Q2 2025 Jabil Inc Earnings Call
Greetings and welcome to Jabil second quarter fiscal year, 2025 conference call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance.
During the conference. Please press Star Zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Adam Berry Investor Relations. Thank you you may begin.
Speaker Change: Good morning, and welcome to Jabil second quarter fiscal year 2025 earnings call.
Greg Hubert: Joining me on today's call are Chief Financial Officer, Greg Hubert and Chief Executive Officer, Mike that store.
Greg Hubert: Please note that today's presentation is being live streamed and during our prepared remarks, we will be referencing slides.
Greg Hubert: I view. These slides please visit the Investor Relations section of Jabil Dot com.
Greg Hubert: After todays presentation concludes a complete recording will be available on website for playback.
Greg Hubert: In addition, we will be making forward looking statements during this presentation <unk>.
Greg Hubert: Among other things those regarding the anticipated outlook for our business.
Greg Hubert: Such as our currently expected fiscal year net revenue and earnings.
Greg Hubert: These statements are based on current expectations forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.
Greg Hubert: An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2024, and other filings with the SEC.
Greg Hubert: Jabil disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Greg Hubert: With that I'll now turn the call over to Greg.
Greg Hubert: Thanks, Adam Good morning, everyone. Thanks for taking the time to join our call today.
Greg Hubert: I'm extremely pleased with our strong Q2 results, where the team delivered solid margins and cash flows on $6 $7 billion in revenue.
Greg Hubert: When excluding approximately $250 million associated with the divested mobility business in the prior year quarter revenue increased 3% year on year.
Greg Hubert: Core operating income for the quarter came in at $334 million.
Greg Hubert: Core operating margins came in at 5%.
Greg Hubert: Net interest expense in Q2 came in at $61 million.
Greg Hubert: On a GAAP basis operating income was $245 million.
Greg Hubert: And our GAAP diluted earnings per share was $1 six sets.
Greg Hubert: For diluted earnings per share was $1.94.
Greg Hubert: Turning now to our performance by segment in the quarter.
Greg Hubert: Our regulated industry segment reported revenue of roughly $2 $7 billion as guided.
Greg Hubert: On a year over year basis. This represents a decrease of 8% due to expected weakness in our renewable energy and EV markets.
Greg Hubert: Despite this core operating margin for the segment increased year over year by 20 basis points to four 8% based on favorable mix in the segment.
Greg Hubert: Yeah.
Greg Hubert: And the intelligent infrastructure segment, we saw revenue of $2 $6 billion up 18% year on year above what we expected in December.
Greg Hubert: This growth was primarily driven by strong demand in our AI related cloud.
Greg Hubert: Data center infrastructure and capital equipment markets.
Greg Hubert: Our core operating margin for the segment was five 3%.
Greg Hubert: 110 basis point improvement compared to our prior year quarter.
Greg Hubert: And our connected living and digital Commerce segment revenue was $1 $3 billion down 13% year on year due to our mobility divestiture.
Greg Hubert: Excluding revenue associated with the divested mobility business from the prior year <unk>.
Greg Hubert: Revenue growth for the segment was approximately 4%.
Greg Hubert: This reflects strong year on year growth across our digital commerce and warehouse automation markets.
Greg Hubert: Which was partly offset by weaker demand and consumer driven connected living products.
Greg Hubert: On a sequential basis segment revenue was down 13%, which is consistent with the historical seasonality typically observed in the connected living sector. Following the holiday period.
Greg Hubert: Core operating margins for the segment came in at four 5% in Q2.
Greg Hubert: Next I'll provide an update on our cash flow and balance sheet metrics for the end of Q2, starting with inventory.
Greg Hubert: As anticipated during the quarter inventory days increased four days sequentially to 80 days, which reflects typical seasonality in our business.
Greg Hubert: However, on a year on year basis inventory days decreased by seven days.
Greg Hubert: Net of inventory deposits from our customers inventory days were 61, a quarter on quarter increase of five days, which is slightly above our targeted range of 55 to 60 days.
Greg Hubert: This was mainly due to timing within our intelligent infrastructure segment as we support strong growth.
Greg Hubert: As we progress through the fiscal year, we anticipate that inventory days will normalize into our targeted range.
Greg Hubert: Okay.
Greg Hubert: In Q2 cash flow from operations for the quarter were solid.
Greg Hubert: Amounting to $334 million.
Greg Hubert: Net capital expenditures for the second quarter were $73 million.
Greg Hubert: For the full year, we continue to expect net capex to be between 1.5% to 2% of revenue.
Greg Hubert: As a result of the solid second quarter performance and cash flow generation.
Greg Hubert: Adjusted free cash flow for the quarter came in at $261 million.
Greg Hubert: Bringing our year to date adjusted free cash flow to $487 million.
Greg Hubert: With our strong first half results, we now anticipate free cash flow for the year to exceed $1.2 billion.
Greg Hubert: We exited the second quarter with a healthy balance sheet.
Greg Hubert: With debt to core EBITDA levels of approximately 1.4 times and cash balances of approximately $1 $6 billion.
Greg Hubert: In Q2, we repurchased two 5 million shares.
Greg Hubert: The quarter ended with $364 million remaining on our current $1 billion share repurchase authorization, which we expect to complete by the end of FY 'twenty five.
Greg Hubert: Before I move onto guidance for the next quarter I'd like to wrap up my remarks on Q2 by recognizing the jabil team's strong execution this quarter.
Greg Hubert: The team's efforts have yielded strong results through the first half of FY 'twenty five despite a highly dynamic environment.
Greg Hubert: The company continues to show remarkable resilience and is poised for future revenue growth improved margins and robust free cash flow generation.
Greg Hubert: With that let's turn to the next slide for Q3, FY 'twenty five guidance.
Greg Hubert: Beginning with revenue by segment.
Greg Hubert: We anticipate revenue for our regulated industries will be $3 billion.
Greg Hubert: Down approximately 1% year on year, reflecting appropriate caution in the EV market.
Greg Hubert: Our intelligent infrastructure segment, we expect revenue for the quarter to be $2 $8 billion up approximately 22% year over year.
Greg Hubert: Broad based growth across our capital equipment advanced networking cloud and data center infrastructure markets.
Greg Hubert: This strength is expected to be slightly offset by lower demand in our five G and market.
Greg Hubert: And our connected living and digital Commerce segment revenues are expected to be $1 $2 billion.
Greg Hubert: This is down 16% year over year, mainly due to weaker year on year demand and our connected living markets offset slightly.
Greg Hubert: By continued growth across the digital commerce space.
Greg Hubert: Total company revenue for Q3 is expected to be in the range of $6 $7 billion to $7 $3 billion.
Greg Hubert: Core operating income for Q3 is estimated to be in the range of $348 million to $408 million.
Greg Hubert: GAAP operating income is expected to be in the range of $282 million to $352 million.
Greg Hubert: Core diluted earnings per share is estimated to be in the range of $2 eight.
Greg Hubert: To $2.48.
Greg Hubert: GAAP diluted earnings per share is expected to be in the range of $1 50.
Greg Hubert: To $1.99.
Greg Hubert: Net interest expense in the third quarter is estimated to be approximately $61 million.
Greg Hubert: For FY 'twenty five we now expect it will be in the range of $240 million to $245 million.
Greg Hubert: Our core tax rate for Q3 and for the year is expected to be 21%.
Greg Hubert: With that I'd like to thank you for your time this morning and for your interest in Jabil.
Mike: Now I'll turn the call over to Mike.
Mike: Thanks, Greg and good morning to all those joining our call today.
Mike: To begin I'd like to take a moment to thank our incredible team here at Jabil for their commitment dedication and hard work in a particularly dynamic operating environment.
Mike: As the World continues to evolve. So does this team always striving to ensure enabled solutions and our customers' supply chains remain nimble agile and resilient.
Mike: Thank you.
Mike: Okay.
Speaker Change: Speaking of nimble agile and resilient next I'd like to touch on a topic that remains top of mind for customers shareholders and employees alike potential tariffs.
Speaker Change: Consistent with my comments in December we placed considerable value on maintaining a large scale global manufacturing footprint.
Speaker Change: And as the geopolitical situation continues to evolve our ability to adapt combined with that designation as a U S domiciled manufacturing service provider.
Speaker Change: And a significant U S footprint is becoming increasingly important for our customers.
Speaker Change: And in my opinion Jabil is among the best positioned companies in the world to help customers navigate these complexities.
Speaker Change: Yeah.
Speaker Change: As a reminder, while the tariffs may impact end customer demand any changes in tariff costs are a pass through cost for jabil.
Since our last call in December counter if expectations are brought in now into China, Canada, and Mexico, along with the Super glue tariffs.
Speaker Change: Addressing each of these four status most of our business in China is freedom in local local local to regional with a very small portion of our revenues generated from that region being U S bound.
Speaker Change: We have extremely limited exposure to Canada.
And in Mexico, 80% to 90% of our business today is U S. M C a compliant.
Speaker Change: While implementation mechanics of Brooklyn tariffs are unknown I believe it does level, the playing field for manufacturing as hardware still needs to be blurred somewhat.
Speaker Change: Once again I feel jabil is well positioned to help customers navigate these complexities.
Speaker Change: And finally with 30 sites in the U S. Our manufacturing footprint here has never been bigger than it is today.
Speaker Change: And while I do feel that could be some challenges to overcome such as labor.
Speaker Change: Our investments in experience in tried and tested automation lines and robotics was certainly help expedite any lift and ship transfers.
Speaker Change: I personally think there is no company better positioned than us to grow in manufacturing in the U S.
Speaker Change: Moving on to our results.
Speaker Change: As highlighted by Greg our second quarter results were quite strong.
Speaker Change: Driven by better than expected growth in capital equipment cloud and data center infrastructure and digital commerce at.
Speaker Change: At the same time health care automotive renewables and connected living were all in line with the expectations from 90 days ago.
Speaker Change: As a result of the team delivered approximately $6 $7 billion in revenue, 5% core margins and $1.94 and core earnings per share up 26 cents from Q2 of last year.
Speaker Change: As I review these results in context with our updated outlook for the balance of the year, a few things stand out to me.
Speaker Change: First our strong year to date results underscore the resilience and strength of <unk> diversified portfolio, where certain end markets like capital equipment and data center infrastructure continued to outperform while some areas of our business like E D's and renewables continuing to warrant caution.
Speaker Change: We now believe our intelligent infrastructure business is well positioned to deliver 17% growth in FY 'twenty five on a reported basis and approximately 27% excluding the legacy networking business. We exited at the end of FY 'twenty four.
Speaker Change: With this updated outlook AI associated business is not expected to represent approximately $7 5 billion in revenue this fiscal year as demand for servers racks photonics advanced networking <unk> storage and testing equipment, all continued to climb higher during the quarter.
Speaker Change: This represents an approximate 40% year on year increase or AI related revenue.
Speaker Change: Yeah.
Speaker Change: Contrary to market. He is the deployment of GPU engineered racks and liquid core data centers continues to accelerate.
Speaker Change: Our strategy to lead with design architecture, and engineering allows us to keep pace with the accelerated development cycles with higher yields at lunch.
Speaker Change: We can now transition from older computer architecture, GPU led system level design and hardware protection at scale, which has been critical in establishing jabil as a trusted partner for data center infrastructure build outs.
Speaker Change: Yeah.
Speaker Change: As we look to future growth in this space I'm, particularly excited about the expansion opportunity in India.
Speaker Change: During the quarter, we announced our plans to expand in Gujarat to support our photonics capabilities.
Speaker Change: Over the longer term, we expect jabil to play a significant role domestically in India as the combination of domestic demand and infrastructure.
Speaker Change: Young workforce and a business friendly environment continue to support the manufacturing of advanced technologies and products.
Speaker Change: Putting southern data center build outs that are in very initial stages.
Speaker Change: And secondly, digital commerce without connected living and digital Commerce segment is expected to increase by 14% in FY 'twenty five as the team continues to help several customers drive automation in retail and digital commerce being in the warehouse in the aisle or a checkout.
Speaker Change: And in health care I would like to welcome the team from our exciting acquisition of U S based Pharmaceuticals International Inc.
Speaker Change: This acquisition completed in early February allows us to better serve our pharmaceutical and healthcare customers and a septic filling and dry or dosage, which opens up a $20 billion addressable market.
Speaker Change: By enhancing jabil existing pharmaceutical solutions offering which includes the development and commercial production of auto injectors Bandon.
Speaker Change: Ben inject as inhalers and on body pumps.
Speaker Change: The <unk> advanced capabilities and state of the art manufacturing facilities, we're now in a stronger position to meet the growing demand for high quality drug development and manufacturing in the U S.
Speaker Change: In other parts of our business, we continue to be prudent with our expectations for the year.
Speaker Change: In automotive, we continue to be cautious for the outlook for the year, while at the moment, we're not seeing much recovery in the renewable energy space outside of energy storage.
Speaker Change: Putting it altogether.
Speaker Change: Together for the year or the next slide.
Speaker Change: We now anticipate approximately $27 $9 billion in revenue with core operating margins of five 4%.
Speaker Change: Core earnings per share now expected to be $8.95.
Speaker Change: And importantly, as Greg indicated earlier, we now expect free cash flow generation in FY 'twenty five more than $1 $2 billion.
Speaker Change: In closing I want to say, thank you to the entire Jetblue team for your dedication.
Speaker Change: To our investors via continued trust and support.
Adam Berry: I will now turn the call back over to Adam.
Adam Berry: Thanks, Mike.
Before moving into Q&A I'd like to take a quick moment and summarize our call today.
Adam Berry: We're closely monitoring all things associated with the potential tariff situation.
As Mike highlighted we are extremely well positioned as a U S. Domiciled manufacturing service provider supported by our global footprint and with a significant U S manufacturing footprint.
Adam Berry: And as Greg highlighted the resilience of our diversified portfolio is evident.
Adam Berry: Certain end markets, such as capital equipment data center infrastructure and digital Commerce continued to perform exceptionally well.
Adam Berry: Other end markets, including electric vehicles renewables and five G weren't near term caution.
Adam Berry: All of this has been considered in our raised outlook for fiscal 'twenty five.
Adam Berry: Thank you for your time today, operator, we're now ready for Q&A.
Speaker Change: Thank you the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up the.
Adam Berry: Handset before pressing the star keys.
Speaker Change: Again, Thats Star one to register a question at this time.
Speaker Change: Today's first question is coming from <unk> Bhattacharya with Bank of America. Please go ahead.
Speaker Change: So can you. Please make sure your phone is not on mute.
Speaker Change: Hi, Thank you for taking my questions.
Speaker Change: Can you Mike can you talk about your existing footprint in the U S. A you mentioned that several times.
Speaker Change: And your ability to support customers, who want to move manufacturing do you think such moves are possible and would that make sense from a landed cost standpoint.
Speaker Change: Oh sure up little I think in my prepared remarks, I tried to address what we know.
Speaker Change: Today, they're obviously a U S.
Speaker Change: Domiciled manufacturing service provider with a U S headquartered.
Speaker Change: We've been in the U S for 60 years. So we have a lot of experience a lot of knowledge about.
Speaker Change: The U S. Today.
Speaker Change: If you look at the number of sites, we have a we have 30 sites in the U S. Oh, all over all over the place and I think if you look at the expertise that we have the knowledge the experience and all the capabilities that are required to move.
Speaker Change: To the U S. We have all of that today. If you look at some of our and it's like health care are almost the entire segment and intelligent infrastructure as mainly a U S. Based today as well. So we already have a footprint, which is generating a large part of our our revenue stream.
Speaker Change: And I think.
Speaker Change: The ability to move it.
Speaker Change: Manufacturing is obviously based on end markets. Some of the end markets are more price elastic where prices can be passed on.
Speaker Change: To our customers there are some which are not as price elastic and that they will have to be a landed cost sort of a determination in terms of.
Speaker Change: What moves and what doesn't move I think the key the key takeaway here is where here. We have 30 sites. If you go back and look at what we did last year within six months. We started from zero, we didn't even have a site. We started from zero and we set it up hire all the people put all the equipment there.
Speaker Change: And did all the infrastructure around the factory and added up and running in six months.
Speaker Change: That's the speed at which we can up right now it depends obviously on the end market Ah Ah, but it's highly highly doable, so oh, well, we're actually looking forward to helping our customers if they want to ship to the U S.
Speaker Change: Okay. Thanks for the details there can I ask you about the cloud revenues are and you raised the guidance for that as well as for E. I related revenues can you talk more about the opportunity with silicon photonics and and how do you see that market growing in <unk> and your revenue is growing you mentioned Goodyear I just elaborate on what.
Speaker Change: Are you planning to build there and how do you see that market trending up.
Speaker Change: Sure. So I think if you look at the AI piece I think you referenced that are obviously intelligent infrastructure business is going up.
Speaker Change: From previous our outlook and consider be up from last year AI revenue. If you look at last year, where it was in the region of 5 billion are I think we took it up to six one.
Speaker Change: One stage, then we took it up to six and a half now we're taking it up to seven and a half.
Speaker Change: Which is a which is quite a big deal. If you go if you look at the the year on year growth that shows a 40% growth rate. So we are really happy with how we're progressing from the AI.
Speaker Change: Revenue perspective, a lot of that today are to be fair is coming from the data cloud infrastructure or a piece of silicon Photonics you talked about that are I think you're aware Rob you made this acquisition from Intel that was about 18 24 months ago that gave US a capability that gave us engineering that gave us a clean room.
Speaker Change: That gives us a whole bunch of them.
Speaker Change: Capability to go out and build out these photonics in France. He was transceiver module. So it started off today, we have 300 or 400 million with Hyperscale Oh, we're aggressively working with the new Hyperscale are on increasing that and I had really good thoughts about.
Speaker Change: About silicon Photonics in fact.
Speaker Change: At OFC I'm in a couple of weeks' time, we'll be showcasing our 160 <unk>.
Speaker Change: Capability today from the front end of the 100 to 400, it seems to be more.
Speaker Change: More applicable to 800 on the backend today.
Speaker Change: Moving to 160 towards the end of this calendar year. So we're really well positioned from a silicon photonics shop perspective, and and like I said today, it's a smaller base, but are the future outlook is really good on that one.
Speaker Change: Okay. Thanks for all the details there maybe I'll sneak one more in just.
Speaker Change: Just looking at the forecast looks like you tweaked down networking and health care forecast for fiscal 'twenty fives, just what should we read into that if anything.
Speaker Change: So much sure. So I think that that probably is just.
Speaker Change: Just a slight it's not on the chart on the switch and start on the gear and start on our AI related revenue, it's mainly on the <unk> infrastructure side, there's a little bit of uncertainty are today whipped are with the network providers as well so that's what's causing some of the reduction from.
Speaker Change: Our outlook.
Speaker Change: Thanks for all the details appreciate it thanks.
Thank you. The next question is coming from stomach Chatterji of J P. Morgan. Please go ahead.
Stomach Chatterji: Hi, Thanks for taking my question, Oh, Oh Oh.
Stomach Chatterji: It does seem like when I look at intelligent infrastructure or something.
Speaker Change: Change materially for the positive this quarter because all through last year, you were doing about a 2.2 to one 3 billion revenue run rate per quarter or.
Speaker Change: Extended the sequent, Chile into Kuwait, and six this quarter and you're guiding to coupon indeed, well see you raising the guidance by about 1 billion after raising it by half a billion last quarter. So it just seems like there's a increasing confidence and I'm. Just wondering if there was something noticeable that happened during the quarter in terms of either sort of more.
Speaker Change: Design wins are more visibility in DRAM that is driving that confidence and I have a quick follow up after that thank you sure. So I think it's in our two main areas are if you look at semi cap that are not in the not in the wafer fab equipment side more on the automated testing piece Oh, that's part of the business is doing really well with.
Speaker Change: Ah the sort of advent of.
Speaker Change: Custom shifts that need to be tested and newer technologies coming through the testing requirements are just going through the roof. There so semi cap Bob good sort of outlook. There and then on the cloud data center infrastructure or at least I think that's well I I I I hear stories of its slowing down it's not slowing down at all.
Speaker Change: All its actually are gaining momentum.
Speaker Change: Momentum are at least as far as the table is concerned so those are the two.
Speaker Change: Main areas are obviously some networking communication.
Speaker Change: The switch gear offset by some of the the <unk> infrastructure piece that I mentioned, a little earlier, Paul So I think.
Speaker Change: I think that whole intelligent infrastructure outlook again growth expectations are in my books are very robust.
Speaker Change: Okay got it and then for my follow up on the margin.
Speaker Change: Particularly on a segment basis, when I look at connected living in digital commerce.
Speaker Change: Obviously, there's some headwind related to mobility on the revenue side, but when we look at margins, what's driving some of the weakness here Oh, basically then probably some revenue leverage but other ways of how you're thinking about the roadmap in terms of improving the margin for that particular segment.
Speaker Change: Yeah. So I think you hit the nail on that that when you talked about mobility, a I Oh, that's why the year on year comp looks a little weird, though we did have one month.
Speaker Change: But let's say in Q2 of last year, which sort of which skews the number a little bit but overall our margin structure is going reasonably well we have seasonality you. If you remember in Q1, we outperformed on the connected living piece by quite a quite a big number in Q2.
Speaker Change: Normally a slower quarter for us are having gone through the holiday season, and a Q1.
Speaker Change: Sort of quarter or so I think.
Speaker Change: That's doing well I think going forward the Seattle D. C piece are the digital Carbos pieces, one I'm more excited about our that's literally humanoids automation warehouse automation we're.
Speaker Change: We're looking at digital cargoes, whether it's in the warehouse whether it's.
Speaker Change: In the aisle and check out our there's plenty of options got there and then that this whole humanoid thing very early.
Speaker Change: Sort of situations that are out, but has very high potential and I'm not suggesting that comes in the next 612 months.
Speaker Change: But eventually over a over the medium to long term that's another growth engine for us.
Speaker Change: Okay. Thank you thanks for taking my questions.
Mark Delaney: Thank you. The next question is coming from market Delaney Goldman Sachs. Please go ahead.
Mark Delaney: I guess good morning, and thanks very much for taking my questions.
Mark Delaney: For the comments you've provided so far on tariffs I'm, hoping you can expand a bit on that topic and help us better understand what you're seeing from customers. Currently in terms of how they may want to respond to tariffs or potential tariffs are there are meaningful number of customers that have already started to work on plans to shift sourcing into the U S or or told you that's.
Mark Delaney: And they want to do or is it more that customers are working through scenario analysis and planning in the event that tire tariffs go into effect.
Mark Delaney: So you just hit on what we've already covered in our prepared remarks. If you look at the current situation as we know today, which is Canada, Mexico, and China I think I addressed all three the exposure there is minimal the reciprocal of tariffs no one knows what the mechanics.
Mark Delaney: That will be it's supposed to be April 2nd don't know what the actual implementation dates would be in what.
Mark Delaney: What it would involve a but I think the the opportunity yeah. I think you have to look at this holistically as well Oh, you've cut out.
Mark Delaney: We've been we're in all these countries are reciprocal of tariff in my view actually levels, the manufacturing playing field that quite a bit.
Mark Delaney: Which means that we can we can manufacture anywhere and and if you look at if you look at the capabilities and the expertise that we have we're in 30 countries. We can oh, we can use our local knowledge quite a bit to help our customers that so overall the tariff situation I see that as a net plus.
Mark Delaney: Obviously the uncertainty.
Mark Delaney: Could lead to some level of demand.
Mark Delaney: Duction by the end customer or are we but we're not.
Mark Delaney: Seeing any of that today, but that could happen, but that's that's more of a macro level issue.
Mark Delaney: Then jabil issue.
Mark Delaney: I do think the potential for moving to the U S. A C. I mentioned earlier, it's it's it's very end market focused are I think if you look at our if you look at health care and very difficult to move things around and we're already mainly in the U S. Anyway. So health care is a lot more.
Mark Delaney: Sort of price elastic and impactful are the the the.
Mark Delaney: The pricing is it a little bit go taller until these movements are or the tariff situation itself as well so we've.
Mark Delaney: We've got our intelligent infrastructure business are doing really really well already.
Mark Delaney: And now most of that is already in the U S. A and I think if you look at the digital.
Mark Delaney: Digital cabos connected living.
Mark Delaney: Was there a little bit more price elastic guys, especially on the on the consumer side, because you've already brought up so those will be a little bit more difficult to move across.
Mark Delaney: From a pricing standpoint, we'll have to wait and see how how things progress, but it's very early days, but I'm a I.
Mark Delaney: The the reciprocal of tariffs and don't know anything about that and we've already addressed the three countries that we know of today, yeah. So I hope that answers your question.
Speaker Change: Yeah, that's helpful and I understand there's a lot of moving parts here I did want to make sure our investors and we understand what is embedded into your fiscal 'twenty five guidance with tariffs or are you assuming tariffs on imports from Mexico and the reciprocal tariffs go into effect on April 2nd and then similarly have you tried to bake in any.
Speaker Change: Revenue headwinds from apparently higher prices or even just some conservatism because of the uncertainty and perhaps timing to move products around the world. Thank you. So let me again, just address China, Mexico, and Canada, the China situation, we have very little exposure.
Speaker Change: <unk> products that eventually come to the U S. So we're good on China, we have almost zero exposure in Canada and in Mexico, I think I referred to that in my prepared remarks, 80, or 90% of our business is U S. MCA compliance a lot of it is done under the U S. M. C. A free trade agreement are we don't know the details of it.
Speaker Change: Reciprocal of tariffs.
Speaker Change: As Mexico, I know, Mexico doesn't judge that that big of a that big of a tariff on U S products I E.
Speaker Change: I'm not that worried about Mexico, I think our overall AR will volumes get impacted eventually yes, I don't think that happens in the next six months Mark I think this is a much long.
Speaker Change: I'm sort of impact that could be.
Speaker Change: Some level of pulled back towards the holiday season, especially from the consumer perspective, we're not seeing any of that today are until things get cleared.
Speaker Change: I think out where are our assumptions right now it's still very consistent I think you asked whether we're being prudent and I called that out a couple of times in my prepared remarks, with an absolutely important for or end markets that we're aware of such as evs such as renewables.
Speaker Change: Even even some of the consumer or a piece a just long term.
Speaker Change: I I'll I'll keep repeating this we're really well positioned whether it's shifting to the U S. Whether it's shifting around globally are and and and I don't think that that many companies that are actually better suited for this sort of a uncertainty or at least help our customers.
Speaker Change: Having made these complexities.
Speaker Change: That all makes sense, Mike appreciate all your commentary on this topic and Doug Congratulations on the solid results and outlook I'll pass it on thank you.
David vote: Thank you. Our next question is coming from David vote of UBS. Please go ahead.
Speaker Change: Great. Thanks, guys I want to follow up on that but not necessarily on the actual gross margin impact of tariffs put on revenue and maybe this is for Greg to start so Greg I just want to make sure I understand sort of the year over year compares I know you have the divestiture of mobility last year, but you also exited some legacy networking businesses last year.
Speaker Change: Is that in sort of the commentary in terms of how youre thinking about the growth rates going forward because I thought it was my understanding that in February of last year, you had a couple of hundred million from that business in a little bit similar number in may so I'm trying to understand kind of the pro forma growth rate for fed ramp I think you said, 3%, but it suggests to me that it should be stronger than that and then I have a follow.
Speaker Change: Rob.
Rob: Yeah, David Thanks for the question, if we take out the that network network and legacy business out our quarters year over year growth would've been eaten a half percent. So we had about $300 million of revenue and in Q2 of 'twenty four around that.
Rob: So again, you know that when you look at that the growth.
Rob: Intelligent infrastructure, which we reported 18% year over year, it would've been 37% year over year.
Speaker Change: Got it Okay. So then my follow up to that is if I just take your guidance at face value for the year I would imagine in Q4 of this fiscal year, you don't have a tough compare and so whats implied by the guide and maybe it goes back to Mike's point about being conservative is that you have a fairly meaningful deceleration as we move through the summer months into the fall is that a reflection of.
Rob: Or anything you're seeing from a demand perspective to date.
Rob: Or terrorist potential impact or just prudent given sort of the uncertain macro maybe just kind of help flesh that out that'd be great. Yeah, absolutely. It's all about being prudent given given where we are today. So we're just being cautious.
Rob: On the guidance.
Speaker Change: Got it and then and then I would imagine that is is that prudent in cloud and datacenter autos you vs or across the board I'm, just trying to get a sense for where you feel the most caution is warranted given the strong demand that you're seeing in semi cap.
Speaker Change: Data center, yes, it's it's a broad stroke across across all end markets David.
Speaker Change: Great. Thanks, guys.
Speaker Change: Okay.
Speaker Change: Thank you. The next question is coming from Steven Fox of Fox Advisors. Please go ahead.
Steven Fox: Hi, Good morning, I had two questions. If I could first of all I was wondering if you could expand on the comment Mike that you made about a G. P racks in a liquid cooling continue to accelerate and it seemed like you were tying it into your ability to deliver higher yields that at launch of new racks.
Speaker Change: But I was wondering.
Speaker Change: What does that exactly mean that you're doing and why you're benchmarking I guess supposedly better against competition and then I had a follow up on.
Speaker Change: Hey, Steve So some of my comments on our improving our yields at lunch was more related to our design architecture of the engineering piece the capability that we have today, where the handshake between the hyperscale around us as far as it relates to data center.
Speaker Change: Build outs are that's what drives our improved our yields that our launch of the reference to obviously servicing rights are doing really well are the GPU related piece.
Speaker Change: It's obviously, a big catalyst for that the liquid cooling the acquisition that we made last year is actually going really well, it's opening up so many doors for us in terms of vertical solutions in terms of our individual customized.
Speaker Change: Solutions that we can do and by the way none of that is even in our forecast are we're still in conversations it's actually yeah, it's actually going really.
Speaker Change: Really well I'm I'm I'm extremely pleased with that liquid cooling acquisition that we've done and the potential.
Speaker Change: The future growth again that was the reason we bought it we didn't buy it with revenue we didn't buy it with a whole bunch of incremental revenue that came with it. It was more a capability that we were selling a as a vertical and customized solution. So I think.
Speaker Change: I hope that answers your question.
Speaker Change: Yeah, that's really interesting and I appreciate that color and then on the flip side. The auto transport segment, a it's still a bit of a melting ice cube for you guys in terms of your forecast and I was wondering how confident are you that you have a good handle on what EV production could be like for a second half of the year and whether you have any offsets within that.
Speaker Change: Around like new programs or new content etcetera. Thanks, Yeah. So I think there are definitely puts and takes in that line item we have.
Speaker Change: And again, we'll be the local prudent here are we're not seeing that much of a reduction, but where we're taking it upon ourselves to be prudent with the rating some of the forecasts are.
Speaker Change: The the that some of the some of the forecast reductions are robbing upset by a Chinese OEM are where are the China EV market is really doing really well. So I think there's there's puts and takes we have some of the policy stuff with our largest customer in that are in that.
Speaker Change: Our end market as well are doing really well. So there's there's a whole bunch of puts and takes if you. If we didn't have these puts and takes you'd be seeing are a bigger reduction.
Speaker Change: I wouldn't characterize it as a melting ice cube, I think gets us being prudent which is a which is more applicable here.
Speaker Change: I appreciate that color. Thank you. Thank.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question is coming from George Wang of Barclays. Please go ahead.
George Wang: Oh, Yeah, Hey, guys congrats on the quarter in our guidance there. Thanks for taking my questions I have a couple I guess I'd be remiss not softball CTO.
George Wang: Especially if all aimed at the G T C U.
George Wang: T O.
George Wang: Just curious I thought the jabil could be beneficiary on the CTO Assembly.
George Wang: Just based on our leverage your Oh fixed assets can you kind of give more color on some social how jabil could be positioned to take advantage of the cycle based on our CTO Assembly.
George Wang: Yes of course, I think where we are well positioned if you look at I think at GTC.
George Wang: The comments were more around switching yeah, not so much on the GPU side and again, that's where our capability is out on the switching Iraq side, and now where we have development lines going on <unk>, obviously, we have silicon photonics.
George Wang: Blue Don are we do we are using our Intel fix where the laser is embedded on the chip, which actually is a benefit today.
George Wang: Particularly in light of the laser shortages are that we're seeing so are really well positioned for C. P O.
George Wang: It's not as big a number today as well as you would imagine it's still in development phase not just Virginia, who worked for us but for other companies as well I think our next one or two years it starts going up and it probably starts exploding a little bit more towards 28, but.
George Wang: But the growth potential is definitely there the capability.
George Wang: <unk> is is is also there in jabil.
George Wang: Maybe just a quick follow up until yourself with the the transceiver.
George Wang: Three months ago, you guys talked about your discussion in call. It the three Hyperscale this fall.
George Wang: 400, <unk> now and the 1060 <unk> towards year end just curious if there's any progress you know I'll do your bathroom tissue. He got front are you guys, making incremental progress you can report here Oh, yes. There has been progress I think we're doing really well with a one of the Hyperscale is where we're at.
George Wang: Putting for the others I think again, all I've mentioned again, I've mentioned before but at OFC, we'll be showcasing a $1 60, a cable that they are that will be another sort of data point for us I do think that our entire silicon photonics out.
George Wang: Market Ah is is about to take off a considerable people rush. So there's not many companies out there that has a well position.
George Wang: As we are but take particularly in light of the Intel acquisition that we made and the capabilities that we have today, yeah, but yeah. So the photonics is going in my view quite well.
Speaker Change: Great I just want to squeeze in one more quickly if I can just kind of glad to see you guys have raised our guidance by 800 million are around the silver Iraq was likely driven by your biggest the hyperscale customer or do you just curious about timing for the rest of you know earlier you guys talked about the more FY 'twenty six.
George Wang: What was the.
George Wang: Oh, sorry, you know custom racks, what was your biggest customer in the D. C. I cited just just curious if it has any pull in into the back.
George Wang: That kind of flow for FY, 'twenty, five kind of food evidenced by strong growth in the segment and the kind of guidance range. Just curious if you have any refresh salt in terms of new off just on the cadence for the ramp. So I think the the increase is driven mainly in two parts I think if you look at our.
George Wang: Market share we are growing our market share so there's definitely some level of consolidation.
George Wang: Going on there and we're winning more than our fair share of the market and then the end market growth again that we're not seeing any slowdown there in the end market that continues to.
George Wang: Move upward I think if you look at it's not just in the U S are there's this area as our other parts of the world where.
George Wang: Sovereign datacenters adjusting very early stages, so plenty of legroom for that entire piece a judge.
Speaker Change: Great. Thank you congrats again, thank you.
Speaker Change: Thank you. The next question is coming from Melissa Fairbanks of Raymond James. Please go ahead.
Melissa Fairbanks: Hey, guys.
So much so.
Melissa Fairbanks: So I had a question about some of the supply chain dynamics I I. Appreciate all of the detail that you gave us about your expectations for tariffs.
Melissa Fairbanks: I'm not sure if Frank is in the room. If he has he might be able to address this but I I was wondering if theres been any change in the way your customers are thinking about procuring components.
You know your manufacturing footprint is what it is and we know that it's very strong, but either you know customers pulling in from future demand or managing how or where they expect you to source materials from has there been any change in behavior there.
Melissa Fairbanks: More localize being more regionalized AR I think is is is ongoing.
We haven't seen any major changes that that is still going to lift and move that entire supply chain from one part of the world that's going to take multiple quarters, that's not gonna be.
Melissa Fairbanks: That's not going to be an overnight a task.
Melissa Fairbanks: I think it's definitely something we are talking about we're definitely looking into our areas of in buckets.
Melissa Fairbanks: Movement on the supply chain, but youre right the whole supply chain and.
Melissa Fairbanks: Manufacturing gathers all of that doesn't make sense unless supply chain moves with it yeah. So oh, what what we're in active discussions on all of those but I haven't seen any major moves which have been completed yet.
Speaker Change: Okay, great. Thanks, and then maybe just one quick follow up you've talked about some of the M&A that you've done recently some of it has been very successful obviously with the silicon photonics and the liquid cooling are there any other capabilities that you're looking at that maybe customers are coming to you and saying Hey, we don't walk.
Speaker Change: To do this anymore or hey, we see this is where our roadmap is going and we need you to be able to do this are there are there any pockets there where do you see opportunities.
Speaker Change: So today I think I'm glad you mentioned, Mike Ross You mentioned, Oh, you mentioned other acquisition, but the one the pharmaceutical one that we just did that's paying good dividends as well, we're getting a lot of interest from a pharmaceutical companies on our own potential.
Speaker Change: Dry dosage drugs is a septic filling oh, we have 175000 square feet that came with this.
Speaker Change: Acquisition in the U S a and that the the level of interest actually far exceeds what we are what we expected I think the whole G. L. P widens the alternatives out all of that that the team that we have there are 300 people are there's a lot of there's a lot of interest in <unk>.
Speaker Change: And that from a from a Florida acquisition.
Speaker Change: So yeah, we're on.
Speaker Change: Roadmaps.
Speaker Change: All of the large companies are trillions of dollars of market cap. There are we know what technologies are coming we continue to make appropriate.
Speaker Change: Acquisitions are there's nothing I can tell you where we're going to do this tomorrow do that tomorrow.
Speaker Change: Certainly looking and now we're actually actively working a few of those.
Speaker Change: As we speak and that's been part of I don't know if you go back over the last 10 15 years, we Havent made big acquisitions, we've made tuck in acquisitions capability, driven acquisitions, where we go out and identify a gap in our capability and go and fill that and this whole pharmaceutical.
Speaker Change: The acquisitions are is a great example of that are we identified that are that gap. We identified the total available market are that that could potentially open up for us and that's what we went in there and that's that will be the ammo no no change there.
Speaker Change: There and I'm no again, good thoughts in terms of future acquisitions that.
Speaker Change: Excellent great. That's it for me guys. Thanks.
Speaker Change: Thanks, Chris.
Speaker Change: Thank you at this time I would like to turn the floor back over to Mr. Adam Berry for closing comments. Thank you very much for your time. This now concludes our call have a great day.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines have log off the webcast at this time and enjoy the rest of your day.
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