Q1 2024 Celestica Inc Earnings Call
We're looking statements made today.
Certain material factors and assumptions are applied in drawing any such statement.
We undertake no obligation to update these forward looking statements unless expressly required to do so by law.
With our current levels of concentration with this customer in our portfolio.
Moving on to some additional financial metrics.
<unk> net earnings for the first quarter were $102 million or <unk> <unk> per share compared to $25 million or <unk> 20 per share in the prior year period.
Adjusted gross margin for the first quarter was 10, 2% up 80 basis points year over year.
Due to more favorable mix and production efficiencies, resulting from higher volumes.
Our adjusted ROIC for the first quarter was 24, 8% an improvement of six 9% compared to the prior year quarter.
Driven by higher profitability and effective working capital management.
Moving on to working capital at.
At the end of the first quarter, our inventory balance was $1 96 billion.
Down $150 million sequentially and down $440 million year over year.
Cash deposits were 719 million.
Our gross debt at the end of the first quarter was.
It's a slowdown in demand for electric vehicles.
However, we do expect demand to improve.
We anticipate sustained growth throughout 2024 supported by strong demand from hyperscale customers for networking products and the ramping of new programs.
Within our Hps business.
The demand largely mirrors that of our communications end market our outlook calls for sustained double digit growth throughout 2020 for.
Supported by increased deployment of networking infrastructure from Hyperscale.
After a period of inventory digestion in 2023.
In addition, new program wins, including for our 800 G platforms are expected to ramp throughout the year and into 2025.
We feel that our portfolio is well positioned for another very strong year in 2024.
We continue to prioritize the fundamentals adherence to our strategic roadmap.
Solid execution, and prudent decision, making and all of our businesses regardless of the dynamics at play within the underlying markets.
We remain confident in our ability to deliver on our financial targets.
And continued generating long term value for our shareholders.
Speaker Change: With that I would now like to turn the call over to the operator for questions.
Speaker Change: Thank you.
Yeah.
Speaker Change: Thank you for centuries, and ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on you touched on phone.
Speaker Change: Your problem that you had has been raised and should you issued a claim from the polling process. Please press the star followed by the number too.
Speaker Change: If you're using a speaker phone please lift the handset before pressing any.
Speaker Change: And one moment. Please for your first question.
Speaker Change: Your first question comes from the line of Robert Young of Canaccord Genuity. Your line is now open.
Robert Young: Hi, good morning, Congrats on the quarter. The first question I had was related to the full year guide and it was just simply take the Q1 and Q2 guide out of there it implies a decelerating deceleration in the top line in the second half and so I'm just curious if that visibility into the second half or is there something specific.
Robert Young: To call out there.
Robert Young: Or any other factor.
Speaker Change: Good morning, Robin Thank you.
Robin: So hyperscale demand remains healthy across multiple markets.
Robin: And the demand signals remain healthy, but really it comes down to the visibility and you touched on it. So hyperscale customers generally provide about a 12 month outlook, but beyond six months there are some dynamics.
Robin: <unk> dynamic at play.
Robin: Demand continues to exceed supply so as material availability improves orders accelerate.
Robin: And then secondarily there is some variability in customer deployment plan, driven by customers' resource constraints or to some extent.
Robin: Technology transitions.
Robin: So our visibility into the fourth quarter is a bit murky should firm up in the next few months.
Robin: Hence our.
Robin: Flattish relative to the first half.
Robin: Our full year outlook, Yes, Hey, Rob <unk> here just to build on what Rob was mentioning.
Rob: The 9100 reflects 14% year over year growth.
Rob: And to your point, the second half year over year is a little bit.
Rob: A lower than the first half, but still a strong double digit set.
Set of numbers I think the important thing to take away is that the demand environment in gcs in particular remains healthy.
Rob: Not seeing areas of concern.
Rob: But we are being mindful of things such as material availability and going back to our customers and say look Q2 came in stronger than what we had thought it was going to be.
Rob: What are the implications for the back half of the year and so those discussions are continuing.
Speaker Change: Okay. Thanks, that's very helpful. Second question for me would be on <unk>.
Speaker Change: Customer concentration I think last quarter, you suggested that <unk>.
Speaker Change: Networking recovery would maybe help that out a little bit.
Speaker Change: With HTS returning to growth.
Speaker Change: To see the concentration actually go up and so is that.
Speaker Change: Networking plus AI at that first that largest customer or is there any other dynamic at play and then I'll pass the line.
Speaker Change: Yes, you hit on it Rob, which is 34% with our biggest customer at the same time, we saw a very large level of growth happening in comms and it's continuing to the second quarter and it just underscores what we had talked about last quarter, which is we do a number of programs 20, plus programs with this largest customer and so not only are we seeing.
Speaker Change: Demand strength on the compute side with that large customer, but we're also seeing an acceleration now on the switching side as well.
Speaker Change: So we're happy that our portfolio is able to support them in multiple areas.
And I'll add.
Speaker Change: Beyond the top customer growth remains very healthy across a number of our hyperscale customers as well.
Speaker Change: Along those same platforms comms enterprise.
Speaker Change: And just as a follow on there.
Speaker Change: Growth I was assuming is dramatic.
Speaker Change: <unk> switch.
Speaker Change: Okay.
Speaker Change: Spread across a large number of customers is broader.
Then just that large customer maybe you can give us a sense of how many customers you have there how broad that businesses.
Speaker Change: Yes, 400 gig is across a number of <unk>.
Speaker Change: Customers were also ramping 800 gig switches this year and into next year next.
Next year additional customers will come on on 800 <unk>.
Speaker Change: Switch ramps.
Speaker Change: On <unk>, it's also important.
Speaker Change: Important to point out that.
Speaker Change: <unk> is not just limited to networking is also a fair amount of hbo's content and compute module to states as well.
Okay. Thanks, I'll pass line Okay.
Speaker Change: Alright.
Speaker Change: Thank you so much.
Speaker Change: And your next question comes from the line of Daniel Chan of TD Cowen. Please go ahead.
Daniel Chan: Hi, Good morning, maybe just the top up on that on that communications question.
Daniel Chan: As you get more mix of 800 G. How does that affect the financials in other words, but what is the price and margin profile difference between 804 hundred G program.
Daniel Chan: Hi, Dan Thanks for the question so.
Dan: The Asps of course changed a little bit as you go from 400 G to date Entergy.
Dan: Not necessarily twice as much and so it's really a conversation of how many units are being shipped et cetera. I think if we were to just up level it and look at overall revenue.
Dan: We expect revenue growth to be higher year over year.
As the 100 gig deployments happen.
The question that you're asking 400 G demand is really as you know communications slow down because of an inventory overbuild, we're announcing customers not only work with us on program development around 800 gig product.
So taking for energy products in the meantime, as well and so it's nice to see that we're actually shipping both products right. Now we would expect naturally for 400 G to start slowing down going into next year.
Dan: More than one for one on 800 sites.
Thanks, that's helpful. When you talk to your cloud customers and you look at the AI data Center architecture.
Dan: Because you get the sense that the mix of your products within an AI data center it could be higher than what is what was done for a traditional data center.
Dan: Oh.
No that's a hard one to discern, but what I do know is we have all the solutions that our customers need.
Dan: That go into an AI data center and we're currently providing them. So hence we're firing on.
Dan: All cylinders, we have hbo's content across compute modules.
Dan: We provide high value e-commerce across compute modules we have.
Dan: We have content on 400, <unk> hundred switches and we're also in advanced development on future generations.
Dan: Network devices, and we also as you know have storage.
Dan: Solutions, plus HPE, fs and traditional as well so.
Dan: Customers are really picking.
Dan: Advantage of our full solutions.
Dan: And as you know.
Not all Hyperscale lease are created equal and there are some hyperscale or of that lean towards more complex challenging product deployment and that really works out well for us. The reason that youre seeing the amount of growth that we're showing in hbf is because those are the solutions that really fit the demand requirements of certain hyperscale and so as we.
Dan: See this shift towards more AI type of Datacenters.
Dan: It implies more complex product, which is what we want to see.
Speaker Change: Great that's helpful. Maybe.
Speaker Change: Maybe squeezing one more in on the enterprise the enterprise growth is expected to decelerate next quarter have you been successful in diversifying your hyper hyper scale customers.
Speaker Change: AI compute just giving your experience with the server using custom AI chipsets.
Speaker Change: And if so what does that ramp look like.
Speaker Change: The new run rate for the remainder of the year.
Speaker Change: Thank you.
Speaker Change: Yes, I'll start off.
Speaker Change: We finished the second quarter dynamic in terms of enterprise.
Speaker Change: And the <unk>. The main driver is really tough comps from a year ago and what we're seeing in the second quarter is also.
Speaker Change: Storage demand declining, but we're seeing very healthy.
Speaker Change: Steady demand from compute as well we're also as we mentioned earlier happy that comms is up.
Speaker Change: Hum.
Speaker Change: Significantly at Ccs was up significantly as well.
Speaker Change: Yeah.
Speaker Change: And what I would say is is that the enterprise.
Speaker Change: Revenues, especially as we go into the second quarter continued to increase on a sequential basis.
Speaker Change: And as we did talk about the demand signals continued to be healthy we do serve.
Speaker Change: More than a number of customers on the server side.
Speaker Change: But I think what's important to look at comms and enterprise side is as we up level. It to total revenue with our hyper scaler, we're seeing that growth continuing theyre shifting capex now and then from one type of product deployment to another but overall.
Speaker Change: Continuing to see strong top line growth with hyper scaler in aggregate.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you Dave.
Speaker Change: Thank you. So much. Your next question comes from the line of Matt Sheerin of Stifel. Your line is now open.
Matthew John Sheerin: Yes. Thank you a couple of questions for me. Please one.
Matthew John Sheerin: Just on the balance sheet.
Matthew John Sheerin: I saw that the inventory gross inventory was down and net inventory was down where your cash deposits were also down yet.
Matthew John Sheerin: Growing significantly so could you talk about the dynamics going on there.
Matthew John Sheerin: Given the growth in the Hyperscale business scene.
Matthew John Sheerin: A shift in terms of consignment inventory.
Matthew John Sheerin: That you're not passing through your your Cogs.
Speaker Change: Thanks for the question Matt.
Speaker Change: Yes, strong working capital performance happy with the free cash flow that we generated $65 million happy that we're able to raise the overall free cash flow number for the year to 250, we want to continue to monitor how healthy our conversion is and we're comfortable with the conversion ratios that we have and we don't we try not to say it anymore, but as you know.
Speaker Change: Over five years of positive free cash flow every quarter under the covers.
Speaker Change: You're hitting on it we are seeing some unwind on the inventory side as we were anticipating our inventory turns are improving and it's really a function of continuing to be collaborative with our customers and seen lead times come in <unk>.
Speaker Change: Lead times on semi as well as passes are now under 20 weeks, which is allowing us to do some of that unwind.
Speaker Change: The deposits were all finding again as expected because we were always working with our customers, saying as long as lead times are really extended how.
Speaker Change: How do we come into a model where they can help fund some of that as they were coming in now we're happy to return the deposits and still generate positive free cash flow to your point on inventory build from a dollar perspective inventory may go up as you go through the year, but we're very focused on turns and.
Speaker Change: And we don't think that the turns are necessarily going to take a step back and then in terms of consigned unconfined nothing nothing really to note in terms of any differences.
Speaker Change: Okay. Thank you for that and I wanted to ask a question on the competitive landscape obviously.
Speaker Change: Youre, gaining market share, particularly with the one hyperscale customer.
Speaker Change: There's some concern that we're seeing more competition from your North American EMS peers, but also obviously from the Oems in Asia.
Speaker Change: Could you talk about.
Speaker Change: You have edge and whether you expect.
Speaker Change: Your large customer to bring on other suppliers.
Speaker Change: And what does that do to your dynamic in that relationship.
Speaker Change: Yeah, Hi, Matt.
Speaker Change: This is the second sourcing and the EMS ecosystem is nothing new.
Speaker Change: What typically happens is new programs are single sourced from the onset and over time as the technology matures a second sources broad into the equation, usually a neighborhood, enabling the primary source to introduce next generation.
Speaker Change: Alex.
Speaker Change: <unk>.
Speaker Change: This is currently at play in some respects.
Speaker Change: There is a competitive dynamic where a second source is being brought onto to.
Speaker Change: To help our customers and other cases, where we're the benefactor of being a second source to some of our competition. So it goes both ways.
Speaker Change: Also I would add that on hps product, there's a little bit of a different dynamic at play.
Speaker Change: <unk> products are typically single source for the life of the program.
Speaker Change: The qualification process.
Speaker Change: And also next generation products.
Speaker Change: Typically are awarded to the incumbent assuming strong initial performance because switching costs were also prohibitive.
Speaker Change: Prohibitive again within our.
Speaker Change: AI ml.
Speaker Change: Data set of offerings a lot of our high value EMS programs are transitioning to HTS products over time because of the value add we're able to bring to the equation, which we think is a competitive advantage versus our EMS peers.
Speaker Change: Maybe just to add on one point, which is as we all know the pie continues to get bigger the capex spend across the top Hyperscale is who we all support.
Speaker Change: Is growing materially this year, everyone knows that the expectation is that that's going to there's going to be a good level of Brooklyn into next year as well and so as the pie continues to get bigger our revenue with the Hyperscale is also continuing to grow.
Speaker Change: When second sourcing is happening.
Speaker Change: Okay, I would say that has surprised us.
Speaker Change: It's really playing out as expected.
Speaker Change: Okay, Great just just in line in line with that.
Speaker Change: Are you still you've talked about being exclusive in terms of the AI ml programs is that still the case with your big customer.
Speaker Change: No I wouldn't say, so I would say it's on a program by program basis, Matt.
Speaker Change: Some programs were exclusive some programs we're not in those dynamics.
Speaker Change: I mentioned that we might change overtime.
Speaker Change: Okay for the product license through the product lifecycle.
Speaker Change: Got it okay. Thanks very much.
Speaker Change: Thanks, Matt.
Speaker Change: Thank you. So much. Your next question comes from the line of status Ms. Coppola list of BMO capital markets. Your line is now open.
Ms. Coppola: Hi, good morning.
Ms. Coppola: Look at your Ccs growth in the quarter outside of your largest customer that growth rate has been a fair bit more subdued.
Ms. Coppola: Is that just a function of how you've been prioritizing capacity to have to deal with perhaps some tough year over year comps on the programs you are exposed to the hyperscale lines and any color you could provide would be helpful.
Speaker Change: I'll start off and I'll, let the mandate.
Speaker Change: It's not a function of.
Speaker Change: Capacity I would say, we do have ample capacity at our sites and we're also.
Speaker Change: Building forward investing forward.
Speaker Change: To make sure it stays that way as it was mentioned in the script.
Speaker Change: Our coolum factories, just came online and.
Speaker Change: And we have additional Thailand capacity.
Speaker Change: That's coming online in the second half of 'twenty five are currently ahead of schedule.
Speaker Change: It really has to go with it.
Speaker Change: Buying patterns and capacity expansion plans of a hyperscale is they all have different investments and different expansion plan. So it's kind of a bio rhythms and we're being able to kind of happy to support each of them. Some of our heavier this year if that might be heavier next year.
Speaker Change: Just to build on that Dana so the growth that we saw in the first quarter that youre seeing in comms is the being started off by our largest customer what we're encouraged with is that the growth that we're seeing in comms going into Q2 is now spreading to the rest of the hyperscale customers and so well. The point you made is very valid as you look at the first.
Speaker Change: Quarter, when we're looking at it in terms of the full year, we are seeing growth across a number of customers not just one or two.
Speaker Change: Okay. That's helpful.
Speaker Change: With respect to margins.
Speaker Change: It's too early to talk about 2025, but as.
Speaker Change: As we think about the fact that you've got this weakness in.
Speaker Change: Capital equipment, and industrial which improves later in the year and into next year.
Speaker Change: And then you've got the growing HTS mix.
Speaker Change: Is there any reason for why we should not expect margins to be sustainable to expand next year any any offsetting constraints, we should think about.
Speaker Change: Yeah, I'll start off and Rob can add on if needed.
Speaker Change: We're happy with the way that the margins are coming together clearly six 2% in the first quarter highest in our history.
Speaker Change: And the outlook now that we're providing a six 1%.
Speaker Change: Up year over year and when it when achieved.
Speaker Change: Will be the highest in the company's history.
Rob: From a mixed perspective, hyperscale air margins because of the level of complexity that is involved is a.
Rob: Accretive to the overall company and so as we continue to grow hyperscale or.
Rob: Our revenues, we are looking to maintain Ccs margin plus.
Rob: Plus or minus a little bit the opportunity I think as you talk about for next year really goes to ETF.
Speaker Change: So our outlook for Etfs right now is to be below 5%.
Speaker Change: On a full year basis.
Speaker Change: We did $4 seven in the first quarter, but to your point that the demand returns of capital equipment, which is profitable by the way.
Speaker Change: But as the demand comes back we get leverage benefits and as industrial which was a strong margin business contributes more both of those will help expand margins at HSN. So.
Speaker Change: We think that we have some opportunities going into 'twenty five.
Speaker Change: Okay I'll pass the line. Thank you.
Speaker Change: Thanks Anna.
Speaker Change: Thank you so much.
Speaker Change: Your next question comes from the line of Jesse <unk> of <unk> Securities. Please go ahead.
Jesse: Hey, good morning, when you think about the increased guidance for 2024 in the context of.
Jesse: The numbers you laid out for 2025 and 2026 at the November Investor Day.
Jesse: I guess is the increase really is it just like you said the pipe getting bigger or is there. Some demand is maybe being pulled forward.
Speaker Change: Yes, Hi, Jesse first of all welcome to the call and really pleased to see core Mark.
Speaker Change: Providing some coverage.
Jesse: Answer your question.
Speaker Change: The demand signals continue to be healthy across Ip's killers.
Speaker Change: To say that pull ins or not happening.
Speaker Change: Probably wouldn't be accurate because as you see we came in above the high end of our guidance rate in Q2 or excuse me in Q1.
Speaker Change: And some of that was fulfilling demand dropped in as we went through the quarter.
Speaker Change: Rob you talked about it because it's not a 12 month rolling forecast, we don't have clear visibility to.
Speaker Change: How that revenue that may have been a few quarters is getting backfill but at the.
Speaker Change: Higher customer level, we're not seeing shifts in the demand patterns and so what that would imply is that yes, we're continuing to see strong growth in the back half of this year as we talked to political beginning of the Q&A.
Speaker Change: Double digit growth rates.
Speaker Change: The demand signals continued to be positive for data center deployments going into 2025.
Speaker Change: But then to your point.
Speaker Change: We're already now ahead or pretty close to what our 2025 outlook was in in April of 2024, and so we will wait for six months to really give a better outlook for 2025, but right now we're not feeling like it's feeling from 2025.
Speaker Change: Demand signals are seem to be the overall tide is rising.
Speaker Change: Okay. That's helpful. And then can you just comment a little bit on what youre seeing in the <unk>.
Speaker Change: Working side of things.
Speaker Change: Kind of beyond the Hyperscale was more in the traditional cloud space.
Speaker Change: Yeah most of our.
Speaker Change: Networking.
Speaker Change: Business is actually going to the cloud providers in terms of 403 hundred 800 gig switches on the OEM side.
Speaker Change: We are seeing continued.
Speaker Change: Softness.
Speaker Change: The industry burned through some excess inventory.
Speaker Change: Do you see some of that recovering in the back half of the year.
Speaker Change: Yeah as you know the OEM side of the business are exposed not just hyperscale. It is but also the small medium businesses and.
Speaker Change: Those capital type of deployments have been impacted.
Speaker Change: From the macroeconomic conditions.
Speaker Change: But we don't believe that that demand is going to be permanently gone.
Speaker Change: But there does continue to be a slowdown in the hyperscale market.
Speaker Change: Okay.
Speaker Change: I'll ask one.
Speaker Change: Thanks Jesse.
Speaker Change: Thanks Jesse.
Speaker Change: Thank you. So much. Your next question comes from the line of Paul Treiber of RBC capital markets. Your line is now open.
Paul Treiber: Oh, Thanks, and good morning.
Paul Treiber: You've been very successful your largest customer but otherwise.
Paul Treiber: A couple of years or are you going to have what's your visibility in strategy to try to replicate that degree of success with the other.
Speaker Change: It's kind of like Housewives.
Paul Treiber: Oh.
Speaker Change: I would say we are actually replicating that success with other customers and then we have very strong positions.
Speaker Change: With the majority of the of the Big Hyperscale wins, we've won a number of new programs.
Speaker Change: Were those hyperscale guys that are either in development or currently in ramping.
Speaker Change: So we're not we're.
Speaker Change: We're not solely reliant on that one customer and we have actually very healthy portfolios across a number of hyperscale and across a number of platforms with hyperscale is it just so happens that our number one customer happens to be a heavy investment mode right now.
Speaker Change: And those those are driving some of the concentration numbers.
Speaker Change: Over time.
Speaker Change: Those investment levels might come down, but other hyperscale or investment levels will increase.
Speaker Change: Our overall Hyperscale a portfolio is actually very very healthy.
Speaker Change: That's helpful.
Speaker Change: In here.
Speaker Change: The earlier comments on being comfortable with your customer concentration is that you know.
Speaker Change: Without getting too specific outlook for or what you're seeing that customer concentration can you.
Speaker Change: Give us a sense of why you're comfortable with it.
Speaker Change: At 34% this past quarter.
Speaker Change: Yeah, because it's.
Speaker Change: It's not a single program on you know it's multiple programs.
Speaker Change: Programs.
Speaker Change: Multiple technologies.
Speaker Change: Crossing.
Speaker Change: A decade over even over a decade.
Speaker Change: Past relationships.
Speaker Change: And with continued strong performance not just on.
Speaker Change: Hi, Valerie MFS, but across engineering engagements as well so it's a very sticky.
Speaker Change: Relationship one backed by mutual respect and high performance.
Speaker Change: We never take these things for granted.
Speaker Change: But.
Speaker Change: We're happy with the breadth of solutions that we're providing this customer.
Speaker Change: And then just lastly, just on the capacity side of the equation. When you you mentioned that you do have capacity can you speak to your capacity utilization and how it compares to.
Speaker Change: Historically average and then are you seeing additional opportunities with your customers more for co investments.
Speaker Change: In capacity expansion.
Speaker Change: Yes so.
Speaker Change: Capacity or utilization is extremely high in our Asia sites, where the majority of our.
Speaker Change: Demand is fulfilled.
Speaker Change: With our business.
Speaker Change: Highly utilized sites on highly leveraged sites are very profitable sites and that's what you're seeing in our results and we carefully manage our capacity.
Speaker Change: We have decided to invest in some additional capacity and we think those investments should take care of us for the next couple of time.
Speaker Change: Don't foresee and indeed for any additional co investments at this time, we think are the expansions that we are.
Speaker Change: Our underway should take care of us for a period of time and keep those high utilization rates yeah, Paul just to add on to that in November when we gave our investor trip, we have provided a revenue outlook going into 2026.
Paul Treiber: Our range was 90 $10 billion.
Speaker Change: And we had stated at that time that we believe that we have the footprint now to fulfill that.
Paul Treiber: So we don't need to Greenfield a brand new factory in a new country in order to keep up with that demand outlook and so it's one of the things that we're pleased about is that we believe we're able to while capex, maybe a little bit elevated more or less in line with our historical levels.
Paul Treiber: While still being able to grow revenue.
Speaker Change: Okay. Thanks for taking my questions.
Speaker Change: Thanks, Paul.
Speaker Change: Thank you so much and as a reminder, if you wish to ask a question. Please press star one.
Speaker Change: And your next question comes from the line of Todd Coupland of CIBC. Your line is now open.
Todd Adair Coupland: Great. Thanks, and good morning, everyone I wanted to ask.
Todd Adair Coupland: Specifically about compute we're seeing that decelerate.
Todd Adair Coupland: Q2 and into the second half of the year.
Todd Adair Coupland: Factors are you looking for in terms of re re accelerating that line and.
Todd Adair Coupland: Give us any indication on when do you think that might happen. Thanks a lot.
Speaker Change: Yeah I'll start so yeah, we compute in and Q1 was.
Todd Adair Coupland: Over 130% year over year.
Todd Adair Coupland: Compute in Q2 is up in the 70 percentage range on a year over year basis, I would not call that at least in the first half of the year decelerating.
Todd Adair Coupland: As we go into the second half of the year.
Todd Adair Coupland: Some of that is our at least our outlook is driven by a little bit of American as we exit the year, but broadly speaking our compute.
Todd Adair Coupland: Volume and demand a.
Todd Adair Coupland: It remains a material constraint.
Todd Adair Coupland: Again demand exceeds supply.
Todd Adair Coupland: Zero availability becomes available.
Speaker Change: It's an opportunity.
Speaker Change: To increase our output, but this is the visibility that we have at this point in time.
Speaker Change: And Todd I would maybe just add to that to say.
Speaker Change: As we talked about when the demand cycle for Hyperscale has started to really accelerate in the middle of last year is that we believed it was going to start with.
Speaker Change: And that it was going to start migrating over to AI.
Speaker Change: Networking, which is.
Speaker Change: 400 gig switches, but moving data introduce switches as well and so we're starting to see that.
Speaker Change: Customers have a fixed level of capital and they choose on where they deploy that capital and what we're seeing right now is more of a shift towards the comm side.
Speaker Change: Communications is a larger part of our portfolio, we think that we're going to come out.
Speaker Change: More head because of that.
Speaker Change: Not to say that that computers going away because the other dynamic that is keep in mind is that the comps are becoming quite high.
Speaker Change: But overall, we are seeing healthy demand.
Speaker Change: Coming out of Q1 and going into Q2.
Speaker Change: And if I could just follow up on that.
Speaker Change: <unk> had this debate on merchant silicon versus custom Silicon and then obviously the hyperscale are all coming up with their or their own custom processors.
Speaker Change: And that's yet to come I guess I would have thought that that might have started to flow into your business and just just wondering if you could help.
Speaker Change: Bridge bridge that gap of understanding thanks, a lot.
Speaker Change: Yes, we are.
Speaker Change: Definitely heavily tilted towards custom silicon versus merchant silicon and we have been the benefactor of that switch.
Speaker Change: C from the announcements in the press the Hyperscale is continuing to.
Speaker Change: To invest in custom silicon.
Speaker Change: And as these new.
Speaker Change: Custom silicon.
Speaker Change: <unk> to market.
Speaker Change: We feel confident that we'll be able to.
Speaker Change: Good access to them and provide these types of solutions saw customers moving forward. So that trend is continuing.
Speaker Change: You know and I think we're taking advantage of it.
Speaker Change: Thanks for the color appreciate it.
Speaker Change: Thanks Scott.
Speaker Change: Thank you so much.
Speaker Change: And there are no further questions at this time presenters I would now like to turn the call back to our speaker, Rob <unk> for closing remarks.
Rob: Thank you [laughter] overall.
Rob: Overall, I'm very pleased that we posted another solid quarter and a strong momentum is giving us confidence to increase our outlook for 2024.
Rob: I'm also very pleased by our continued strong execution and encouraged with our strong market position.
Rob: And especially with some new products like 800, G and strong in growing markets I. Thank you all for joining today's call and we look forward to updating you next quarter.
Rob: Okay.
Rob: For centuries.
Rob: [music].