TD Notes COMPANY UPDATE
Q1/24 PREVIEW: HYPERSCALER STRENGTH EXPECTED TO CONTINUE
THE TD COWEN INSIGHT
We expect continued momentum from Celestica's hyperscale customers in support of GenAI infrastructure build-outs. We believe the opportunity for additional hyperscale customers, who have yet to materially ramp capex, and a networking upgrade cycle could be a tailwind to drive continued robust growth throughout the year into 2025.
Event:
Q1/24 Results: Wednesday, April 24, 2024, after markets close. Conference Call: Thursday, April 25, 2024, at 8:00 a.m. ET.
Impact: NEUTRAL
We forecast total revenue of $2.1bln, up 15% y/y. We estimate Advanced Technology Solutions (ATS) revenue of $774mm, down 2% y/y; Communications revenue of $667mm, up 3% y/y; and Enterprise revenue of $665mm, up 68% y/y. We forecast EBIAT of $126mm, or 6.0% EBIAT margin, up ~80bps y/y. We also expect EPS of $0.71.
AI networking acceleration could support existing compute strength. We believe Celestica's Communications business could accelerate this year, driven by new wins for hyperscaler GenAI data centres. We expect HPS programs to resume growth in Q1 and ramp throughout the year. This should support the already robust strength in Enterprise for compute programs, which we estimate ~31% y/y growth in 2024. We will be looking for signs of customer diversification, suggesting other hyperscalers have begun their capex ramps to build out GenAI infrastructure. According to Celestica, annual data centre capex across the top four hyperscalers is estimated to grow at a 14% CAGR to $137bln by 2026.
Early signs of a Capital Equipment recovery. Global Equipment spending ended 2023 better than industry expectations, supported by a recovery in electronic and integrated circuit sales, with AI being a catalyst for leading-edge semiconductors. 2024 is still expected to be a transition year, with a re-acceleration in 2025. Last quarter, Celestica's Capital Equipment business remained weak; however, management saw early signs of a recovery with growth from new program wins and ramps. Longer term, the ATS segment continues to be a large opportunity, in our view, given lower outsourced manufacturing penetration in markets that require a high level of engineering expertise.