Jabil Inc.

Hello and welcome to the Jabil's second quarter fiscal year 2023 earnings conference call and webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Adam Berry, Vice President, Investor Relations. Please go ahead, Adam.

Good morning and welcome to Jabil's second quarter of fiscal 2023 earnings call. Joining me on today's call is Chairman and CEO Mark Mondello, incoming CEO Kenny Wilson, and CFO Mike Destor. In terms of agenda, Mike, Kenny, and I will be offering today's prepared remarks, while Mark will join for the question and answer session. Please note that today's call is being webcast live, and during our prepared remarks, we will be referencing slides. To follow along with the slides, please visit Jabil.com within the investor relations section of our website. At the conclusion of today's call, a recording of the entirety will be posted for audio playback on our website. I'd now like to ask that you follow our earnings presentation with slides on the website, beginning with the forward-looking statement. During this conference call, we will be making forward-looking statements. including, among other things, those regarding the anticipated outlook for our business, such as our currently expected third quarter and fiscal year net revenue and earnings. These statements are based on current expectations, forecasts, and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified on our annual report on Form 10-K for the fiscal year ended August 31, 2022, and other filings. JABL disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that, I'd now like to shift our focus to our second quarter results. where the team delivered approximately $8.1 billion in revenue, in line with our forecast. As you dig a little deeper, it's worth noting we saw strength in areas such as industrial, driven by continued robust demand for renewable energy generation and storage, automotive, driven by the transition to electric vehicles, and healthcare, as large OEMs in that space continue to partner with Jabil to deliver best-in-class personal care. Conversely, a portion of the year-over-year strength was offset by weakness in SEMICAP and other consumer-oriented portions of our business. Putting it all together at the enterprise level, revenue grew by an impressive 8% year-over-year. Core operating income during the quarter was $391 million, an increase of 14% year-over-year, representing a core operating margin of 4.8%. This is up 20 basis points over the prior year and just ahead of our expectations from 90 days ago based on great operational execution within our EMS businesses. Net interest in the quarter came in higher than expectations at $74 million. In the quarter, we also repurchased 1.7 million shares for $127 million, leaving us with $975 million remaining on our current repurchase authorization. From a GAAP perspective, operating income was $359 million, and our GAAP diluted earnings per share was $1.52. Core diluted earnings per share was $1.88, a 12% improvement over the prior year quarter and slightly ahead of the midpoint of our range. Now, turning to the segments. Revenue for the DMS segment was $4.1 billion, an increase of 8% on a year-over-year basis and in line with our expectations, while core operating margin for the segment came in at 4.6% as expected as a result of strong returns in auto and healthcare, offset by weakness in consumer markets. Revenue for our EMS segment came in at $4.1 billion, an increase of 7% year-over-year, while core margins for the segment was 5.1%, up 110 basis points year over year, reflecting solid leverage on strong revenue growth. So in summary, a strong close to the first half of our fiscal year. As we sit today, I know the team here is extremely proud of the strides we've made to not only improve our business over the last several years, but also make it more strong and more resilient. This improved resiliency in our business was reflected in the Q2 results. In a moment, I'll turn the call over to Mike and Kenny to provide some additional thoughts on our performance in the quarter and update our outlook for fiscal 23. And I think you'll see there's so much opportunity as we look towards fiscal 24 and beyond. Thanks for your time today. It's now my pleasure to turn the call over to Mike.

Thanks, Adam. Good morning, everyone. Q2 marked a solid close to the first half of the fiscal year. Through the first two quarters of FY23, the team delivered strong year-over-year growth in revenue, core operating income, and core earnings per share, while also expanding core margins by 20 basis points compared to the first half of FY22. Growth year-to-date has been headlined by areas of our businesses experiencing long-term secular growth trends, offset slightly by some of our more consumer-centric markets and Semicam. The team's impressive performance through the first half of our fiscal year, despite what continues to be an extremely dynamic macroeconomic environment, underscores the strength of our diversified portfolio and the improved resiliency of our business. Next, I'd like to begin with an update on our cash flow and balance sheet metrics as of the end of Q2, beginning with inventory, which came in higher than expected, mainly due to timing and continued component constraints on the automotive supply chain. The team did a good job of setting a portion of our inventory levels with inventory deposits from our customers. Net of these deposits, inventory days, was 69 in Q2. We continue to be fully focused on bringing this metric down further in FY23 and beyond. targeting net inventory days ranging between 60 to 65 days in the medium term and expecting to normalize in the 55 to 60 days range in the long term. Our second quarter cash flows from operations came in at $414 million, while net capital expenditures totaled $304 million. With this, we ended the quarter with cash balances of $1.2 billion, and the total debt to core EBITDA level of approximately 1.1. Turning now to our third quarter guidance on the next slide. We expect total company revenue in the third quarter of fiscal 23 to be in the range of $7.9 billion to $8.5 billion. At the midpoint, this anticipates DMS and EMS revenue will both be $4.1 billion. Core operating income is estimated to be in the range of $363 million to $423 million. Gap operating income is expected to be in the range of $336 million to $396 million. Core delivered earnings per share is estimated to be in the range of $1.70 to $2.10. Gap delivered earnings per share is expected to be in the range of $1.50 to $1.90. Net interest expense in the third quarter is estimated to be approximately $80 million and for the year to be in the range of $295 to $300 million, which is higher than we forecasted in December due to more conservative interest rate and working capital assumptions. As inventory levels normalize, I expect these interest costs to gradually decrease over the mid to long term. Tax rate on core earnings in the third quarter is estimated to be approximately 19%. Moving to the next slide, where I'll offer an update on the end market demand assumptions and how these translate to our FY23 revenue expectations. At a high level, our year so far is playing out consistent with our assumptions in December. The industry continues to benefit from outsourcing of manufacturing as a macro trend, due to dynamics such as onshoring closer to end consumers, complex supply chain dynamics, and greater content due to ever-increasing design complexities in products. We continue to expect areas of our businesses benefiting from strong long-term secular growth trends like electric vehicles, healthcare, renewable energy infrastructure, 5G, and cloud to drive solid year-over-year growth. An area where our outlook has improved since December is in our industrial business, where we see robust demand for renewable energy infrastructure, which we expect to drive double-digit year-over-year revenue growth. Electric vehicle demand also continues to remain extremely strong as we continue to gain share in an end market with strong, robust growth as we navigate product manufacturing life cycles and ramps at different stages in their maturity curves. constrained by a tight component supply chain. We expect a portion of the solid growth from our secular markets to be offset by lower demand in our consumer-facing markets and in Semicap. In summary, we feel the outlook for our business is solid and expect the secular demand across many of our end markets to remain strong. Considering this updated demand picture, let's now turn to the next slide to get a view of our updated guidance for FY23. We expect our improved mix of business will drive incremental operating leverage, thereby giving us the confidence to raise our core margins by 10 basis points to 4.9% for FY23 on revenue of $34.5 billion. We continue to anticipate core EPS will be $8.40, which is reflective of our improved core operating income, upset by higher interest expense. Importantly for the year, we also remain committed to generating in excess of $900 million in free cash flow. Overall, our performance during the first half of the year gives us excellent momentum as we look to close out another strong year. and drive the company to core margins beyond 5%. With that, I would now like to turn the call over to Kenny.

Thanks, Mike. I am pleased to be joining the call today. It is truly humbling to reflect back 23 years to when I joined Jabil in our manufacturing facility in Livingston, Scotland. Since then, I've been afforded the opportunity to grow and lead several areas of our business Most recently, I had the privilege to live and work in Asia, leading our Jabil Greenpoint organization, which has played a major role in building out multiple key capabilities that continue to build leverage across the company. Going forward, I'm excited to lead Jabil as CEO alongside a team of extremely talented and long-tenured industry leaders. I would like to share a few thoughts on what you should expect from us going forward. As Mark mentioned 90 days ago, Think of this as evolutionary, not revolutionary. It is our turn to carry the torch and prepare our organization for future growth. First, we are a customer-centric organization. Always have been, always will be. As such, we will continue to work tirelessly on behalf of our customers and shareholders to deliver long-term value. Second, we will continue to cultivate a unique culture which attracts, retains, empowers and enables our people, allowing their true self to turn up to work every day. Third, we will remain focused on increasing margins and delivering sustainable free cash flow through a combination of enhancing the mix of our business and excellent operational execution. It's my belief that this in turn will allow us to earn an appropriate return on investment for the value we provide. Moving on to our business. Today we see incredible tailwinds driving our business forward. For instance, this year we are seeing robust growth in our industrial business in areas like renewable energy generation and storage. In automotive, the team continues to navigate multiple complex program introductions, increasing both our scale and addressable content per vehicle. And in healthcare, we continue to win new business in areas such as digital health, and precision medicine as the industry outsourced trend accelerates. The success we are seeing in these areas is a key proof point of our team's ability to leverage multiple capabilities across disparate end markets as we continue to diversify our service offerings. Moving on to the year, I'm pleased with the momentum underway in the business. We expect good growth and operating leverage, which gives us the confidence to raise our expectations for core margins to 4.9% for fiscal 23. At the same time, we remain highly focused on delivering more than $900 million in free cash flow. When I think about Jabil beyond fiscal year 23, there's a tremendous amount of opportunity ahead. Between the mix of business and the growth trends underpinned by our long-tenured management team, I am confident that we can drive the company at above 5% core margins with sustainable strong cash flows. This will afford us tremendous flexibility in our capital allocation. In the coming years, we will remain focused on executing buybacks when they produce strong returns for shareholders and remain committed to a dividend. As it relates to M&A, you will see us continue to focus on capability building deals consistent with the past several years. And finally, we will ensure our capital structure is optimized and remain committed to maintaining our investment-grade credit profile. In closing, I feel it is appropriate to send a message to our people here at Jabil. I have spent over 20 years at our company, and I'm excited to be your leader. I will strive to make you proud. At Jabil, our people are our greatest assets. Our strength is in our ability to bring together a collection of people from diverse backgrounds, differing experiences, and multiple generations, and mold into a culture that across the world is both consistent and a true differentiator. Be in no doubt that all that matters every day is that you give of your best, focus on performance, and strive to be the leader or coworker you wish you had. In summary, Bring your true self to work each and every day without anxiety or fear of recourse. I am truly grateful to each and every one of you for all that you do. I will now turn the call over to Adam.

Thanks, Kenny. Operator, we're now ready for Q&A.

Thank you. And I'll be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 at this time. A confirmation tone will indicate your line is in the question queue. You may press star Q if you'd like to remove your question from the queue. One moment please while we poll for questions. Our first question today is coming from Rupal Bhattacharya from Bank of America. Your line is now live.

Hi. Thank you for taking my questions. Kenny, good to have you on board and on the earnings call. Let me start by asking you a question on automotive. Jabil's revenue from automotive has been pretty strong. And you've been manufacturing components, like you said, for EVs for a long time. However, this space may get crowded over the next two to three years. I'm thinking about media reports indicating at least one large Taiwanese EMS company looking to manufacture EVs. So when you look over the next two, three years, do you think Jabil has a competitive advantage in this space that can sustain over the medium term? And how much of your auto revenues today are from EVs? And do you see that percent growing over the next few years?

Yeah, thanks for the message, Rupalu. Really appreciate it. Yeah, so as you know, the EMS, the automotive industry, when you do automotive business, you know, you've got to be, it takes you a while to get qualified. The programs run for five, six, seven years. You've also got to be able to leverage that capability consistently in multiple geographies across the world. So, That kind of plays to our strength, and we see that for sure we think there's enough opportunity and enough eating for multiple different suppliers or competitors. So, yes, we are pretty confident that we've got a value proposition that's going to see us continue to grow our business in automotive in the longer term. In terms of in the EV space, if we look at our total automotive business, It's in the order of 80% to 90% of our business now is kind of EV and autonomous. So I think you should expect us. We're pretty confident that we're well positioned. We've got business with most of the large OEMs, and we're very, very confident that's going to grow and continue across multiple geographies in the future.

Okay. Thanks, Kenny, for the details there. For my follow-up, let me ask a question to Mike. So you beat the midpoint of your fiscal 2Q EPS guide by about four cents, and you're raising the operating margin outlook for fiscal 23, looks like by 10 bps, but you kept the full year EPS guide of 840. So my question is, Mike, when you look at the remaining year, at the second half of the year, do you see a weaker operating environment in the second half, or is there some conservatism in the guidance? Just if you can give us your thoughts And also EMS had a very strong margin performance in fiscal 2Q. Do you think that's going forward?

Thank you. Thanks, Rukhlu. So if you look at EBIT, EBIT has grown from December by about $25 million. But on the other side of the coin, interest costs have gone up as well. Our business, our operating business, our secular trends, all the end markets that we perform in. That's actually going really well. Performance is stronger than we have anticipated, so we've taken EBIT up. Unfortunately, we've had a slightly higher level of inventory, mainly due to a couple of reasons. There's timing, where inventory came in at the end of the quarter. The opposite side of that shows up in AP, so I'm not that worried about that piece. But the auto supply chain continues to be tight. We sort of anticipated it improving over the quarter and the rest of the year. We're not seeing that. So it's not getting worse, but it's not getting any better either. So there's inventory, and then on the interest side, obviously the short end of the interest rate curve has deepened over the last 10, 12 weeks, notwithstanding the last three or four days. the short-term borrowings that we have to finance our working capital has gone up as well. So it's a little bit of a positive story in that our underlying business is performing really well. We're having some level of temporary issues with inventory and interest rates. If you look at the other side of that, when we come out of this at some point in time over the next three, four quarters, interest rates, interest costs, everything should subside, and our inventory levels should be much better as well. So right now, our inventory is in that 68, 69 days sort of net inventory that we've announced. The expectation is for it to be in the 60, 65 days in the medium term, and I actually expect it to go down to 55, 60 days in the long term as well. So plenty of positive momentum to come at some point in the future as well, Rupalu.

Hey, Rupalu, this is Mark. If I could add a comment, listening to Mike's response. You know, with everything we've got going on, the macro the way it is today, if you think about the back half of the year, and again, adding to what Mike said, our DMS margins for the second half are going to be in the range of 5%. which is right where we thought they would be in September. And by the way, that's with consumer getting hit pretty hard, at least temporarily. The EMS margins for the second half of the year are going to be in the range now of about 5%, maybe even slightly stronger. That's going to be 30, 40 bps higher than where we thought we'd be in September. And the enterprise margin for the second half, of the year is now also going to be in the range of 5%. That's 10, 20 bps higher than what we thought it would be back in September. And then if you kind of take that tangentially in a different manner, we've got margins from 22 at an enterprise level of being 4.6. And as you alluded to in your question, we're going to be up 30 bps at an enterprise level year on year. All things considered, the business is being run and executed really, really well.

Okay. Mark, thanks for all the details there, and congrats on the strong execution.

Yeah. Thank you.

Thank you. Next question is coming from Stephen Fox from Fox Advisors. Your line is now live.

Hi. Good morning. Two questions, if I could. Just one follow-up on the auto business. details that you provided. When we think about the really tremendous growth you've had the last two years, I assume it slows next year. How do we think about sort of the impact this growth has had on margins, mix, et cetera? And as it slows, what's the impact to margins overall? And as a second question, I was just curious if you could expand on the comment about outsourcing accelerating in digital health and precision medicine, like any further color around what that means for Jabil. Thanks.

Hey, Steve. Are you saying or suggesting, I couldn't quite hear you correctly, are you saying automotive is going to slow next year?

Well, I'm assuming hitting 50% growth again for a third year in a row might be difficult, but I could be wrong on that.

I didn't know. I just wanted to clarify. I didn't know if you were asking in terms of a macro slowdown, slowdown to Jabil, slowdown to absolute dollars, or slowdown on our CAGR growth rate. Okay.

Yeah, I was talking about your specific growth rate, Mark.

Yeah, I think that's fair. We've come off of, I don't remember the exact numbers, but I think 21 to 22, the business grew north of 40%. 22 to 23, if things hold, it'll grow north of 40%. I don't think next year it's going to grow north of 40%, but I think if I had to speculate, I think of our eight sectors, I think automotive and transport will certainly be towards the top in terms of growth, 23 to 24 on a relative basis. You know, I mentioned when Ruppler's question on how the margins, I think, again, when we look at the back half of the year, we're really, really satisfied, excuse me, with overall margins and really satisfied with margins taking it up 10 bits for the year. Intertwined in that, though, is we have a ton of activity going on in auto EVs at the moment. And there's a lot of that activity that hasn't reached maturity yet, and we expect it to do so in 24. So almost independent of whether the growth is 10%, 20%, 30% next year, I think the activity and the efforts we're putting into that space at the moment are going to have a good result and a good outlook and outcome in 24.

Thanks for that. And then in terms of the healthcare outsourcing accelerating?

You know, I think we've been saying this since we did the JGMD deal, and then we got hit with COVID. I think philosophically... We're directionally correct in our hypothesis around opportunities to be able to capture more and more outsourcing in the personalized digital overall healthcare space. As you know, it's a very, very, let's just say, formal marketplace, so decisions are very well thought, as they should be with a lot of patients being involved. But nothing's changed at all in terms of Our overall thoughts and commentary we've been making the last couple years in terms of how that market looks for us and how we're positioned for that market. I think timing has been a little bit slower than we anticipated, but nonetheless, the trajectory of that is still in really good shape.

Great. That's all very helpful. Thank you.

Yeah.

Thank you. Next question is coming from Melissa Fairbanks from Raymond James. Your line is now live.

Hi, guys. Thanks very much. I've got two questions. They may be related, so I'll just ask them both at once. It's great to see you raise the full-year revenue target for industrial and semi-cap. You did mention the strong growth in renewables. I was wondering if you could give us an update on your expectations for the other businesses in that segment, semi-cap and elsewhere. And then as a second, a very nice move higher in the operating margin target for EMS, as Mark highlighted. What's driving that upside? Thanks.

Okay, I'll start, and Mike and Kenny can chime in. I think at the beginning of the year, we thought industrial semi-cap would be, I don't remember the exact numbers, but say around $4.2, $4.3 billion. We've got that now indexed around $4.5 billion. The nice thing is we are seeing, and again, this is just another statement of how important it is to lean into the diversification of the business today. But we're seeing some overall weakness in semi-cap. Again, down the road, we think that that makes a nice recovery. Even with that combined industrial semi-cap compared to September is going to be up $200 million and maybe a little bit more than that. I think a big part of that is we are absolutely seeing benefit from the Inflation Reduction Act. So when we think about the portion of our industrial business that leans hard into solar, hard into clean energy, renewables, that's beneficial. And as we think about FY24, we think there'll be continued benefit there. What was the second part of your question?

Just wondering if that's kind of what's driving the higher operating margin target for EMS, just a mix up? Or is it internal efficiencies or what else?

I would say if you're talking about the OI line year on year, boy, it's one of the best financial metrics we have in the company. I would say it starts with the composition of the team led by Fred McCoy and his whole team. The job they're doing on an execution basis is tremendous. If you think about some of the catalysts, for sure, The Inflation Reduction Act, overall industrial, are strong. Parts of wireless infrastructure and cloud remain strong. And then, again, on the income line, I would say it's a combination of just tremendous execution, customer care, and, again, our-the overall EMS portfolio although we report it in four different sectors, just has an endless number of customers, and I think that diversification plays into that as well.

Excellent. Thanks very much.

You're welcome.

Thank you. Next question is coming from Paul Chung from J.P. Morgan. Your line is now live.

Hi. Thanks for taking my question. So just on the manufacturing footprint in Mexico and North America. Are you seeing some increasing competition from some of the Asia competitors and any resulting price-based competition there? And if you could expand on some of the competitive advantages you have here in North America, just seeing some favorable growth trends, and then I'll have a follow-up.

We always see competition. I don't really want to get into quantifying it. I just think we're a U.S. domiciled company, and if there was ever a geography that I feel really, really good, again, I think we compete really well all over the globe. I feel very good about our ability to compete in the Americas. We have a longstanding track record. in how to run, execute, and offer great customer care out of Mexico and the U.S. In terms of getting into the competition or who they are, it's the same competition we have all over the globe. If you're inferring that over the next coming years, maybe overall growth rates might be quite good in North America and Mexico. If your theory on that or your inference on that is correct, we're very, very well positioned both in U.S. and Mexico.

That's a nice home field advantage. And then on connected devices and mobility here, are we kind of seeing a bottom here in guidance revisions? And can we start to see maybe rebounding order flow as we head into – second half of calendar year, just your thoughts on those key markets and how kind of margins also evolve. Thank you.

You're welcome. Uh, for us, you know, mobility, mobility, um, mobility. If I think about, if I think about FY 22, if I think about our outlook in September, and if I think about where it is today, mobility hasn't changed much, it's plus or minus a hundred million bucks on a, on a, a nearly a $4 billion base. So, Mobility is kind of turning out about how we thought it would, both on an absolute scale and a relative scale to September and FY22, and there's a lot of puts and takes there. Our overall consumer business, though, is weak. It's weak compared to 22. It's weak compared to what we thought in September. Has it bottomed? Not sure. You know, let's see what happens. Let's see what happens. There's so many moving parts. You've seen what has happened this week in the banking industry. We'll see what the interaction is, both from the government, both from the Fed. So, again, the nice thing is, is our consumer business is well diversified in terms of the sector and market as a whole. I don't know if I would – If I would have enough insight to suggest it's bottomed or not, I would say that we've taken a very significant hit in consumer. I think our outlook for the back half of the year is rational. And with that, we're taking the year up in terms of margins by 10 bps. And we feel really, really good about that. And again, I think it's illustrative of the composition of the overall company today.

Great. Thank you. You're welcome.

Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Shannon Cross from Credit Suisse. Your line is now live.

Hi. Thank you very much. Speaking of turmoil in the banking system, we're still here.

Congratulations.

Thank you. Yes. To all the clients out there, we are live and kicking. So just a couple of questions. On the EMS margin, you attributed the improvement to scale leverage. Can you elaborate more on that and then maybe just, you know, talk about how you see scale versus mix versus, you know, cost optimization playing through as you look forward on the operating margin? And I have a follow-up.

Let me clarify. You're talking about the margin expansion in EMS?

Yes.

Yeah. I don't think I... Maybe I said it, and maybe I forgot already, but I don't think I suggested that it's solely around scale and leverage. I think it's mainly around the fact, I think it's the composition of the business, and I think it's about the experience and the execution of, in terms of our overall company, I feel this way, there's no team in the industry, in our industry, that has the experience and just the overall approach that our EMS team does. So I think leadership matters. I think the team matters. I'm giving you mixed thoughts because the results are very good, but it's not like a coincidence. I think it's a combination of the leadership, the team, We've restructured that organization a bit. You know, we took some costs out at the beginning of the year that Mike talked about back in December. The composition, the overall diversification, our opportunity to continue to gain share in areas that we want to gain share in. We've also made some very tough decisions on maybe some relationships that weren't performing as well. And by the way, in general, I think that in our industry, scale gives us a huge competitive advantage for lots of different reasons, and not just scale for the sake of scale, but add to that our geographic reach, our geographic know-how, and then weave into that the sophistication of our IT systems, The investments we've made on the manufacturing floor, which is hundreds of millions of dollars over the last three or four years in automation, AI, robotics, data analytics, I think all that plays, Shannon.

Okay, thanks. And then I guess as you think about capital allocation, obviously shareholder, or sorry, share repurchase remains a key focus. How are you balancing the opportunities, say, in auto, where obviously there's significant growth potential versus returning cash to shareholders? I know you go through probably just a returns-based analysis, but how are you sort of thinking about it holistically and potential for, I don't know, small acquisitions as well?

How do I want to answer this? I think I'll wave the Jabil flag a little bit. I believe, in my opinion... And I've had lots and lots and lots of debates with sell-side, buy-side folks. I think from June of 2016 through today, we never get it right, we never get it perfect, and we'll never be exactly aligned with the sell-side, buy-side partners. I think we've done an exceptional job with our capital allocation strategy, both strategically, tactically, and financially. And it is a lot about a lot of data, a lot of data analytics. And we come at that all the time with an eye on what do we truly believe is best for the long-term health of the business and then, of course, shareholders and customers. And we'll continue to behave in that exact manner.

Great. Thank you so much.

You're welcome.

Thank you. Next question is coming from Matt Sheeran from Steve, where your line is now live.

Yeah, thanks, and good morning. A couple questions for me. First, on your wireless and cloud segment, just looking for more color, what you're seeing in demand there. I know you're guiding that segment down for fiscal 23, but part of that is due to the incremental consigned inventory at your cloud customers. We're hearing, obviously, from some competitors and suppliers that that business has been weakening and pretty lumpy. So any color there would be great.

So if you think about the business, and, again, we combine 5G wireless infrastructure and cloud together, as you know, from what we thought it was going to be, 90 days ago in December. I actually think we guided it up by, I think, roughly $100 million relative to December. And we're getting back to levels that actually we thought it would be back in September. So there's pockets of that where we're seeing a little bit of weakening. Overall, though, you know, a reminder, Our 5G wireless business is very global in nature. So to the extent that there's any, and I'm not suggesting there is or isn't, but to the extent there's any type of pockets of weakening in North America, we're really fortunate to have that business well diversified. And our overall cloud solution, cloud business today is continuing to execute and operate slightly above plan.

Okay, thank you for that. And then on the supply constraints that you're seeing in automotive, I know in previous quarters you've had supply issues across other businesses, including healthcare and some other markets. Could you comment on the availability of parts in those areas? And on the automotive side, are you getting a sense that supply will improve over the next few quarters?

Yeah, this is a recurring topic and rightfully so because it's been awful the last 18 months. We started tapping the drum and then maybe pounding the drum as we exited the summer of 22, moved into the fall of 23 with opinions that the supply chain would probably get better sooner relative to maybe some other projections. It also, I think, is illustrative of the vantage point we have with our scale cutting across so many different end markets. That's played out to be true. And I would say, in general terms, I believe we talked about maybe during the September investor day that we thought the supply chain, although maybe not fully back to normal, would normalize by late winter, springtime of 23. And that's shown to be true. So all in all, as we continue to move into the summertime of calendar 23 and into the fall, we see the supply chain getting better and better.

Okay. Thanks very much. You're very welcome.

Thank you. Next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.

Good morning. Thank you for taking my questions. Kenny, congratulations on the Canadian responsibilities. First on the full-year revenue guidance, I recognize there's no change to the overall guidance. If I look at the second half in particular, it does imply year-over-year revenue declines, especially in the EMS segment. Yeah, I recognize there's a high base that's perhaps a factor, but could you double-click a little bit on what's happening in the second half? How much is maybe that high base in program timing, and how much might be macro factors that are contributing to that outcome?

Mark, you're breaking up a little bit. There's some static on the line, so I'm not sure I understood your question correctly, so let me offer an answer, and if I miss your question, please tell me, and I'll do a better job trying to dial in on exactly what you're asking. So I think what I heard you ask was back half of the year in terms of revenue. So if I could break that into three buckets, and again, bring me back to the genesis of your question if I miss it. If we look at the back half, our DMS revenue is down about $200 million relative to where we thought we'd be in September, and almost all of that is the consumer space. Our EMS revenue is within 50, $100 million to where we thought it would be in September. So let's just say that's flat and largely as we expected. At an enterprise level, the second half is off about $150 million, $200 million. And again, that captures the consumer business as a subset. So in the most simplistic terms, that's how we look at the back half revenue-wise relative to the outlook we provided in September.

That's helpful, Mark. Hopefully you can hear me a little bit better now. I moved my headset. But I was also trying to get at whether or not you thought the declines in the second half was due to program timing and just a high base from last year, or you'd attribute it to macroeconomic trends?

Which declines are you speaking to?

Well, specifically in the EMS part of the business, being down year on year, it looked like it was a tough comp. So is it kind of more program timing, or would you attribute it more to macroeconomic factors?

You're talking about on a year-on-year basis?

Correct.

Okay. The vast majority of that is consignment. If you take a look at year-on-year, And again, I'll round the numbers, and my numbers might not be exact, but if you break it into the four sectors in which we report our business, digital print and retail, I believe, is up year on year. Industrial semi-cap is up a lot year on year, and that's with hopefully a temporary week situation in semi-cap. Our network and storage business is up for the year. and 5G wireless and cloud is down for the year, of which all of that is consignment from a financial perspective, and that sector is up in terms of unit volumes.

That's very helpful. Thank you. You're welcome.

Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back to management for any further closing comments.

Thank you for your time today. Please reach out if you have any further questions.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.