Q2 2024 Celestica Inc Earnings Call
Thank you.
Let me now.
We used to pay down the outstanding balances on and terminate the previous term loans and repay the outstanding amount under the revolver.
Speaker Change: As of June 32024, we were compliant with all financial covenants under our credit agreement.
Speaker Change: During the second quarter, we repurchased approximately 200000 shares for cancellation under our normal course issuer bid at a cost of $10 million.
Speaker Change: Year to date, we have repurchased a total of approximately 700000 shares at a cost of $27 million under the program.
Speaker Change: We will continue to be opportunistic towards share repurchases for the remainder of 2024.
Speaker Change: Now turning to our guidance for the third quarter of 2024.
Speaker Change: Third quarter revenues are expected to be in the range of $2.
Speaker Change: $3 billion to $5 billion to $4 75 billion.
Speaker Change: Which is the midpoint of this range is achieved would represent growth of 17% compared to the prior year period.
Speaker Change: Third quarter adjusted earnings per share are expected to be in the range of 86 to <unk> 96.
Speaker Change: If the midpoint is achieved would represent an improvement of 26 cents per share or 40% compared to the prior year period.
Speaker Change: If the midpoint of our revenue and adjusted EPS guidance ranges are achieved non <unk> operating margin would be six 3%, which would represent an increase of 60 basis points compared to the third quarter of 2023.
Speaker Change: Our adjusted SG&A expense for the third quarter is expected to be in the range of $73 million to $75 million.
Speaker Change: And we anticipate our adjusted effective tax rate to be approximately 20% for the third quarter.
Now turning to our end market outlook for the third quarter of 2024.
Speaker Change: In our Ats segment, we anticipate revenue to be down in the low single digit percentage range year over year, driven by softer demand in our industrial business, partly offset by continuing growth in A&D and capital equipment.
Speaker Change: We anticipate revenues in our communications end market to be up in the low 30 percentage range year over year, driven primarily by continued strong demand for <unk> networking products.
Speaker Change: Finally in our enterprise end market, we expect revenue to be up in the mid 30 percentage range year over year, driven by program ramps in our storage business and continued demand for server programs in support of AI ml compute.
Speaker Change: I'll now turn the call back over to Rob for a discussion of our end markets and to provide an update to our annual outlook for the overall business.
Rob: Thank you mandate restaurant.
Rob: Our strong performance in the first half of the year and improving visibility across a number of our businesses for the second half of the year. We are pleased to be raising our annual outlook for 2024.
Rob: For the full year, we now anticipate revenue of 945 billion.
Rob: And adjusted EPS of $3 62.
Rob: Which would represent growth of 19% and 49% respectively compared to 2023.
Rob: Our non <unk> operating margin is now expected to be six 3%.
Rob: Which would represent a 70 basis point improvement compared to 2023.
Rob: And finally, our outlook for adjusted free cash flow of $250 million for 2024 remains unchanged.
Rob: Now moving onto the outlook for our businesses.
Rob: Beginning with our Ats segment.
Rob: As anticipated our Ats segment revenues declined in the first half of 2024 compared to 2023.
Rob: Primarily due to softer demand in our industrial business for the full year, we now anticipate our Aps segment revenues to be down in the mid single digit range.
Rob: Compared to 2023 and compared to our prior outlook of approximately flat.
Rob: We continue to anticipate the second half of the year to be sequentially higher compared to the first half.
Rob: In our industrial business, we continue to experience softer demand on a year to year basis.
Rob: Driven primarily by macroeconomic conditions and excess channel inventory.
Rob: We expect the overall demand environment to gradually improve in the second half of the year.
Rob: In our A&D business.
Rob: We continue to see solid growth supported by strength in commercial aviation and ramping new wins in defense programs, we expect that the strong demand environment will persist for the remainder of 2024.
Rob: The outlook for our capital equipment business continues to improve as we are seeing encouraging signs that our recovery is materializing.
Rob: Across our portfolio.
Rob: We continue to anticipate solid growth in the second half of the year supported by strong demand in the ramping of new programs.
Rob: The recovery in the wafer fab equipment market as being primarily supported by stronger memory demand across both DRAM and NAND.
Rob: Our latest market forecast and discussions with our customers.
Rob: I still believe that the growth will continue into 2025.
Rob: Our medium term outlook for wafer fab equipment market remains positive.
Rob: Supported by growing demand for advanced processes used in AI and machine learning and the continued growth in applications for semiconductors within products across a number of sectors.
Rob: Now turning to our Ccs segment, our Ccs segments are very strong growth in the second quarter with revenues up 51% compared to the same period in 2023.
Rob: Driven by solid demand in both our enterprise and communications end markets.
Rob: The broad based strength across both our end markets continues to be supported by demand from our hyperscale customers, which grew by 93% in the first half of 2024 compared to the same period in 2023.
Rob: The strength, we are seeing in our Hyperscale a portfolio as broad based as our growth is being driven by solid demand across multiple technologies programs and customers.
Rob: We expect solid demand to support continued year to year growth in the second half.
Rob: In 2012 or anticipate that revenues from our program with Hyperscale customers, well surpassed $4 6 billion.
Rob: And we will account for more than 70% of our Ccs segment revenues.
Rob: As we enter the second half of the year, we're seeing a mix shift within our Ccs portfolio.
Rob: Driven largely by the changing needs of our Hyperscale customers.
Rob: We anticipate incremental growth in networking driven by healthy demand for our market, leading 400 G switch products.
Rob: And ramping programs and the 800, <unk> switch as well as growth in storage.
Rob: We expect that this strength will more than offset a slight reduction in AI ml compute.
By technology transitions and certain sole source programs.
Rob: We expect to ramp new AI ml next generation compute programs.
Rob: In 2025.
Rob: Overall, the demand backdrop for our Ccs segment continues to be highly favorable and.
Rob: And as a result, we.
Rob: Now expect revenues to be up in the mid <unk> percentage range in 2024.
Rob: Our total company outlook for the second half of 'twenty 'twenty four is very positive and we remain focused on executing to serve our customers across our end markets.
And we remain confident that our ability to consistently deliver strong financial results.
Rob: Along with prudent capital allocation.
Rob: To enable us to drive 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.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone you will hear a prompt that your hand has been raised should you wish a decline from the polling process. Please press star followed by the number to you.
Speaker Change: If you are using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.
China's most: Your first question comes from the line of China's most.
Speaker Change: Coppola.
Speaker Change: Please go ahead your line is open.
Speaker Change: Hi, good morning, and congrats on the quarter.
Speaker Change: To begin can you update us on where you are from a capacity perspective.
Speaker Change: Remind us the time interestingly, the new capacity coming online and just in terms of where you are right now whether you're bumping up against some constraints or.
Speaker Change: What the dynamic looks like in terms of.
Speaker Change: How much more capacity you still have at the moment.
Speaker Change: Hi, and good morning.
Speaker Change: Yes, we have to capacity expansions going on one in Malaysia, we actually open the.
Speaker Change: Doors officially in Malaysia on March 1st.
Speaker Change: Who do we call it.
Speaker Change: Products transitioning in the building is ramping so we have plenty of capacity in southeast Asia.
Speaker Change: In our Thailand facility the.
Speaker Change: The project is actually going according to plan and we're open for new business in Q1 of 2025 between now and then we feel like we have ample capacity to support all of our customers.
Speaker Change: So in North America, we still have ample capacity in our Richardson.
Speaker Change: Colombia as well.
Speaker Change: And in response to the strong demand you're seeing is there any change to your Capex plans as you look at it over.
Brent: The next few months or are you maintaining your prior plan to that Brent.
Brent: Right now we're maintaining our.
Speaker Change: Current plans, we don't anticipate any major.
Brent: Investments moving forward, but we're always keeping a very close eye on it.
Brent: Very fine line of making sure that we have full factories, but not to fall that were turning away demand and so far we've been able to provide that very timeline and keep utilization high.
Brent: Operation and volume productivity very highs.
Dan: Dan as you know we've been operating between the one and a half and 2% of revenue Capex range for a number of years now and that continues to be the rate range I would say as you look forward over the next three or four years. The vast majority of that is actually targeted towards growth capex or maintenance is less than 50 basis points and so it gives us a lot of discretion on how we allocate there.
To meet the.
Dan: You didn't need but also the long term needs.
Rob: To Rob's point.
Rob: Capex spending that we've been having.
Rob: We continue at those levels going forward.
Rob: Great last one for me just regarding the.
Rob: Program transitions on the server business.
Speaker Change: How should we think about that.
Speaker Change: Timing perspective, so it seems that Q3.
Speaker Change: Enterprise will be down sequentially does that dynamic continue as far into Q4 or what point would you expect sequential growth tourism and enterprise as the new programs start to ramp up.
Speaker Change: Good question.
Speaker Change: As you know.
Speaker Change: This is the benefit of having a diverse portfolio across all of Ccs, but within enterprise specifically within AI compute.
Speaker Change: What we're seeing now is this a technology transition on this single source program it'll start.
Speaker Change: Towing and decreasing towards the back end of the year with the new product ramping.
Speaker Change: Uh huh.
Speaker Change: Great 2025, I would say.
Speaker Change: The benefit of a diverse portfolio as we're actually seeing accelerated demand.
Speaker Change: For our HTS networking products and those are actually filling in nicely in the back half of the year and expected to also fill in.
Speaker Change: Through all of 2025 as use cases for.
Speaker Change: Alright networking products increased across all of our Hyperscale customers.
Speaker Change: What we're seeing now is a move towards more distributed regional data centers.
Speaker Change: Power constraints and when you have that you actually have increased requirement for our networking products.
Speaker Change: Okay, Great I'll pass the line thanks.
Dennis: Thank you Dennis.
Dennis: Next question is from Matthew Sheerin. Please go ahead your line is open.
Dennis: Yes, good morning, its Matt Sheerin from Stifel.
Matthew John Sheerin: Just regarding the commentary on the strength that you're seeing in communications in the switch business. It sounds like there's a refresh of 400 gig because I know that there was a digestion period last year. So the question. There is how long do you see that strength holding up and then in terms of 800 gig obviously.
Speaker Change: Pretty early.
Speaker Change: But where would you say in terms of the.
Speaker Change: The innings, if you will in terms of the opportunity over the next few quarters for 800 gig.
Speaker Change: Hi, Matt, Yes, 400 G is actually continues to be very strong.
Speaker Change: Through all of 2024 and also into 2025 800 <unk> really.
Speaker Change: So it's picking up as we exit the year and also into 2025 and beyond.
Speaker Change: We're also seeing an acceleration of one that says again that probably won't wrap until the out years, but we're actually seeing an acceleration of moving to that node and we think we're very well positioned to capture.
Speaker Change: More than our fair share of that program as well.
Okay. Thanks for that and then.
Speaker Change: You talked about but very strong margins in gcs that seven 6%.
Speaker Change: And.
Speaker Change: How much of that was driven by by the mix of the the higher percentage of eight H B as in Communications, then can you remind us the difference in the margin profile of the server business versus versus the comms business.
Speaker Change: Yeah, Hi, Matt Mindy Pierre.
Speaker Change: You know, we don't break out margins between the end markets, but a couple of things that we have talked about before one is margins with the hyperscale is in totality are accretive to our margins in Ccs and then margins in H.
Speaker Change: <unk> are also are accretive to overall Ccs and so the dynamic that youre seeing right now with hyperscale or continuing to grow and with our Hps revenue also continuing to grow that's helping pull margins up right now and so we do think that we continue to have a nice mix in the portfolio and opportunities for them.
Speaker Change: More operating leverage as.
Speaker Change: As we go forward.
Speaker Change: Okay, Great and just lastly regarding that inventory reduction you're seeing.
Speaker Change: Is that mostly on the ETF side and the fact that component lead times are short or or or is there some dynamics going on in the in the Ccs business in terms of consigned inventory and that sort of thing because I would think that you'd be staging inventory for some of these ramps.
Speaker Change: Yeah, it's actually we're seeing nice.
Speaker Change: Progressions in both Ats and Ccs from a macro perspective lead times are starting to stabilize a little bit elevated but pat.
Speaker Change: Passes and send these are are not that different from each other and they are both below 20 weeks and so what that has done is it's allowed us to level load our planning process, a little bit better we have been seeing I think five quarters in a row now of gross inventory reductions, it's allowed us to return from deposits to customers and despite a D.
Speaker Change: That.
Speaker Change: Another quarter of strong free cash flow and so both a T. S. N Ccs are turning their inventory nicely.
Speaker Change: Okay, great. Thanks, so much Randy.
Matt: Thank you Matt.
Speaker Change: Thank you and next question is from Steven Fox of Fox Advisors. Please go ahead. Your line is open hi.
Steven Fox: Hi, Good morning, I guess, just following up on that first couple of questions is there a way to maybe isolate the impact to year over year improvements in margins from mix versus operating leverage a little bit further.
Steven Fox: At the corporate level and also the Ccs level and then I had a follow up.
Speaker Change: First of all welcome Steven.
Speaker Change: It's really nice to have you on.
Speaker Change: Yes.
Speaker Change: Look.
Speaker Change: We purposely don't start breaking out margins are at that level, because it's sometimes impacted by program dynamics and which sites.
Speaker Change: Programs fall into what I can tell you is this.
Speaker Change: Building on what Rob had talked about earlier, we are having very nice levels of utilization in southeast Asia in particular at the moment. The majority of our <unk> programs are being built in a selected number of sites and those sites are with high levels of utilization are quite profitable and so it's a comp.
Speaker Change: The nation of both operating leverage and pricing that we have within the H P. S tour programs.
Speaker Change: That are leading to the strong profitability, but overall and we've talked about this before.
Speaker Change: Some different discussions with the outside community.
Speaker Change: <unk> margins are accretive to overall Ccs, they're not they're not 20% of them, that's about 20% operating margins and so.
Speaker Change: That's why sometimes whether it's operating leverage or mix.
Speaker Change: The mix of Hbf programs, it can often be one or the other because it's the same results.
Speaker Change: Great. That's helpful. And then just on the Acs business.
Speaker Change: The end market dynamics, you've talked about just generally are consistent with.
Speaker Change: What we're hearing from some others, but like two questions off of that one is the industrial confidence like inventories are sort of washing out soon and what kind of growth. We can return to and then secondly, I think you've talked about new programs and health care as well can you sort of talk about how those are ramping and the impact on gross there. Thank you.
Speaker Change: Sure Stephen Yeah, so across.
Speaker Change: Our Etfs were actually seeing some very nice growth with.
Speaker Change: With the exception of our industrial business Ats actually grew 12% year over year in the second quarter. So it's really isolated to industrial now within industrial we're seeing softness in energy, namely EV Chargers and also broad industrial markets factory automation are largely and its been.
Speaker Change: Driven by excess channel inventory.
Speaker Change: As the year gets long, we actually are seeing.
Speaker Change: Okay.
Speaker Change: Channel inventory is being consumed and we're seeing an uptick in demand.
Speaker Change: As we exit the year and we're expecting our industrial business to return to growth in 2025.
Again outside of industrial we're seeing some very nice growth with capital equipment and its actually improving our outlook is improving on a quarter to quarter basis.
Speaker Change: R&D continues to have a very strong demand and we see that demand at least lasting through the end of this year.
Speaker Change: And just the health care piece.
Speaker Change: Like the new program and health care. Thank you. Thank you for reminding me so within healthcare. This year is largely flattish, but it's really being driven by some programs that are going end of life and what those new programs starting to ramp in the first half of next year.
Speaker Change: Really program dynamics more than anything else, but we do have some one business.
Speaker Change: Some.
Speaker Change: Ramps that are just starting right now, which we expect to pay dividends in 2025.
Speaker Change: Got it thank you very much.
Speaker Change: Yes.
Speaker Change: Thank you and next question is from Daniel Chan of TD Cowen. Please go ahead. Your line is open.
Daniel Chan: Hi, good morning.
Daniel Chan: Rob you mentioned last year that that in the next generation of your compute servers, there's potential to have more celestica IP in them is the <unk>.
Daniel Chan: Fair to assume that these next generation surfers that you're transitioning to next year, it could carry higher asps and higher margins as well.
Speaker Change: Yes, typically what.
Speaker Change: Happens slope.
Speaker Change:
Speaker Change: On our HTS products as these products.
Speaker Change: Server product transition from high value <unk> into <unk>.
Speaker Change: H B O S. They will carry higher margins because they have higher value add.
Speaker Change: If they stay.
Speaker Change: MFS.
Speaker Change: And during the technology transition now to what we see is.
Speaker Change: Early in the lifecycle of of new product introduction, the Isps are higher and as the volumes pick up and over time.
Speaker Change: Asps tend to come down and normalize over a little bit and that has been true and continues to be true in all product lifecycle pricing.
Speaker Change: But again.
Speaker Change: As product transitions from E. M. S. H B S. The margins will increase because of the higher value add.
Speaker Change: That's helpful. Thank you and then maybe switching over to the communications side do you have visibility on whether the mix of white box versus OEM networking when it'll be different going forward in these newer AI data centers versus what they had in the non AI data centers. Thank you.
Speaker Change: Okay.
Dan: Dan Sorry can you repeat that a little effort yes.
Speaker Change: Yes, just just wondering if with your discussions with your Hyperscale customers, whether you have any visibility on whether there.
Dan: <unk> changed the mix of white box networking equipment like the ones that you make versus choosing an OEM supplier in these next generation AI data centers.
Speaker Change: Yes, our hyperscale customers are continuing to embrace and adopt disaggregated model and continuing to.
Speaker Change: By you know more from folks like ourselves.
Speaker Change: And then switching to an OEM model. There is also a new class of customers that are emerging what we're calling them are digital natives and those class of customers have the capability to build and operate their own data centers.
Speaker Change: And they're also adopting an open architecture disaggregated model and we're very excited about this new class of customers because they are actually.
Speaker Change: A new source of growth for us with respect to our white boxing and all the technologies.
Speaker Change: We provided the data center.
Speaker Change: Okay.
Speaker Change: Great. Thank you and then maybe just one more on the storage strength that youre seeing are those related to AI data center build outs as well are those more traditional cloud data center type deployments.
Speaker Change: Deployment. Thank you.
Dan: Yeah, that's hard to discern Dan.
Speaker Change: We think that it's due to the AI buildout.
Speaker Change: Everyone of our Hyperscale is has a different.
Speaker Change: Storage.
Speaker Change: Architecture, some are going embedded someone going external so what we're seeing here is more of a program dynamic.
Speaker Change: But we think.
Speaker Change: The overall trend is AI is driving the need for more data.
Speaker Change: And more data.
Speaker Change: Driving the need for more storage, hence were seeing an uptick in demand.
Speaker Change: Okay.
Rob: Okay. Thanks, Rob.
Speaker Change: Okay.
Speaker Change: And your next question comes from the line of Paul Treiber of RBC Capital markets. Please go ahead. Your line is open.
Paul Michael Treiber: Thanks, So much good morning, just wanted to just speak about the breadth of the programs you have going on particularly at the large customers.
Paul Michael Treiber: Specifically can you just speak to.
Speaker Change: Or give examples out there.
Speaker Change: The magnitude or the extent of that the breadth there and then could you also speak to the second 10% plus customer in terms of what segment that customers in and and the historical relationship with that customer.
Paul Michael Treiber: Yeah.
Paul Michael Treiber: Talk about the second one first so.
Paul Michael Treiber: The second 10% customer is also a hyper scaler.
Paul Michael Treiber: In fact across all of our Hyperscale are as you know we've experienced some significant growth we've been doing business.
Paul Michael Treiber: With this hyper scaler for.
Paul Michael Treiber: Decades.
Paul Michael Treiber: So very long.
Paul Michael Treiber: The period of time.
Paul Michael Treiber: And this customer plus all of our customers, we provide them and have the capability to provide them with a full suite of solutions, so everything from networking to it.
Paul Michael Treiber: To compute.
Paul Michael Treiber: Storage devices, you know what they are buying from us varies.
Paul Michael Treiber: <unk> points in time, but we certainly have the capability to provide a full suite.
Paul Michael Treiber:
Paul Michael Treiber: Our products to all of our Hyperscale.
Paul Michael Treiber: Okay.
Paul Michael Treiber: Second question is just on the a L. M. All compute program transitions is that.
Speaker Change: The sole source is that primarily one customer one program or is it several transitions several customers or several programs at a customer at the same time.
Speaker Change: And related to that could you speak to just the overall breadth of your compute business.
Speaker Change: Yeah, So it's a one customer several programs.
Paul Michael Treiber: And.
Paul Michael Treiber: Again, those will be traveling.
Speaker Change: As <unk>.
Speaker Change: Customer continues to be.
Speaker Change: Of innovation and introduces a new product.
Speaker Change: With respect to our AI compute.
Speaker Change: Compute.
Speaker Change: Our customer base right now we have one very large customer on that yes.
Speaker Change: And then to your to the question also.
Speaker Change: Paul.
Speaker Change: Right now as Rob has talked about before it's high value E. Ms across a number of different programs.
Speaker Change: Our H P. S. Roadmaps have compute in there as well, we're starting to gain some nice traction and so we do see opportunities as we go into 'twenty five and beyond for our hps portfolio to not only continue to provide very leading edge networking gear, but we're also now moving more meaningfully into the service.
Speaker Change: Welcome to the compute side.
Speaker Change: And lastly, I would also add you know as the AI ml compute market continues to grow, especially in custom silicon application.
Speaker Change: This really plays to our strength and given our strong track record that we have with our largest customer.
Speaker Change: We feel we're on a short list of players who can serve this market.
Speaker Change: As it pertains to not just high value E M S, but J D M in HCM solutions.
Speaker Change: We could migrate to.
Speaker Change: So as such we continue to ask for a lot of additional opportunities and we have a lot of confidence that that will portfolio will continue to grow with insourcing.
Speaker Change: You mentioned the next generation 25 it.
Speaker Change: It sounds like you've already wanted so there's good visibility there, but typically what's the visibility you get in terms of the duration of these programs.
Speaker Change: How.
Speaker Change: Early.
Speaker Change: Are they are they awarded and then could you give us a sense of like that that the pipeline per se for expanding your.
Speaker Change: Acute business center into other customers.
Speaker Change: Yeah, we typically.
Speaker Change: We get about a year visibility.
Speaker Change: I would say.
Speaker Change: Programs transition from one technology to the next so we have pretty good visibility when it comes to.
Speaker Change: The transition.
Speaker Change: Certainly with our largest customer.
Speaker Change: Visibility is a bit extended because we constantly shared technology roadmaps.
Speaker Change: And then the final four additional AI compute.
Speaker Change: Programs is quite large actually.
Speaker Change: We're engaged with a number of different customers across a number of different opportunities as they are working to develop custom silicon solutions.
Speaker Change: And again.
Speaker Change: For me, it's just a matter of time before we you know when several of these opportunities and add them to our backlog.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: And your next question comes from Jesse Potluck Hallmark Securities. Please go ahead. Your line is open.
Jesse Pytlak: Hey, good morning.
Speaker Change: Some concerns over over investment in AI infrastructure by some of your Hyperscale customers can you maybe speak to the sense of urgency youre seeing from these customers for their build outs and how that might compare it to what it was six to 12 months ago.
Speaker Change: Yeah, when we talk to our customers safety.
Speaker Change #112: They feel that you know we're at the early innings of what they're calling a transformative era.
Speaker Change: And they also view that the risk of under investing is much higher than the risk of over investing so there actually.
Speaker Change: Making the hard decisions within their individual businesses to make sure they preserve the investment and.
Speaker Change: The spending on the appropriate technologies further.
Jesse Pytlak: The AI Revolution, if you will.
Speaker Change #103: Just suggest adding to rough plumbing the.
Speaker Change #103: I know, there's a lot of conversations around what does a hyperscale or AI and they'll spend look like going into next year and the year after and.
Jesse Pytlak: That information is not as widely discussed.
Jesse Pytlak: <unk> discussed as any of us would like but I think what we can talk about are the programs that we are winning and the programs that we're ramping.
Jesse Pytlak: We typically add up to a year of visibility on when revenue is going to start to materialize and we are not seeing a slowdown right now if anything we're seeing an acceleration on our new wins.
Jesse Pytlak: And it's nice because we're seeing it across a diverse set of technologies and across a diverse set of customers and so right now based on the bookings that we've been having it definitely positions us for a strong 25.
Speaker Change #100: Thanks, that's helpful and then.
The last thing I added when we look at customer Capex spending of which we do all the time.
Speaker Change #109: And third question, we ask ourselves is within that within those broad numbers, what actually are they buying and who are they buying it from them and we feel based on those two questions that we're very well positioned to participate in future growth.
Speaker Change: Got it.
Speaker Change: And then just tariffs and trade restrictions have been in the news headlines past couple of weeks.
Speaker Change #118: Can you can you maybe just speak a little bit to the conversations that you're having with your customers on these topics and then just thinking about your footprint and your customers' needs.
Speaker Change #108: What would the opportunity would be like to win more programs at some of these restrictions get enacted.
Speaker Change #105: The beginning part broke up just so you're talking about China restrictions.
Speaker Change #105: Yes, that's correct.
Speaker Change #104: Okay, Yes.
Speaker Change #102: Yeah, we've been keeping.
Speaker Change #106: A very close eye on that.
Jesse Pytlak: Yeah.
Jesse Pytlak: You know are stepping back.
Jesse Pytlak: There's not been a.
Jesse Pytlak: New news that advanced chips, and semiconductor capital equipment events equipment.
Jesse Pytlak: Restricted.
Jesse Pytlak: For a while there is some noise out there that are those restrictions will increase with respect a new class of chips.
Jesse Pytlak: And we're keeping close eye on that but you know based on where our factories are and where our design centers are and our ability to be able to ramp those centers up we feel comfortable that we're going to be able to.
Jesse Pytlak: You know move in a very agile way, depending on what happens or doesn't happen to miss.
Jesse Pytlak: We have ample capacity in all our regions with respect to southeast Asia, and Mexico Europe.
Jesse Pytlak: And North America, we operate in 16 countries. So.
Jesse Pytlak: Based on our vast footprint and our scale.
Jesse Pytlak: We think we could actually move pretty.
Jesse Pytlak: Quickly search something unanticipated happens.
Speaker Change #115: Thank you I'll pass the line.
Jesse Pytlak: Sure.
Speaker Change #116: And your next question comes from Todd countless of CIBC. Please go ahead. Your line is open.
Todd Adair Coupland: Oh, Thanks, and good morning, everyone. I was just wondering if youre able to put any context around that.
Speaker Change #117: The new servers, the custom chip based servers.
Speaker Change #101: Relative to the business you've seen thus far do you view it as.
Speaker Change #107: As an incremental step up from a volume point of view and any any way to give us some color on that.
Todd Adair Coupland: Yeah.
Todd Adair Coupland: Okay.
Todd Adair Coupland: Oh, yes, good morning, Todd.
Speaker Change #111: From a volume perspective, we do see that the next generation of.
Speaker Change #110: AI compute servers will be you know I would say comparable to a bit higher than the current generation of AI computing servers, obviously there'll be a more powerful but at the same time as the demand continues to increase.
Todd Adair Coupland: So the volumes that we're anticipating I would say it would be a touch higher you know that being said these these technology.
Todd Adair Coupland: Transitions.
Todd Adair Coupland: They are.
Todd Adair Coupland: There's a little bit of a gap in between one going down and the other one going up so it's not an instant transition.
Todd Adair Coupland: But for our earlier Q&A.
Todd Adair Coupland:
Todd Adair Coupland: We are filling in that gap with H B S networking products.
Todd Adair Coupland: Clinton is giving us confidence to increase the outlook for 2024.
Speaker Change #114: I'm also pleased by our continued strong execution and encouraged with our strong market position, especially with new products like 800, G and strong and growing market. Thank you again for joining today's call and then deep and I look forward to updating you next quarter.
Speaker Change #113: Ladies and gentlemen. This concludes today's conference we thank you for participating and ask that please disconnect your lines.