Celestica, Inc.

to supporting our aftermarket services, repair, break, fix, and things along those lines. And as you pointed out, that is a higher offering and full lifecycle solution that we support with our customers. We're also continuing to grow that line of business. The growth in that business is very, very strong. And based on some of the new awards that we have with our hyperscaler customers and digital natives, we've been looking to expand that offering to support our customers in the future as well.

Question, Mr. Huang, and your next question comes from the line of Robin Roy with CFO. Please go ahead.

Thank you very much. Mandeep, I wanted to start with the enterprise side and, you know, the first question you talked about the ramps into year end. Obviously, we have the full year guide and congrats on continued improvement and profitability. But how should we think about sort of exit rate on margins as you have stronger enterprise exiting the year?

Yeah. Hi, Rick. Good morning. towards or through the rest of this year. And so we're on a very nice run rate right now in terms of HPS, and that's a large contributor. You know, when you're thinking about the margin profile between enterprise and comms, when you're thinking about it between hyperscalers and non-hyperscalers, there's not that much of a differentiation within the hyperscaler portfolio specifically. The other thing, too, is that we are growing revenue second half versus first half. we would hope then could fall to the bottom line.

Perfect. Thank you. And a quick follow-up for Rob on the optical transceiver win. You talk about competitively sort of why you won, what the interface speed is of the transceiver and sort of type of customer perhaps that you're dealing with for that win. Thank you.

Yeah, thanks, Ruben. So it's 800G optical transceiver. It was a competitive win. We went up against several other OEMs and ODMs. What we're doing is the complete transceivers, so the TCVA, the chip on board, the optical alignment, and the entire mechanical assembly. The volumes will scale over time, and they'll be significant. We're actually building some incremental infrastructure in Thailand to support these new volumes. And lastly, I would say that You know, this wind really provides, you know, additional optical proof points and white label opportunities for us with our hyperscaler customers as well.

Thank you for your question, Mr. Roy. Your next question comes from the line of Hannes Machopoulos with BMO Capital Markets. Please go ahead.

Hi, good morning. Maybe a bit of a hypothetical question at this point, but can you comment qualitatively or quantitatively with respect to how quickly you could shift production to the US and associated CapEx costs if tariffs were to come back?

Yeah, I'll start off on that one. So in the US and Mexico as well, you know, Richardson and our facility in Monterey. We do about $800 million a year in revenue, give or take, out of those facilities. Without adding additional footprint square footage, we could triple that revenue. So add several billion dollars worth of revenue out of both those facilities without having the need for more space. And if we did actually need more space, then we do have plenty of options. In terms of shifting production from one region It really depends on the complexity of the product that we are moving. Some of the more complex products that we do for the hyperscalers would be more difficult. More rack systems, things like that, would be less difficult. What we're seeing with our customers, if and when they ever decide to move, it'll probably be more of a regional strategy where final assembly and integration will be you know, done in the region where the product is moved and moved, the more complex assembly will be done in centers of excellence. And we think we're well geared to kind of support that emerging trend. I'm sorry.

So as Rob talked about, we're doing about $800 million of revenue in Richardson at run rate towards the end of the year, $800 million right now in Monterey. So being able to add than others all of our large all of our conversations with our customers right now are on that tco basis we're helping them understand the dynamics from a cost perspective labor cost is a major consideration duties are a major consideration but the capabilities are very important to keep in mind and so what we're seeing right now is customers reaffirming plans to grow because of the value that they're putting on capabilities in certain regions.

Thank you for that question, Mr. Moskopoulos. Your next question comes from the line of Stephen Fox with Fox Advisors. Please go ahead.

Hi, good morning. Can I just follow up on that last answer first off, and then I had a follow-up to my question. You're saying $800 million of revenues in richardson plus 800 in monterey and then secondly um mandy can you just expand on what you mean by capabilities like what specific capabilities are you referring to outside of north america that are hard to replicate in the u.s and mexico thanks and i had a follow-up you know what i'll let robby stand on this one um but what i was referring to was from a talent perspective

and so a lot of types of collections are regionalized, and it takes many, many years to move those to other countries.

Yeah, and the capabilities, Stephen, the liquid cooling that we're doing on the AI ML compute and on networking is very complex, and it's very complex to do that at scale, and the level of automation that we've mastered in our Thailand facility is very unique. Those are the capabilities that I think are very special to Thailand, frankly across the entire industry. Some of the other capabilities in terms of assembling racks, things like that tend to be a little more easier to replicate, and those types of things we could move more quickly than not. Again, we do have the recipe to move these products. As Mandy mentioned, you know, should we need to do that, but they are a little more complex in nature.

And just clarifying the $800 million again, sorry, and then I want to ask one more.

Yes, you got it right, Stephen. So we're doing $800 million of revenue this year in Monterey, and we're ramping the number of programs already in Richardson. So our exit rate at the end of the year in Richardson will be about $800 million as well.

Thank you for that question.

All right.

Your line is now open, Mr. Fox.

Thanks for that. Sorry to confuse things. Just on the semi-cap market, I was wondering if you could provide more color. Underlying growth seems to be better now than maybe you talked about 90 days ago, but also new wind. So I'm wondering if you could just provide some more detail on that market. Thanks again.

Sure, Stephen. So capital equipment will have a very good year this year, but the growth will be first half loaded. We saw strong growth exiting last year, and we're seeing strong growth in the front half of this year. As we get into the back half of this year, we're seeing some program dynamics where the growth might flatten out a little bit. We are winning share with our newest customer, and those are, again, very complex products, tend to be slower ramps, and some of the program dynamics I just alluded to.

Thank you.

The next question comes from the line of Paul Trelber with RBC Capital Bar-Cats. Please go ahead.

Thanks very much, and good morning. Just a couple of questions around price elasticity. So you mentioned now with the tariffs where they are, you have visibility to demand for the year. Did you, during the period when tariffs were at an elevated level, did you get feedback from your customers that at those levels it would be a challenge? And across your various segments, do you have a sense of the general price elasticity in regards to the added cost of tariffs?

Good question, Paul. In the short period of time when the reciprocal tariffs were announced, we did get a lot with our customers. and they did not show any wavering with respect to their commitment on their CapEx plans or the demand outlook for the foreseeable future. So I think they have a much longer term view and strategic view of what they're trying to do in the AI data center space. With some of our OEM customers, they have asked and we have developed as Mandy alluded to earlier, these very complex total cost of ownership models depending on where tariffs may or may not settle in, we understand what's the most economical way to produce it. They also have alluded to the fact that they will, as many folks do across the industry, prepare to put a line item on their pricing for surcharges and pass costs on to their end customers. And that's what we're seeing, not just in CCS, but also on ATS, It's largely going to be passed on to end users, hence some of the inflationary concerns that we've seen the economists talk about in the news every day.

A quick follow-up on that is related to the pipeline. You mentioned that the pipeline here is very strong. Over the last month or so, have you seen any changes one way or another in regards to your pipeline?

Well, no, we really haven't. Bookings continue to be very strong. So today we haven't seen any major changes as a result of the tariffs. We have seen a little bit, maybe a delay of making some decisions. But in the overall magnitude of our pipeline, I wouldn't call that material at all.

Paul, just to double-click on that one, which is if there is an area that we're seeing customers revisit the award that they're considering giving within the industrial space, and it's going to be more around product size in that area, we're not seeing a reduction in any of the new wins across the vast majority of the rest of the portfolio.

Thank you for that question, Mr. Trevor. Your next question comes from the line of Mr. Robert Young with Canaccord Genuity. Please go ahead.

Hi, good morning. Just wanted to get your thoughts on the various ramps you've announced and how those impact your guidance, which in the back half of the year, it looks like it's a bit of a deceleration. So I'm trying to understand the timing of the resumption of the networking process or sorry, the resumption of the AIML server and then the GROK program. And then there's also the two new programs, the RAC programs that you announced last quarter, which I believe are in 2026. So if you just talk about those various ramps and how those interact with the guidance, it looks like it's going to decelerate in the second half.

Yeah, hey, Rob. Look, we're looking at sequential growth as we go into the second half. So the second half revenue is up We are seeing right now 1.6T development on track. As I mentioned earlier, that's going to be more of a 2026 thing. We're ramping 800G programs right now. We're going to see a continuing level of growth on the 800G side. 400G is the one that we continue to watch. We've been seeing very strong growth on 400G in the first half of this year. It is an incredibly uncertain environment, as you know, and things are changing day by day. We are in very close collaboration with our customers. The 10.85 is reflective of the airlock that we have with our customers, and it's our high-confidence view. It's our risk-adjusted view. It's our high-confidence view. We do have the plans where it could exceed that, but we think right now we're being prudent in balancing all of the various dynamics that are happening.

Okay, thanks. And then for my follow-up, the sequential margin improvement in ATS, I think it's suggested the A&D program roll-off hasn't happened yet. I'm curious, is that in the current margin structure, or is there opportunity for ATS to deliver further margin structure in the second half, further margin improvement in the second half?

Yeah, so the to renew is reflective in our second quarter guidance and our full year outlook. That transition's actually happened in April already. So that is now in all of our numbers. We're really pleased with the performance that we're seeing, the improvement that we're seeing in ATS. We have some businesses that have been performing very well for a period of time on capital equipment. We're seeing a return to growth in industrial as inventories have started to come down. But on the A&P specifically, There was a lot of heavy lifting that's happened over the last 12 months on the commercial side of the business. And so we have seen a noticeable improvement in profitability in our A&D business compared to last year. As we go forward for the rest of this year, we do think that there's an opportunity for margin expansion still in ATS.

Thank you for that question, Mr. Robert Young. Your next question comes from the line of Todd Copeland with CIBC. Your line is now open.

Oh, yeah. Good morning, everyone. So I wanted to step back from all the detail around the bookings and just help us understand when we hear commentary around data center lease pauses from hyperscalers, questions, you know, around timing of builds, etc. How should we interpret that relative to the types of bookings growth you are seeing? Give us a little bridge to that. That'd be helpful. Thanks.

Good morning, Todd. What we're hearing from our hyperscale customers inside the data center is that they're continuing to want to invest in AI, ML compute, and networking, and RAC solutions, and we're not seeing any slowdown inside the data center. Because we're now actually involved in new data center bills or emerging very long-term plans, five, six years out. We haven't had those conversations with them, but the data centers that we're filling and our strong backlog has several years, I think, of life in it. It's only one hyperscaler that I've seen in the news anyway that's pulling back on new data center bills, but I haven't read anything publicly on pullback from any of the other major hyperscalers. I think, to some extent, that's a little bit of a wait and see.

Thank you. My follow-up question is, with all the design wins that you've been talking about, would you expect additional 10% new customers to emerge from those lists? If so, talk about the product areas where that's going to be.

Thanks. You know, we're very happy that we actually have new customers. to these customers and our strong win rates. There is a potential actually for additional 10% customers as some of these programs that we won, especially in the 1.6T, fully integrated systems to emerge in the future. So that's certainly in our eyesight. Again, I think that would be 27 potentially time frame. But, you know, based on some of the backlog and some of the bookings that we have and our outlook, that certainly is something that could potentially happen.

So maybe, you know, if we define using today's denominator 10% of the billion dollars, billion dollars in 10%.

Thank you for that question, Mr. Copeland. Your next question comes from the line of Jess Pitlack with CoreMark Securities. Please go ahead.

Hey, good morning. Just wondering if you could give us a sense on the mix of 400G versus 800G switches this quarter, and then just some insight on how pricing has been trending for 400G.

I'll start off, I'll let Mandy. For the... For the full year, I'll answer the question. We do expect 800G to be north of 50% and 400G to be less than 50%. So 800G will be the majority of product shipping out this year versus 400G. That will, in 26 and 27, 800G will continue to be, you know, gain share relative to 400G. But 400G has a very long tail as well as prices come down and our customers find new use cases for that. So I would say 400G has a very long tail and 800G is ramping quite nicely.

Yeah, Jesse, we're going to see a nice acceleration in 800G production as we go into the second and third quarter. As I mentioned earlier, 400G has been a very nice, resilient part of our portfolio. We don't see one cannibalizing the other, but as 800G does ramp up,

understood thanks for that and then just uh secondly just kind of given the more dynamic macro environment just wondering if this is maybe changing your your thoughts or priorities or uh approach to potential m&a um we continue to have a very healthy balance sheet uh you know we're on track for generating 350 million dollars

We are deploying the capital along the way as much as makes sense strategically. We're going to be opportunistic on share buyback. We're investing very heavily on the R&D side. You'll notice in our CCS business, our R&D spend will be on track for about $100 million this year. as well as in ATS. Admittedly, though, it's a challenging environment right now to even get deals done. And so we may see some cycles take longer than we normally would. But if the business is aligned with our strategy and if it will help accelerate our business, then we're very open to M&A for the right deal.

That concludes our Q&A session. I will now turn the call back over to Mr. Rob Miones for closing remarks.

Thank you, and thank you for your time and engagement today. We're pleased to report a strong beginning to 2025, demonstrating our resilience in a very fluid market. The upward revision of our full year outlet, supported by a robust backlog and the strength of our key customer relationships, positions us well for continued success. We value your ongoing support, and anticipate providing further positive updates next quarter. Thank you again for joining us this morning. Have a wonderful day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining.