Margin Outlook
Q: Is the 6% operating margin sustainable next year?
A: The 6% margin achieved in Q4 is not sustainable in the first half of next year due to seasonality and fixed cost recoveries without corresponding revenue. Margins typically dip in Q1 and Q2 before improving again in Q3 and Q4. Therefore, while we don't expect to maintain 6% margins consistently, we anticipate seasonal improvements in the second half.

Revenue Deselection Impact
Q: How does the $800 million revenue deselection affect margins?
A: The $800 million reduction comes from reshaping our portfolio away from lower-margin, higher-risk businesses, particularly in legacy networking. While this will be accretive over time, we don't expect margins to jump in FY '25 due to current overcapacity. Margin improvements are more likely towards the end of FY '25 or in FY '26.

AI Opportunities
Q: What are the company's plans for AI investments and margins?
A: We are focusing on AI-related hardware like server equipment, power, cooling, silicon photonics, and OSAT packaging. While margins in AI may initially decrease due to competition, we expect them to rebound as we expand our AI data center strategy. AI is anticipated to be a significant tailwind across all end markets in the long run.

Timing of Recovery
Q: When do you expect recovery in auto, healthcare, and semi-cap?
A: Auto recovery is delayed due to oversupply in China affecting EV manufacturing. Semi-cap recovery, initially expected in December 2024, is now pushed to mid-2025. While short-term headwinds exist, we're well-positioned for when these markets rebound.

Portfolio Reshaping
Q: Why are you reshaping the portfolio geographically and by end market?
A: We're prioritizing margins and free cash flow by moving away from less attractive markets and geographies with higher risk and lower financial returns, such as legacy networking. This positions us better for growth areas like AI and improves our long-term margin structure.

Capital Allocation
Q: Why focus on share buybacks over debt reduction?
A: We believe share repurchase is a great use of cash and continues to be a key area of capital allocation. While interest expenses are elevated, we expect rates to come down, reducing interest costs over time. We're also managing working capital effectively to improve financial results.

Overcapacity Handling
Q: How are you managing overcapacity with lower revenues?
A: With capacity for $32–$33 billion in revenue and expected lower FY '25 revenues, we face surplus capacity. Rather than reducing capacity, we're maintaining it to be ready for recovery, even if it causes temporary margin impacts. This positions us to benefit significantly when markets rebound.

Interest Expense Outlook
Q: How will interest expenses impact EPS?
A: Current interest expense is around $275 million, higher than the historical $150 million due to elevated rates. As rates decline, we expect interest expense to reduce to the low $200 million range, directly boosting EPS, especially in late calendar year 2025.

Healthcare Segment Softness
Q: What's causing softness in the healthcare segment?
A: While GLP-1 drugs are driving strong growth, there's a counter-impact on medical devices due to reduced surgeries. This results in short-term headwinds for FY '24, but we expect the GLP-1 segment to continue growing, constrained only by capacity expansion.

Data Center Cooling Solutions
Q: How are you addressing power and cooling demands in data centers?
A: We're expanding services in data center infrastructure, focusing on cooling distribution units for retrofitting legacy data centers and liquid-to-liquid cooling solutions in new deployments. This positions us as a differentiator in the market.

Wireless Business in India
Q: Has the wireless business in India improved post-elections?
A: Not currently. The 5G rollout in India is about 75–80% complete, and we don't expect significant improvement post-elections. We're not making big assumptions for recovery in this market at this stage.

Operating Expenses and Margins
Q: What caused higher operating expenses affecting margins?
A: The higher operating expenses were due to mix and seasonality. We anticipate margins to improve to 6% next quarter, consistent with seasonal patterns and operational adjustments.