Matthew Sheerin • Stifel Financial Corp.

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CFO Marshall Witt did not provide specific gross margin guidance but stated that operating margins are expected to stabilize after Q1, with normal seasonality leading to improvement in Q4. On the Hyve business, he confirmed continued strong performance from the second major customer and noted they are working to expand services with them, while also expressing optimism about opportunities to expand the overall Hyve customer base in the coming years.

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CEO Mike Dastoor explained that the deepening relationship involves winning new business with their existing top customer. For the second hyperscaler, the opportunity is in silicon photonics, currently focused on 100-400G products with plans to quote 800G and explore 1.6T. He also confirmed the strategy is to cross-sell Jabil's broader engineering and integration platform. CFO Greg Hebard added that net inventory days are expected to remain in the 55-60 day range, likely trending toward the lower end in the second half of the year.

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CEO Sean Kerins clarified that the Q4 outlook anticipates flattish performance in Asia and modest sequential declines in the West. He confirmed the global book-to-bill ratio is still below 1.0, though it is advancing, with Asia leading. Kerins explained that a significant gross margin recovery is contingent on the return of the mass market, which is difficult to time due to persistent excess inventory throughout the supply chain.

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CFO Glynis Bryan confirmed that Q4 revenue is expected to see very low single-digit sequential growth and that the gross margin will be lower, driven by both the SADA impact and product mix. President and CEO Joyce Mullen elaborated that the on-prem software issue was a reclassification due to a partner consolidation, moving revenue from a gross recognition basis (software) to a net fee basis (services), which was a one-time benefit in Q3. Bryan specified this partner change was the primary driver for the software revenue decline in the EMEA region.

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CEO Thomas Edman reported that approximately 85% of the data center computing business is tied to hyperscalers and Generative AI, with concentration among 4-5 major customers. He noted solid visibility through Q1 2025 but found it difficult to forecast beyond that. CFO Daniel Boehle added that the Syracuse expansion is primarily a fiscal 2026 story with minimal P&L impact expected in the upcoming year.

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President and CEO Dave Heinzmann clarified that the power semiconductor business has less distribution exposure and that channel inventories are not the primary issue. Instead, he believes industrial end customers may have an inventory overhang of both components and finished goods. Regarding pricing, Heinzmann stated that previous price increases have been resilient and 'sticky.' He described the current environment as a return to normal, with typical price-down dynamics in electronics and industrial, while in transportation, they are actively taking pricing actions to improve profitability.

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CEO Phil Gallagher explained that the flattish guidance for EMEA is based on coming off a very low sales base in the September quarter. CFO Ken Jacobson attributed the gross margin pressure primarily to the sales mix shift towards Asia and Farnell's performance, stating he expects margins to be flat to slightly up in the next quarter. Regarding inventory, Jacobson noted that the reported increase was largely due to foreign currency changes and end-of-quarter timing. Gallagher added that the excess inventory is concentrated with about a half-dozen suppliers and that the company is also taking some strategic, opportunistic inventory positions.

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CEO Christine Leahy clarified that client device growth was strong across almost all end markets, including Corporate, with Small Business being the main exception due to cash preservation. CFO Albert Miralles added that growth is driven by refreshing aging fleets, not yet by AI PCs, which Leahy sees as a future accelerant. For Q4 margin, Miralles cited continued softness in higher-margin solutions and a more modest mix of netted down revenues compared to the outsized Q4 of last year.

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President and CEO Todd Kelsey explained that improved contribution margin from a mix of services and customers, along with productivity gains, offset fixed cost deleveraging. He clarified that profitability is more dependent on the mix within customers rather than between sectors. EVP and COO Oliver Mihm added that higher-margin engineering solutions revenue is expected to increase as the fiscal year progresses. The engineering business is 'greater than $100 million' annually.

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CFO Mandeep Chawla confirmed that the Enterprise segment is expected to be down in 2025 due to a program transition, implying Communications growth will be above 20%. President of CCS Jason Phillips addressed competition by highlighting Celestica's multi-generational experience at scale in complex custom AI/ML systems and its innovation at the system and rack level, which he believes is a key differentiator. SVP Stephen Dorwart added that while pricing is always a factor, Celestica differentiates on innovation and value, often securing lead partner status in dual-source situations.

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