Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Celestica Inc (CLS, Financial) achieved record quarterly results with revenues of $2.5 billion and adjusted EPS of $1.04, surpassing guidance.
- The Connectivity & Cloud Solutions (CCS) segment saw a 42% year-over-year revenue increase, driven by strong demand from hyperscale customers.
- The company reported a non-IFRS operating margin of 6.7%, marking a 100 basis point improvement.
- Celestica's Hardware Platform Solutions (HPS) business is expected to generate $2.8 billion in revenues, reflecting over 60% growth.
- The company anticipates continued strong demand for its networking switches, with 800G solutions gaining traction.
Negative Points
- The Advanced Technology Solutions (ATS) segment experienced a 5% year-over-year revenue decline due to softness in the industrial business.
- Celestica's enterprise end market is expected to see a low double-digit percentage revenue decrease due to a technology transition.
- The company faces potential pricing pressures in the server business due to strong North American competitors and ODMs.
- Inventory levels remain a concern, with cash cycle days increasing by 2 days sequentially.
- The ATS segment's growth is expected to be in the low single digits for 2025, below the company's long-term target.
Q & A Highlights
Q: Can you discuss the potential impact of Cisco's involvement in Meta's new data center networks on your market share?
A: Stephen Dorwart, SVP of Global Accounts, explained that hyperscalers balance the best solutions for specific applications with product availability. Celestica continues to invest in R&D and work closely with key technology providers to ensure their platforms remain relevant. Despite the introduction of Cisco, Celestica has not seen a significant shift in hyperscaler behaviors, which aligns with their strategy and strengths.
Q: How are your discussions with customers regarding the back-end networking opportunity, and are you gaining market share?
A: Stephen Dorwart noted that there is a significant increase in Ethernet connectivity and bandwidth to support AI/ML systems. Hyperscalers are adjusting their network architectures, requiring more differentiated connectivity solutions. Celestica is well-positioned to support these changes and anticipates continued strong demand for their products.
Q: Can you provide more details on the Grok win and its significance for Celestica?
A: Stephen Dorwart highlighted that the Grok win is a significant proof point for Celestica's entry into the AI/ML compute space. The initial engagement includes manufacturing, with plans for increased design involvement in future generations. This win helps build competency and credibility for Celestica in the AI/ML market.
Q: What is the outlook for your CCS segment, particularly in communications versus enterprise growth?
A: Mandeep Chawla, CFO, stated that while enterprise is expected to decline due to a technology transition, communications is anticipated to grow by over 20%, driven by strong demand for 800G switches. Overall, CCS is expected to see low double-digit growth.
Q: How do you plan to capture more share with large Tier 1 hyperscalers, and what is your strategy for diversification within CCS?
A: Robert Mionis, CEO, mentioned that Celestica continues to do business with the top 5 hyperscalers and has seen strong diversification and growth with other hyperscaler customers. Stephen Dorwart added that Celestica has a comprehensive strategy to participate across growing markets driven by AI and ML applications, leveraging investments and relationships with ecosystem partners.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
