Celestica Inc. (CLS) | The Buildout — AI Infrastructure
The Verdict
Celestica takes a hyperscaler's architecture and co-designs, engineers and manufactures the finished system — Ethernet switches, servers, storage and increasingly whole racks that tie compute and networking together. It sits between the silicon and optics suppliers on one side and the cloud and AI service providers on the other, and the work is moving from boxes to rack-scale systems. HPS, the design-led portion of its cloud business, is how management measures how much design content, and pricing power, it captures rather than pure build-to-print assembly.
| Market Cap | — |
| Revenue (TTM) | $15.6B |
| Revenue Growth | +47.5% |
| EBITDA Margin (TTM) | 9.3% |
| Net Debt | $275M |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- The full-year outlook has been raised twice in one fiscal year, from $17B to $19B to $20.5B in revenue and from $8.75 to $10.15 to $11.30 in adjusted EPS, with no guidance withdrawn in the window.
- Design content is rising: HPS revenue was $1.9B, or 41% of Q2 revenue, and design engineering is going from roughly 1,350 to close to 2,000 engineers by the end of 2026.
- New wins sit above legacy assembly work: OpenAI custom racks, the AMD Helios scale-up networking switch, ten active 1.6T programs and a 1.6T co-packaged optics switch using the Broadcom Tomahawk 6 Davidson module.
- Both segments set margin marks in Q2: CCS at 8.7% and ATS at 6.3%, its highest margin ever, with total non-GAAP operating margin at 8.2% and guided to 8.4%.
- Customers have placed non-cancellable, non-returnable orders for long-lead silicon, and binding forecasts run 12 to 18 months in some cases, with demand conversations reaching 2028 and 2029.
What We’re Watching
- Three customers were 32%, 17% and 14% of Q2 revenue, 63% combined. Top-10 concentration reached 84% in Q1 FY2026, after 79% for FY2025, 73% for FY2024 and 64% for FY2023.
- Management says the guide is limited by materials, not demand, and has not quantified the gap. Custom silicon and memory are on allocation, with challenges in 40-plus-layer PCBs, power and optical components.
- Adjusted gross margin fell 20 basis points year over year to 11.5% on CCS mix, and the OpenAI rack program will carry material costs outside revenue through consignment dynamics.
- Capital is committed ahead of revenue: Q2 CapEx was $264M, about 5.6% of revenue versus 1.1% a year earlier, inventory was $3.4B, and the 2027 CapEx placeholder may rise.
The thesis is strengthening on the evidence in the source material. Guidance was raised twice in one fiscal year, the most recent guide was beaten on revenue and adjusted EPS, and every checkable near-term program milestone was kept or narrowed inside its promised window. The 2027 pre-announcement — growth accelerating past 2026's 65% — is the strongest claim management has made and the one with no near-term verification point. The open question is whether materials, rather than end demand, decide how much of that 2027 growth actually ships.
Earnings Beat
Q2 FY2026 revenue was $4.70B, up 62% year over year and above the high end of guidance. Adjusted EPS was $2.54, up 83%. Gross margin was 12.3% on the reported basis; the company's adjusted gross margin was 11.5%, down 20 basis points year over year on mix in the CCS segment. Non-GAAP operating margin reached 8.2%, a new company high and up 80 basis points, and adjusted ROIC was about 55%, up 20 percentage points from a year earlier.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $4.7B | $4.0B | $2.9B | +62.4% |
| Gross margin | 12.3% | 10.8% | 12.8% | -50bps |
| EBITDA | $502M | $312M | $318M | +58.1% |
| EPS | $3.17 | $1.83 | $1.82 | +74.3% |
| Non-GAAP operating margin | 8.2% | 8.0% | n/a | +80 bps |
| HPS revenue | $1.9B | $1.7B | n/a | +58% |
For 2027, as a result of exceptionally strong customer demand, and new program wins, we expect our revenue growth rate to accelerate as compared to the 65% growth expected in our 2026 annual outlook. Furthermore, as we continue expanding our adjusted operating margins, we anticipate our adjusted EPS growth rate to outpace our revenue growth.— Rob Mionis, Chair of the Board and Chief Executive Officer, 2026-07-28
Management tone: Management's stated confidence escalated between the call on 2026-04-28 and the call on 2026-07-28. The 2027 language moved from a level to a rate: first, revenue growth 'significantly more than' the 2026 increment; then, a growth rate that 'accelerates' past the 65% expected for 2026. Anonymity was dropped — a 'digital native' customer was named as OpenAI, and Broadcom and the Jalapeno accelerator were named with it. Supply language flipped from 'more component shortages now than 90 days ago' to 'appropriately hedged' and 'manageable.' Capital allocation moved toward reinvestment: 73,000 shares repurchased for $20M on the earlier call, and none for cancellation on the later one.
Management Guidance
On the 2026-07-28 call, management guided FY2026 revenue to $20.5B (up from $19B, +65%), adjusted EPS to $11.30 (up from $10.15, +87%), adjusted operating margin to 8.4% (up from 8.1%), free cash flow to $600M (up from $500M) and CapEx to about $1B (unchanged). Q3 FY2026 was guided to $5.25–5.55B revenue (+69% at the midpoint), $2.88–3.08 adjusted EPS (+89% at the midpoint) and 8.4% adjusted operating margin at the midpoint, on an adjusted effective tax rate of about 20%; communications is guided to roughly +60% and enterprise to roughly +190% in the quarter, with ATS up mid-teens. For FY2027, management expects the revenue growth rate to accelerate past 65% with adjusted EPS growth outpacing revenue, and carried a $1.5B CapEx placeholder pending a formal number in October. Its stated assumptions are that 2026 and 2027 are 'appropriately hedged' on supply, that capacity is in place, and that materials are the constraint — and that demand exceeds the revenue figures guided.
Trajectory
Revenue has grown faster year over year in each of the last four quarters: +26.4% in Q3 FY2025, +45.8% in Q4 FY2025, +52.8% in Q1 FY2026 and +62% in Q2 FY2026, taking quarterly revenue from $3.16B to $4.70B. The drivers are disclosed: 800G switch programs scaling across hyperscalers, a hyperscaler AI/ML compute program ramping, and the start of first 1.6T mass production in Q3 2026. The margin picture is split. Code-computed signals show operating margin expanding 310 basis points and EBITDA margin expanding 270 basis points with gross margin broadly stable, but the two gross measures the company discloses moved differently — reported gross margin was 12.3% in Q2 against 12.8% a year earlier, while adjusted gross margin was 11.5%, down 20 basis points on CCS mix. The record 8.2% non-GAAP operating margin came from operating leverage rather than gross-margin expansion. Free cash flow was $147M in the quarter and $285M year to date, a code-computed 46% conversion of trailing net income.
The Model
The model projects FY+1 revenue of $20.70B and EBITDA of $1,801M, an 8.7% margin, just above the FY2026 revenue outlook management gave on 2026-07-28. For FY+2 it projects revenue of $35.50B and EBITDA of $3,337M, a 9.4% margin. The near-term figure rests on 800G switch programs scaling across hyperscalers, the start of first 1.6T mass production in Q3 2026 and the ramp of a hyperscaler AI/ML compute program. The FY+2 step depends on the programs management has said ramp in 2027 and 2028: OpenAI custom racks, the AMD Helios scale-up switch, next-generation AI/ML compute and the 1.6T co-packaged optics switch.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $12.4B | $20.7B | $35.5B |
| YoY Growth | — | +66.8% | +71.5% |
| EBITDA | $1.1B | $1.8B | $3.3B |
| EBITDA Margin | 9.0% | 8.7% | 9.4% |
Projections are the median of 5 independent model runs. The model’s revenue sits 32.4% above analyst consensus.
On the 2026-07-28 call, management guided FY2026 revenue to $20.5B (up from $19B, +65%), adjusted EPS to $11.30 (up from $10.15, +87%), adjusted operating margin to 8.4% (up from 8.1%), free cash flow to $600M (up from $500M) and CapEx to about $1B (unchanged). Q3 FY2026 was guided to $5.25–5.55B revenue (+69% at the midpoint), $2.88–3.08 adjusted EPS (+89% at the midpoint) and 8.4% adjusted operating margin at the midpoint, on an adjusted effective tax rate of about 20%; communications is guided to roughly +60% and enterprise to roughly +190% in the quarter, with ATS up mid-teens. For FY2027, management expects the revenue growth rate to accelerate past 65% with adjusted EPS growth outpacing revenue, and carried a $1.5B CapEx placeholder pending a formal number in October. Its stated assumptions are that 2026 and 2027 are 'appropriately hedged' on supply, that capacity is in place, and that materials are the constraint — and that demand exceeds the revenue figures guided.
What Could Go Right — and Wrong
- Materials come off allocation. Management says demand exceeds the guided revenue figures, so relief on custom silicon, memory and 40-plus-layer PCBs would lift the ceiling without a new customer win.
- The OpenAI custom rack program delivers on schedule — initial deliveries in 2026 and production start late Q1 2027 — and scales toward the multibillion-dollar opportunity management describes.
- The AMD Helios ramp begins in earnest in H1 2027 as guided, with AMD describing Helios as in production and FY2027 data-center AI growth of 'well over 100%.'
- HPS share of revenue resumes rising from 41%, supporting gross and operating margin — the clearest available proxy for how much design content Celestica captures.
- ATS holds its roughly 10% growth for FY2026 and accelerates in the second half, with Applied Materials guiding its next quarter to $10.25B (+51% year over year) and 2027 to another record year.
- Supply stays the binding constraint into 2027 and the pre-announced acceleration does not land. Management said the guide is limited by materials, not demand, and did not say by how much.
- A customer at 32% of Q2 revenue changes its roadmap, re-architects away from Celestica, or takes work in-house. Three customers are 63% of revenue.
- Gross margin keeps eroding on CCS mix and consignment-heavy compute while operating leverage cannot carry the whole margin case. Adjusted gross margin is guided to stay around the mid-11s.
- The new programs slip. OpenAI racks, AMD Helios and the 1.6T co-packaged optics switch are new architectures with new customers, and the largest unit of disclosure is 'multibillion-dollar' with no program-level bridge.
- Capital is committed ahead of revenue: a $1.5B 2027 placeholder that may rise, inventory up to $3.4B, and roughly 11.13M shares issued for about $3B in August 2026.
Looking Ahead
The next twelve months are a sequence of dated tests. Q3 FY2026 results come against revenue guidance of $5.25–5.55B and an operating margin guide of 8.4% at the midpoint. Initial OpenAI rack deliveries are promised for later in 2026, with production start late Q1 2027; AMD Helios samples are due toward the end of 2026 with the ramp in H1 2027; and the 1.6T co-packaged optics switch samples in 1H 2027 ahead of 2H 2027 production, after 1.6T mass production with two hyperscalers begins in Q3 2026.
- 2026-10-27Investor and Analyst Day — Detailed FY2027 outlook and the formal 2027 CapEx figure.
- Q3 2026Q3 FY2026 results — Revenue guide $5.25–5.55B; operating margin 8.4% at the midpoint.
- 2026OpenAI rack deliveries — Initial custom rack shipments, promised for 'later this year.'
- End 2026AMD Helios samples — Scale-up switch samples; ramp begins in earnest in H1 2027.
- Late Q1 2027OpenAI rack production start — Production start, then a ramp through 2027 and into 2028.
- H1 20271.6T CPO samples — Samples for the co-packaged optics switch; mass production 2H 2027.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $9.6B | $12.4B | $15.6B | +28.7% |
| Gross Margin | 10.6% | 11.6% | 11.6% | +93bps |
| EBITDA | $726M | $1.1B | $1.4B | +53.7% |
| EBITDA Margin | 7.5% | 9.0% | 9.3% | +146bps |
| Net Income | $414M | $834M | $1.1B | +101.6% |
| Free Cash Flow | $256M | $460M | $520M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)11.6%
- EBITDA Margin (TTM)9.3%
- Net Margin (TTM)7.2%
- ROIC36.4%
- FCF Conversion36.0%
- SBC / Revenue0.4%
The Company
Celestica describes itself as a technology leader in design, engineering, manufacturing, supply chain and platform solutions, enabling critical data center infrastructure for AI, cloud and hybrid cloud. It is not a chip maker or a component maker. It reports two segments: CCS, which covers networking switches, optical systems, data center racks, servers and storage for cloud, AI service and enterprise customers, and ATS, which does aerospace and defense, industrial, healthtech and semiconductor capital equipment work. The 10-K names customers including Amazon Fulfillment Services, Meta, Google, Ciena, Dell, Hewlett-Packard Enterprise and IBM in CCS, and Applied Materials, LAM Research and Honeywell in ATS.
The company runs a global plant network where every listed site does manufacturing, design and engineering. The largest printed footprints in the 10-K table are Thailand, Malaysia, Mexico, Texas, China and Japan, on a mix of owned and leased sites. Capacity is being added in Thailand, in Japan — where some switching business is being moved — and in Richardson and Fort Worth, Texas, with management noting customers want an equal amount of growth in Asia and in the United States. Design engineering is growing from roughly 1,350 toward close to 2,000 engineers by the end of 2026.
Business Segments
Competitive Landscape
The 10-K lists competition in three groups: EMS peers including Benchmark Electronics, Flex, Hon Hai Precision (Foxconn), Jabil, Plexus and Sanmina; ODM rivals Quanta Computer, Wiwynn and Accton; and, in data center switching, OEMs including Arista Networks and Cisco, which the filing frames as a customer choice between customized ODM systems and off-the-shelf OEM equipment, 'which may include considerations of cost, software, after-market services, and the degree of customization necessary.' Management's stated edge is doing design and manufacturing together rather than one or the other, and delivering complex products reliably at scale; it says customers are asking Celestica to take back share from other providers. It also cites the handoff from designing a program to ramping it, and a design organization heading toward close to 2,000 engineers, as differentiators.
- Named in the 10-K as an EMS competitor. Its ZT Systems business contributed $1.1B in its Q3 FY26 and is guided to $4.8–5.0B for 11 months in FY26; Sanmina's own Q3 revenue was $3.46B, up 69.7%, at an 8.0% operating margin, and it cites component shortages in memory and custom ASIC.
- Benchmark ElectronicsNamed in the 10-K as an EMS competitor. Reported Q2 2026 revenue of $756M, up 18%, and raised FY26 to about $3B; says lead times moved from 3–5 months to 7–9 months, some 12 months, and is expanding capacity in Penang and Thailand.
- Named in the 10-K as an EMS competitor. Is spinning off its Cloud & Power Infrastructure business at 65–75% FY27 revenue growth, acquired Electrical Power Products, and holds a multi-year Google contract spanning power, thermal and compute.
- Hon Hai Precision (Foxconn)Named in the 10-K as an EMS competitor; not discussed in the source material.
- Quanta Computer Inc.Named in the 10-K as an ODM competitor; not discussed in the source material.
Supply Chain
Celestica sits between the silicon and optics suppliers and the hyperscale systems buyers, doing design and manufacturing together. Twelve neighbouring companies confirm the demand environment, but none names Celestica, so those read-throughs are triangulated rather than disclosed.
More on CLS: Earnings recap