Summary of Celestica Q3 2025 Financial Results Conference Call Company Overview - **Company**: Celestica - **Industry**: Technology platform solutions, focusing on data center infrastructure and advanced technology solutions Key Financial Metrics - **Q3 2025 Revenue**: $3.19 billion, up 28% year-over-year, exceeding guidance [6][12] - **Non-GAAP Operating Margin**: 7.6%, up 80 basis points, highest in company history [6][12] - **Adjusted Earnings Per Share (EPS)**: $1.58, an increase of 52% year-over-year [6][12] - **Adjusted Gross Margin**: 11.7%, up 100 basis points [6][12] - **Adjusted Return on Invested Capital (ROIC)**: 37.5%, up 850 basis points year-over-year [7][12] - **Cash Flow**: Generated $89 million in free cash flow for Q3, totaling $302 million year-to-date [10][12] Segment Performance - **Advanced Technology Solutions (ATS)**: - Revenue: $781 million, down 4% year-over-year [8][12] - Segment margin: 5.5%, up 60 basis points [9][12] - **Connectivity and Cloud Solutions (CCS)**: - Revenue: $2.41 billion, up 43% year-over-year [8][12] - Segment margin: 8.3%, up 70 basis points [10][12] - Communications end market revenue increased by 82% [9][12] Market Dynamics - **Demand Drivers**: Strong demand in data center networking, particularly for 800G switch programs [9][12] - **Enterprise Market**: Revenue decreased by 24% due to a technology transition in AI/ML compute [9][12] - **Customer Concentration**: Three customers accounted for 30%, 15%, and 14% of total revenue [10][12] Guidance and Outlook - **Q4 2025 Revenue Guidance**: Projected between $3.325 billion and $3.575 billion, representing 36% growth at midpoint [12][13] - **Adjusted EPS Guidance**: Expected between $1.65 and $1.81, implying a 56% increase at midpoint [13][15] - **2025 Financial Outlook**: Revenue expected to reach $12.2 billion, up from $11.55 billion, reflecting 26% year-over-year growth [15][16] Strategic Initiatives - **Investment in Technology**: Focus on next-generation technology roadmaps and advanced capabilities [17][18] - **Operational Excellence**: Emphasis on quality, reliability, and on-time delivery across global sites [24][28] - **Customer Engagement**: Deepening relationships with customers through engineering services and tailored solutions [55][56] Market Opportunities - **AI Infrastructure**: Significant investments in AI infrastructure expected to drive demand for data center technologies [39][40] - **Networking Solutions**: Anticipated revenue of $7 billion in 2025 from networking solutions, with strong growth in 800G and 1.6T programs [40][41] - **Custom ASIC Platforms**: Focus on custom ASIC platforms expected to grow significantly, with a projected TAM of nearly $500 billion by 2029 [50][51] Capital Allocation and Financial Management - **Capital Expenditures**: Expected to rise to 2.0% - 2.5% of revenue, funded by operational cash flow [67][68] - **Free Cash Flow Target**: Projected at $500 million for 2026 [64][68] - **Return on Invested Capital**: Adjusted ROIC expected to remain strong, currently at 35% year-to-date [68][68] Conclusion - **Overall Performance**: Celestica is experiencing strong financial performance, driven by robust demand in key segments, particularly in AI and data center solutions, with a clear strategy for sustainable growth and operational excellence [20][28]

Financial Performance & Outlook - Celestica's 2025E revenue is projected to be $12.2 billion, with a 7.4% non-GAAP adjusted operating margin[21] - The company anticipates a 31% revenue growth in 2026, reaching $16.0 billion, and a non-GAAP operating margin of 7.8%, a 40 bps increase[150] - Non-GAAP adjusted EPS is expected to grow by 39% to $8.20 in 2026[150] - Celestica forecasts non-GAAP free cash flow of $500 million in 2026, an 18% increase from $425 million in 2025E[150] Segment Performance - Connectivity & Cloud Solutions (CCS) is expected to generate $9.0 billion in revenue in 2025E, a 39% year-over-year increase, with a segment margin of 8.2%, up 80 bps year-over-year[44] - Advanced Technology Solutions (ATS) is projected to reach $3.2 billion in revenue in 2025E, a 1% year-over-year increase, with a segment margin of 5.3%, up 70 bps year-over-year[117] Market & Technology - Data center IT capex is expected to surpass $1 trillion by 2028, driven by AI and cloud investments[63] - The High Bandwidth Ethernet Switch TAM is projected to reach approximately $50 billion by 2029, with a 30% CAGR[78, 79] Strategic Focus - Celestica is focused on accelerating market advancements through technology leadership and best-in-class operational execution[39]

Investment Rating - The investment rating for Foxconn Industrial Internet is "Buy" with a target price of Rmb26.00, indicating an expected return of 11.1% [3][20]. Core Insights - Foxconn Industrial Internet (FII) reported a net profit guidance for 2Q25 of Rmb6.73-6.93 billion, representing a year-over-year increase of 48%-52%, which exceeds CitiE and BBGe estimates by 12% and 26% respectively [1][2]. - Cloud computing revenue for FII increased by over 50% in 2Q25, with AI server revenue growing by over 60% year-over-year, although this was below the initial guidance of 100%+ [1][2]. - The revenue from CSP servers rose by more than 150% year-over-year in 2Q25, and significant growth was observed in GPU module and compute tray shipments [2]. Summary by Sections Financial Performance - FII's net profit guidance for 2Q25 is as follows: - High-end: Rmb6.93 billion, a 52% increase year-over-year - Medium: Rmb6.83 billion, a 50% increase year-over-year - Low-end: Rmb6.73 billion, a 48% increase year-over-year [4]. Valuation - The target price of Rmb26.00 is based on a valuation of 17.0x 2025E earnings, which is justified by an earnings upcycle expected in 2025-2026 [6]. - The valuation multiple aligns with a blended P/E approach, applying 15x P/E to the non-AI segment and 20x P/E to the AI segment [6]. Market Context - The market capitalization of FII is approximately Rmb476.23 billion (US$66.46 billion) [3]. - The expected dividend yield is 2.7%, contributing to the overall expected return of 11.1% [3].

Investment Rating - The report maintains a "Buy" rating for Foxconn Industrial Internet (FII) with a revised target price of Rmb31.11, reflecting an upside potential of 17.9% from the current price of Rmb26.38 [16][17]. Core Insights - FII's 2Q25 net income guidance is between Rmb6.7 billion and Rmb6.9 billion, with a midpoint of Rmb6.8 billion, representing a 31% quarter-over-quarter increase and a 50% year-over-year increase [1]. - The company is experiencing significant growth in cloud computing revenues, projected to exceed 50% year-over-year, and AI server revenues are expected to grow over 60% year-over-year [1]. - FII's revenues from cloud service providers (CSPs) increased by over 150% year-over-year in 2Q25, and revenues from 800G switches are projected to be three times higher than in 2024 [1]. - The report anticipates a compound annual growth rate (CAGR) of 29% for net income from 2025 to 2027, with AI server revenues expected to rise from 29% in 2024 to 68% by 2027 [1]. Financial Projections - The report revises net income estimates upward by 3%, 4%, and 6% for 2025, 2026, and 2027 respectively, due to higher revenue expectations [5]. - FII's revenue projections for 2025E, 2026E, and 2027E are Rmb850.1 billion, Rmb1,130.6 billion, and Rmb1,274.5 billion respectively, reflecting increases of 5%, 10%, and 9% from previous estimates [8]. - The gross profit (GP) for 2025E is revised to Rmb49.9 billion, with operating profit (OP) at Rmb31.4 billion and net income at Rmb27.6 billion [8]. Market Position and Competitive Analysis - FII is positioned as a leading supplier in the AI server market, particularly in rack-level AI servers, supported by a comprehensive supply chain and global production capabilities [5][9]. - The target price is based on a price-to-earnings (P/E) multiple of 16x for 2026E, reflecting a market re-rating on AI servers [10][15].