Foxconn, the major electronics manufacturer, is entering the AI datacenter business.

Foxconn, formally known as Hon Hai, announced on Wednesday that it is taking a 10% stake in TECO Electric & Machinery Co. through a share exchange. The move is part of Foxconn's effort to become a key player in building artificial intelligence data centers, a market that could unlock access to a potential $1 trillion of spending by companies on data centers in the coming years, according to Counterpoint Research. The partnership will pit the Taiwanese giant against companies like ABB, Siemens and Mitsubishi Electric.

TECO started as an engine maker for cars but has since extended into areas such as electric vehicles, energy storage and data center construction. Foxconn, which assembles Apple's iPhone and is a key partner for Nvidia, manufactures server racks designed for AI workloads. The two companies are now teaming up to bring their expertise together to effectively create a one-stop-shop for anyone looking to set up an AI data center. "The strategic partnership extends the two companies' cooperation in the fields of low-carbon smart factories and energy services, toward being a one-stop solution for data centers going forward," TECO Chairman Morris Li said.

Foxconn is pursuing this diversification as AI server assembly becomes an increasingly important revenue stream. The company previously forecast that AI server revenue is expected to have doubled in the second quarter of the year. According to Neil Shah, partner at Counterpoint Research, "With the AI infrastructure boom, Hon Hai with [a] strategic alliance with TECO aims to extend and tightly integrate the server components and racks value chain from co-design, manufacturing to engineering and infrastructure construction services." Shah further noted that "Hon Hai aims to become a one-stop shop for all the datacenter needs."

Foxconn and TECO said they are targeting business in Taiwan and other parts of Asia, as well as the Middle East and the U.S., with plans to "expand American manufacturing and reshape the global supply chain." Tech giants from Microsoft to Google have already laid out plans to spend billions of dollars this year alone on data centers, which includes chips and servers. Shah concluded that "The full data center solutions will give strong impetus to Foxconn's business as it takes to take a bigger slice of the overall data center CAPEX (capital expenditure) which includes servers to physical infrastructure."