Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: IT Hardware and Communications Equipment, specifically custom ASICs, servers, PCs, and smartphones [1][2][3] Core Insights - **Custom ASICs Growth**: Strong positive sentiment regarding custom ASICs, particularly in AI servers, with expectations for a better long-term compound annual growth rate (CAGR) for general-purpose servers [2][4] - **Power Solutions**: Increasing importance of power management solutions in AI racks, with companies focusing on integrating full compute racks [2][9] - **PC and Smartphone Stability**: The PC market appears stable, while iPhone production remains unchanged, with no significant upward revisions expected [2][13] Company-Specific Insights Celestica Inc. (CLS) - **TPU Contribution**: CLS is expected to be the primary EMS partner for TPU, with projections indicating that TPU will represent 70-75% of the Enterprise segment by 2025 [5][21] - **Revenue Estimates**: FY26 revenue estimates for CLS's Enterprise segment have been increased from $2,752 million to $3,782 million, with an overall price target raised to $359 [5][16] - **Growth Projections**: Revenue growth projected at a CAGR of 30.3% from 2024 to 2027, with net income expected to reach $1,326 million by 2027 [21] Fabrinet (FN) - **Market Position**: FN is positioned as a second source for TPU, with revenue estimates for FY26 increased from $146 million to $243 million due to a larger total addressable market (TAM) [11][27] - **Revenue Growth**: Projected revenue growth at a CAGR of 23.5% from 2025 to 2028, with net income expected to reach $699 million by 2028 [27] Jabil (JBL) - **Test Equipment Growth**: JBL is expected to benefit from growth in the test equipment market for GPUs, with FY26 estimates for semi-cap equipment rising to $2.9 billion from $2.5 billion in FY25 [6][15] Flex Ltd (FLEX) - **Power Systems Exposure**: FLEX has significant exposure to power systems, with 25-30% of its $6.5 billion data center revenues in FY26 coming from these solutions [12][15] - **Market Position**: Expected to see upside in business throughout 2026, particularly in full rack manufacturing [5][15] Risks and Challenges - **Celestica (CLS)**: Risks include customer concentration, loss of programs to competition, and potential slowing of AI spending [18][68] - **Fabrinet (FN)**: Risks include a slowdown in AI spending, lower outsourcing activity, and increased competition [20][74] Valuation and Price Targets - **Celestica Inc. (CLS)**: Price target set at $359 based on a 32x FY27 EPS of $11.21, reflecting a positive mix shift and rising ODM/HPS content [17][67] - **Fabrinet (FN)**: Price target set at $499 based on a 30x FY27 EPS of $16.64, accounting for the AI investment cycle [19][73] Conclusion - The IT Hardware and Communications Equipment industry is experiencing growth driven by custom ASICs and AI-related investments, with specific companies like CLS and FN positioned to benefit significantly. However, potential risks related to market dynamics and competition remain a concern.

Summary of the Conference Call on IT Hardware and Communications Equipment Industry Overview - The focus is on the **IT Hardware and Communications Equipment** industry, specifically the **storage market** and **NAND pricing** trends [1][2]. Key Points and Arguments 1. **Storage Market Growth Projections**: - Total storage estimates for **CY25** have been adjusted upwards, with a forecast of **5% growth** for **CY26** and **2% growth** for **CY27** [2]. - The storage market is expected to grow at a **CAGR of 7%** from **2021 to 2026**, with hardware growing at **6%** and software/SaaS at **15%** [17][18]. 2. **NAND Pricing Impact**: - Recent upward movements in **NAND pricing** are expected to affect storage players' revenues and margins, as NAND can account for up to **50% of COGS** in storage hardware [3][8]. - The correlation between NAND pricing changes and product GM is delayed, typically taking about a quarter to reflect in revenue and margins [8][11]. 3. **Market Dynamics**: - The storage market has shown resilience year-to-date, although there are pockets of weakness, particularly in the public sector and EMEA [2]. - The anticipated recovery in enterprise spending and AI-related demand is expected to begin impacting the market around **CY26** [2][17]. 4. **Vendor Performance**: - **NetApp (NTAP)** and **Pure Storage (PSTG)** are expected to see improvements in product GMs in the second half of the year, aided by strategic pre-buys [16]. - **DELL** and **HPE** are noted for their market share dynamics, with DELL being a consistent share donor and HPE maintaining stable market share [31][37][41]. 5. **Software/SaaS Market Share**: - Software/SaaS revenues are projected to remain a small portion of the overall market, expected to grow from **4%** in **2026** to nearly **5%** by **CY27** [25][28]. 6. **AFA vs. Disc/Hybrid Growth**: - AFA (All-Flash Array) is expected to grow at a **CAGR of 9%**, while Disc/Hybrid is projected to grow at **6%** from **2021 to 2026** [17][18]. Additional Important Insights - The storage market's growth is not correlating with trends in server and DC switching revenues, indicating that external storage is not fully participating in AI-related growth [18][19]. - Historical data shows a decline in the correlation between server revenues and external storage revenues, particularly as AI servers with higher ASPs ramp up [19][21]. - The overall storage market has experienced fluctuations, with an average growth of **6%** over the past five years, and is now expected to average **8% growth** in **2025-2026** [21][24]. Conclusion - The IT Hardware and Communications Equipment industry, particularly the storage segment, is poised for moderate growth driven by enterprise recovery and AI-related demand, despite challenges posed by NAND pricing volatility and market dynamics.