Q2 2024 Earnings Summary
- Jabil expects significant growth in AI-related net revenue to approximately $6 billion in FY '25, driven by diversification and wins across multiple end markets in the AI data center infrastructure space.
- The company is confident in achieving its $10.65 core EPS target for FY '25, supported by new program wins in automotive, health care, and expected recovery in the semicap market, along with cost optimization efforts.
- Core operating margins are anticipated to expand to over 5.7% in FY '25 due to an improved business mix and consolidation of share in key end markets, demonstrating the company's resilience and ability to drive margin expansion.
- Unexpected halt in 5G rollout in India has significantly impacted Jabil's revenue, as the company is single-sourced for building radios in this key market. The rollout has completely stopped with no clear timeline for resumption, affecting demand in 5G infrastructure. , ,
- Second consecutive reduction in full-year revenue guidance, with a cut of $2.1 billion this time (excluding the $400 million from the mobility business sale), following a previous cut of $2.5 billion, raising concerns about ongoing demand weakness and the credibility of future guidance. ,
- Continued weakness in the renewable energy market, with an inventory correction expected to persist through the fiscal year, leading to lower-than-expected revenue and uncertainty about future recovery in this segment. , ,
-
AI Revenue Growth
Q: How much AI revenue do you expect, and impact on margins?
A: We expect AI-related revenue to grow 20–30%, reaching over $6 billion in FY'25, with margins north of enterprise levels. Approximately two-thirds of this revenue is data center related, with the rest from optics and advanced switching. This growth is driven by our shift from legacy servers to AI-related GPU products, and our global footprint and vertical integration give us a competitive advantage. -
Confidence in Guidance Despite Cuts
Q: Why are you confident in guidance after cutting forecasts?
A: Despite prior guidance reductions due to unexpected slowdowns in 5G and renewables, we're now being very conservative in our forecasts. We're closely aligned with customers and have adjusted for inventory levels and demand. We expect EPS of $10.65 in FY'25, driven by growth in AI, automotive, and healthcare, with low risk due to new program wins and cost optimization efforts. -
Margin Outlook and Path to 6% EBIT
Q: How are margins improving, and can you reach 6% EBIT?
A: Margins are improving due to a mix shift toward higher-margin AI-related business, cost optimization, and cost recoveries from customers. We're increasing our FY'24 margin guidance to 5.6%, and expect to exceed 5.7% in FY'25. We believe reaching a 6% EBIT margin is achievable within a year or so after FY'25. -
5G and Renewables Demand Weakness
Q: What's causing weakness in 5G and renewables?
A: The 5G rollout in India unexpectedly stopped, impacting demand. We've adjusted forecasts and don't expect recovery in these areas this year. In renewables, inventories are high, particularly in residential, but we're pivoting to commercial projects and winning market share. We're confident these adjustments make our forecasts appropriately conservative. -
Healthcare Business Outlook
Q: Can you elaborate on the healthcare business trends?
A: We expect the healthcare business to recover in the back half, with the second half 8% stronger than the first. Med devices and ortho are improving, and pharma is strong, especially with GLP-1 demand. We're comfortable projecting 5% growth in healthcare for next year. -
Customer Base in AI Segment
Q: Besides Amazon, which customers are driving AI growth?
A: We're supplying other hyperscalers across various capabilities, not just Amazon. Our comprehensive offerings in optics, advanced switching, and data center infrastructure have attracted multiple customers in the AI space. -
Fixed Cost Recoveries
Q: Are fixed cost recoveries secure?
A: Yes, the fixed cost recoveries are already agreed upon with customers, providing us with margin stability. -
Risks to Margin Improvement
Q: What could derail margin improvement?
A: Risks are low due to our conservative forecasts, new program wins, and cost optimization. Potential macroeconomic changes could affect end markets, but our growth is based on secured wins, not relying on market growth. -
AI Revenue Definition
Q: How do you define AI-related revenue?
A: AI-related revenue includes products with GPU attachments, such as AI-related servers, advanced switching gear, optical transceivers, and data center infrastructure supporting AI workloads. -
Competitive Advantage in AI
Q: What is Jabil's competitive advantage in AI?
A: Our vertical integration, global footprint, and ability to provide multiple services simplify customers' supply chains. Being domiciled in North America also helps with secure supply.
Research analysts covering JABIL.