COMPANY UPDATE
Q3/24 PREVIEW: EYES ON 2025 GUIDE
THE TD COWEN INSIGHT
We believe investors' focus will be on management's financial outlook. We expect a significant data centre networking opportunity to drive material growth in Communications. This likely offsets the potential for an air pocket in Enterprise revenue, driven by a product transition with its largest customer.
Event:
Q3/24 Results: Wednesday, October 23, 2024, after markets close. Conference Call: Wednesday, October 23, 2024, at 5:00 p.m. ET. Link
The company will also host a virtual investor meeting after the earnings call to provide an overview of the business, growth opportunities, and financial outlook.
Impact: NEUTRAL
We forecast Q3 total revenue of $2.4bln, up 19% y/y. We estimate Advanced Technology Solutions (ATS) revenue of $834mm, down 3% y/y; Communications revenue of $989mm, up 35% y/y; and Enterprise revenue of $618mm, up 37% y/y. We forecast EBIAT of $160mm, or 6.5% EBIAT margin, up ~80bps y/y. We also expect EPS of $0.96.
We believe there will be a strong focus on 2025 guidance. We currently forecast 2025 revenue guidance of $10.8bln and EPS of $4.47, well above consensus at $4.08 due to the large Communications opportunity.
800G networking opportunity expected to drive meaningful growth next year. We continue to believe Celestica will be a major beneficiary of continued AI infrastructure investments, especially as spend shifts from servers to networking. We believe being a leading data centre networking equipment vendor, Ethernet gaining market share in back- end networking, and an increasing mix of 800G, drive considerable upside to consensus estimates, as highlighted in our recent networking deep dive. We expect a combination
of increased port volumes and ASP uplift to drive ~$4bln in HPS revenue next year with margin expansion, as we estimate HPS products command 12%-15% EBITDA margins.
Possible server air pocket, but largely expected by the Street. We expect a decline in Enterprise revenue in Q4 and through H1/25, driven by Celestica's largest customer undergoing a server product transition. While this was initially communicated last quarter, the magnitude and duration of the air pocket remains uncertain, with the next-generation product expected to ramp in H2/25. We believe increased clarity regarding this potential air pocket would remove some investor overhang, though we believe this is largely anticipated. Beyond this, we see a compelling set up into 2025 driven by the Communications ramp and potential for new server customer wins.