An aerial view of a Google data centre in Georgia’s Douglas County. Celestica is the preferred manufacturing partner for Google’s proprietary chip system.Mike Stewart/The Associated Press
Celestica Inc. CLS-T delivered another strong quarterly performance Monday and raised its full-year forecast for the second time this year, the 12th time it has done so since early 2023.
The Toronto-based builder of networking switches and other equipment for data centres said in a release that it generated revenue of US$4.05-billion in the first quarter ended March 21, up 53 per cent over the same period a year ago. That’s above the midway point of the company’s forecast of between US$3.85-billion and US$4.15-billion, and slightly ahead of consensus estimates.
Celsetica’s earnings increased by nearly 150 per cent year-over-year, coming in at US$1.83 per share, while its more closely watched adjusted earnings per share surpassed analyst estimates, coming in at US$2.16.
But shares of Celestica were down 14 per cent in Tuesday morning trading on the Toronto Stock Exchange; the company did not surpass guidance as markedly as in several recent quarters.
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Celestica raised its forecast revenue for this year to US$19-billion, up from US$17-billion three months ago, while boosting its estimated adjusted earnings per share to US$10.15, up from US$8.75. The company said it expects revenue of US$4.15-billion to US$4.45-billion in the second quarter and adjusted earnings per share between US$2.14 and US$2.34.
Chief executive officer and president Rob Mionis said in a release that the company’s outlook “continues to strengthen from just 90 days ago, supported by new program wins as well as improved forecast visibility with our customers.”
BMO Capital Markets analyst Thanos Moschopoulos said in a research note “the lack of a revenue beat was unusual” for Celestica and said it stemmed from revenue from enterprise customers being below prior company guidance – even though it was up 101 per cent year over year. He said “we presume this is simply a timing issue given the strong full-year guide.
The company said revenue growth from enterprise customers was below its outlook due to supply chain constraints, mainly for custom silicon and memory. “We are experiencing more component shortages now than 90 days ago,” Mr. Mionis said on an earnings call Tuesday.
Demand for equipment is very high as companies build data centres to support AI, and suppliers have fallen behind. “The positive news is that we have commitments from all our suppliers to secure the outlook we just gave,” he said.
Celestica has seen its business soar since OpenAI released ChatGPT in November, 2022. Growing AI development and adoption kicked off a wave of data-centre construction, pushing up demand for Celestica’s products.
Its stock has appreciated more than 35-fold since the end of 2022 and it recently surpassed Constellation Software – whose stock has suffered owing to concerns that new AI programs will threaten the hundreds of small, niche software vendors it has acquired over the years – to become Canada’s second-most-valuable publicly traded technology company, with a market capitalization of $66-billion
Analysts expect Celestica to thrive for several years as it ramps up programs to deliver next-generation equipment to giant data centre builders driven by hyperscalers, a term for the largest cloud computing providers. Facebook parent Meta Platforms Inc. and Google (owned by Alphabet Inc.) are among its customers. Celestica is the preferred manufacturing partner for Google’s proprietary chip system.
In a preview earnings note last week, Mr. Moschopoulos pointed to several positive developments pointing to sustained growing demand for Celestica’s products spilling over into at least 2028. Those include another large fundraise by OpenAI, an expanded partnership between OpenAI’s rival Anthropic and hardware giant Broadcom Inc. – a key supplier of chipsets for Celestica’s AI servers and networking switches – and announcements by Google about the introduction of its next-generation AI chips later this year and a partnership between Celestica and chip giant AMD.
Celestica’s key connectivity and cloud solutions business reported a 76 per cent year-over-year jump in revenue to US$3.24-billion in the first quarter, as its adjusted operating margin improved to 8.6 per cent of revenue from 8 per cent last year. The company’s advanced technology solutions business, which services aerospace and defence, industrial, health tech and capital equipment businesses, reported relatively flat revenue of US$810-million.
The company’s stock has experienced periodic short-term sell-offs as investors have increasingly worried about whether record spending on AI infrastructure – a forecast US$1.4-trillion worldwide this year, according to Gartner Inc. – is sustainable, or whether it amounts to a giant financial bubble.
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Celestica has leaned into the rising demand, more than doubling its planned spending to US$1-billion this year to expand operations. More spending can bring more risk, especially when the financial returns from deploying AI are still not clear.
The company also said Monday it has increased the size of its credit facility by more than US$1-billion, to US$1.75-billion, and pushed out the maturity date of its revolving credit facility and a term loan by nearly two years, to April, 2031.