2025-11-18 09:41Summary 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.