Release Date: January 30, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Celestica Inc (CLS, Financial) reported strong Q4 2024 performance with revenues of $5 billion, reaching the high end of their guidance range.
- The company achieved an adjusted EPS of $1.11, exceeding the high end of their guidance range.
- The CCS segment experienced robust demand, delivering 30% year-over-year growth, driven by hyperscale customer demand.
- Celestica Inc (CLS) reported a significant improvement in adjusted ROIC, reaching 29.1%, attributed to higher operating profitability and effective working capital management.
- The company announced major new wins, including a 1.6T switching program with a large hyperscale customer and a significant HPS win with a leading digital native company.
Negative Points
- The ATS segment revenue was approximately flat, with lower revenues in the industrial business offsetting growth in capital equipment and aerospace and defense.
- Enterprise end market revenue decreased by 10% due to a technology transition in an AI compute program with a hyperscale customer.
- The company experienced a sequential decrease in cash deposits, down $9 million, and a year-over-year decrease of $393 million.
- Celestica Inc (CLS) anticipates a mid-40% decrease in enterprise end market revenue in Q1 2025 due to a temporary decline in volumes.
- The company faces challenges in maintaining growth in the industrial business, which has been impacted by macro factors and customer inventory digestion.
Q & A Highlights
Q: Can you discuss the coexistence of 400G and 800G technologies and their growth prospects?
A: Robert Mionis, President and CEO, explained that both 400G and 800G technologies will coexist for a significant period. While 800G is ramping up significantly, 400G is also expected to grow in 2025. As price points for 400G decrease, different use cases will emerge, allowing these technologies to coexist for a long time.
Q: How does Celestica differentiate itself in the server market, especially against Asian ODMs?
A: Robert Mionis highlighted Celestica's extensive expertise in liquid cooling system design and manufacturing at scale. The company was selected by a digital native customer due to its strong technical knowledge, intellectual property, and resilient supply chain capabilities. Celestica's ability to provide a fully integrated rack solution, including design, manufacturing, and services, sets it apart from competitors.
Q: Can you provide more details on the new win for the integrated rack with a custom ASIC?
A: Robert Mionis stated that the win involves a fully integrated rack solution, including switching, compute modules, cable backplanes, and liquid cooling. This project leverages Celestica's significant IP and design capabilities developed over the past decade. The successful execution of this project is expected to lead to further growth opportunities.
Q: What is the outlook for the enterprise segment, particularly regarding the program transition with a large customer?
A: Mandeep Chawla, CFO, confirmed that the transition is proceeding as expected, with enterprise revenue down year-over-year due to a program moving toward end-of-life. A new program is on track to ramp in the third quarter, with a return to year-over-year growth anticipated by the end of 2025.
Q: How is Celestica positioned to capitalize on potential changes in AI model development, such as those suggested by DeepSeek?
A: Robert Mionis expressed confidence that increased AI accessibility will drive demand for networking solutions. Networking remains crucial for scaling AI systems, and Celestica's high bandwidth switching solutions are well-positioned to meet the needs of real-time analytics and distributed computing, regardless of advancements in AI models.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
