Flex Ltd Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mark Delaney - Goldman Sachs - Analyst : Starting with cloud and recognizing the north of 40% growth from a revenue standpoint that you've had for a few quarters in a row now and expecting good growth again next quarter. I am hoping to better understand the pace of the cloud ramp from here. And if have seen any change in the timing or magnitude that customers want to build out AI infrastructure over the near to intermediate term, perhaps due to factors like Blackwell supply chain readiness or to evaluate potential lower-cost AI training approaches?

Question: Mark Delaney - Goldman Sachs - Analyst : Very helpful. And my other question was on margins, and congratulations on getting to the 6%, so much sooner than you previously guided to, I think the prior outlook was to get there by fiscal '27. You spoke to some factors that led you to get to the 6% already this year. Maybe you can just expand how much is from mix versus some of these other factors like operational efficiencies? And you recognize it's quite early to get fiscal '26 guidance, but maybe just talk about some of the key variables investors should be considering about whether or not you can sustain the 6% level next year. Thank you.

Question: Ruplu Bhattacharya - Bank of America Securities - Analyst : Kevin, good to have you on board. Look forward to working with you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 29, 2025 / 1:30PM, FLEX.OQ - Q3 2025 Flex Ltd Earnings Call Revathi, I wanted to start with a high-level question. I mean -- with respect to manufacturing and especially in the US, I mean, with the new administration and policies, whether tariffs or otherwise, some companies may wish to move manufacturing. Can you talk about how much white space does Flex have? And how easy is it for you guys to move manufacturing lines around? And is there a way to lower the total landed cost in the US? I mean, how is that possible? Is it a matter of installing more automation. So I mean, is there a way to drive more manufacturing efficiency in the US?

Question: Ruplu Bhattacharya - Bank of America Securities - Analyst : Okay. Thanks for that. Can I ask you about your data center business and if you can dig a little bit deeper into that, specifically on the power business, now with Crown Technologies, how do you see your target audience? And you've had good growth, you're growing 45%. And long term, you said 20%, but does that 20% rely on you getting new customers? Or can you grow with your existing customers? If you can just give investors a sense for your target client base on both the power side and on the compute side, is this still just one hyperscale customer? Or do you have plans to expand? Any details would be appreciated.

Question: Ruplu Bhattacharya - Bank of America Securities - Analyst : I don't know if I can make one more in quick. Kevin, I know it's early days for you, but how do you think about capital returns to shareholders? Prior CFO of Flex at one said that a dividend is not a matter of if, but just when. I mean how are you thinking about this? I mean I know it's early, but any thoughts you have?

Question: Samik Chatterjee - JPMorgan - Analyst : Kevin, looking forward to working with you. I guess maybe if I can start a bit more near term. You did have a strong quarter in terms of revenue, beating your own revenue guide by about $400 million. And you talked about the strength you saw in data centers amongst sort of the drivers as well as consumer. As we think about F4Q, why are we not seeing some of that sort of sustainability of that upside into the 4Q numbers, which you seem to be sort of implying a sequential moderation in the revenue? Just curious if sort of you're seeing more incremental headwinds just specifically to 4Q in terms of autos? Or is there sort of any concern that there might have been some pull forward that's driving that sequential moderation on the revenue guide for 4Q?

Question: Samik Chatterjee - JPMorgan - Analyst : Okay. Got it. And then maybe every just to dive into the data center piece back again a bit more in detail. I think we are now seeing different sort of growth forecast for where hyperscalers are spending in relation to sort of traditional GPU clusters versus custom ASICs. And as you mentioned, you work across hyperscalers with some sort of engagement with all. Can you sort of ballpark for us or help us think about how much of your exposure to the hyperscalers or to your data center customers overall is to some of these custom ASIC programs and helping them on that front with rack versus the traditional sort of servers, CPU servers and GPU servers?

Question: Steven Fox - Fox Advisors, LLC - Analyst : Maybe just following up on that. It makes sense why you wouldn't want to break out the silicon exposure. But I was wondering, Revathi, you mentioned in the prepared remarks how you're doing more tailored solutions with the hyperscale companies. Can you maybe give us some color on how that's maybe helping your growth in margins? And then I had a follow-up.

Question: Steven Fox - Fox Advisors, LLC - Analyst : Great. That's super helpful. And then I just had a medical question. So you're talking about devices. It sounds like leading the medical growth right now. But how -- can you give us a sense for sort of the relative strength of that maybe over the next few quarters? And any kind of view on when maybe equipment piece of that business could come back? Thank you.

Question: George Wang - Barclays Investment Bank - Analyst : Congrats on the quarter to guide. Just a double-click on liquid cooling direct to chip in JetCool. And just curious of whether the kind of beef-up capability in the liquid cooling could likely lead to more sharings within some of the CSP rack integration. So can you kind of talk about whether you're already seeing share gains just because of vertical approved through JetCool versus kind of maybe prior a bit more focus on Al tools rack integration?

Question: George Wang - Barclays Investment Bank - Analyst : Great. And also just a follow-up, Revathi, just on the GPU power flash embedded power, can you unpack how much sort of pressure you are seeing from the share gain within some of the GPU rack in terms of PSU/PDU versus kind of the overall pie growing, especially as we head into Blackwell B200, B300 in the back half, just maybe likely you are seeing increased content per rack in terms of more power shops and PSU? And how should we think about kind of which side should have more weight in the medium term, just on the embedded power side?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : I appreciate all the great detail you've given. I just want to go back to a high-level question, thinking about cyclicality across the portfolio. What percentage of the business has clear lines of sight to sustainable growth versus the percentage where you have less confidence? And I'm just trying to understand how long it takes before you see a path to both segments consistently showing positive growth? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 29, 2025 / 1:30PM, FLEX.OQ - Q3 2025 Flex Ltd Earnings Call

Question: Steve Barger - KeyBanc Capital Markets - Analyst : It's been a very tough cycle. My second question is kind of related to what you were saying about where you want to choose to grow. I understand not wanting to talk about FY26 margin yet, but with a lot of margin progress already accomplished, I'm just curious about next steps. Meaning, are there still large pools of dollars with less favorable margins, so there's big opportunities? Or is the incremental benefit from here going to come from trimming or fixing smaller lines of business with less favorable unit economics? I'm just trying to get a sense of where this can go from here.