Mexico, moves the companies say are aimed at strengthening and diversifying their supply chains.

Mexico's Position in Global Automotive and EV Markets

Mexico has 14 free trade agreements with 50 countries and territories, giving it one of the most extensive free trade networks in the world. These agreements have attracted automakers from Asia, Europe, and the United States, making Mexico the world's fifth-largest auto exporter.

Electric vehicle makers including Tesla are actively exploring setting up production facilities in Mexico.

Six Industry Giants Dominate AI Hardware Manufacturing in Mexico

Foxconn, Pegatron, Wistron, Quanta, Inventec, and Compal are the six industry giants dominating AI hardware manufacturing in Mexico. The companies are concentrated in key hubs near El Paso, Texas, including Ciudad Jurez and Monterrey.

Foxconn's Dominance in Key Component

Foxconn Chairman Liu Yangwei said in August that Foxconn alone accounts for more than 70% of the market share in the upstream business for graphics processing units (GPUs), a key component that powers the circuitry of AI servers.

Impact of AI Hardware on Mexican Economy

AI-related equipment is becoming an increasingly important part of Mexico's advanced manufacturing sector. Nearshoring is creating jobs and boosting economic growth. The Mexican government is supporting these investments and working to provide a favorable business environment for manufacturers.

The push by U.S. AI companies and their manufacturing partners is positioning Mexico as a hub for AI hardware manufacturing. The nearshoring strategy capitalizes on Mexico's advantages while helping U.S. companies avoid the risks of offshoring their manufacturing bases. Despite the challenges, Mexico's presence in the AI hardware sector is expected to continue growing, bringing significant benefits to the local economy.