Oh, great. Good afternoon, everyone. Thank you for being here. The next fireside chat I'm hosting is with Flex, and I have the pleasure of hosting Revathi Advaithi, who's the CEO of the company, Michael Hartung, who's Chief Commercial Officer, and Kevin Krumm, who's CFO. Thank you all for being here at the conference. Thank you for taking the time. A lot of news over the last what? two weeks, three weeks? I can't remember now, but a lot of things to talk about. Revathi, maybe starting with you. You've been at Flex for seven years, a tenure within which This is now the second spin-off that you're announcing. First Nextracker, then the CPI segment—it's tough not to notice a trend and a playbook here. Can you just talk about the rationale and sort of how strategically you're thinking about things?
I'll just say, Samik, you know, when I started with Flex seven years ago, we thought about the business in terms of opportunities for improvement. One, in terms of mix and portfolio, two, in terms of productivity to improve kind of the financial returns. When we looked at the mix and portfolio, it was everything from what do we stop doing, what do we spin out, and what do we invest in? All of those categories of thinking. What do we stop doing? You saw a lot of things we stopped doing. We exited many consumer end markets. What we spun out, we did the Nextracker spin, which turned out to be very successful at a $17 billion market cap today.
What we do more of, we doubled down on a few areas and said that there were a few areas where we felt like we could reinvest more into, which created the whole focus around compute and power for the chip itself, we started investing in power, distributed power all the way to utilities. We ended up building this portfolio, which is around the thermal architecture of the data center itself but now goes all the way to utilities. We've been working on this for a few years, well before the ChatGPT moment became a thing, now that business is sizable in terms of scale.
The why now? question is because we have one, we have a sizable business, a business that is growing very rapidly that requires a certain capital framework, and we also felt like we weren't deploying enough capital to parts of Flex that we could have been investing in, but we were driving money towards the highest return. It felt like the moment was perfect to really have two management teams focused on two businesses with different growth elements altogether and also have a capital allocation framework that creates two very successful businesses. We have a history of doing this well, and we're in a fortunate position to be able to do this now, I would say, in terms of timing for growth.
We're also very excited about what remains with Flex and then the opportunities for that that I couldn't get to over the last five or six years. I think that's the thesis of why. We know how to do spins. We've done it well.
No. Sure. Should investors expect this playbook to continue? Like when we look at SpinCo, which you'll be the CEO of, is there an opportunity there further down the line? Similarly for Michael, maybe the question is for RemainCo as well. You have a diversified portfolio of end markets that you're addressing. Is there an opportunity that you see to continue the playbook?
SpinCo is an easier answer. The playbook's gonna be very different. We are creating an industrial company, right? That will be looked at and invested in as an industrial company lens, right? First , we have built this thermal architecture for data centers end -to-end, but we are also investing all the way into the grid, into utilities. Our focus and our investments are going to be to continue to build into this electrical infrastructure that we've been doing, into the cooling infrastructure that we're building on, and then really diversify the portfolio into different parts of the utility spend that's going to come at some point as the compute spend kind of modulates.
Then, the view shouldn't be Is there a next spin coming? I would say the view should be How do we continue to create a diversified industrial playbook? I'll just remind you, with the growth rates we've talked about, you know, 70% and 80%, it's going to be a fairly sizable business. It's going to be one of the biggest electrical businesses in the industry in the next couple of years. It'll be all about diversification of portfolio that we'll focus on for SpinCo, RemainCo.
Yeah. From a Flex standpoint, keep in mind, even post-spin, Flex will be a +$22 billion manufacturing and services platform that'll still be operating at a global scale and still be servicing diversified end markets, right? We'll have our healthcare business, our industrial business, automotive, communications, and lifestyle businesses. Still a significant company post-spin. I'd say the other point is we'll execute the same playbook we've been executing for the past five, six, seven years. When I think about the playbook that you mentioned earlier, I think about it through three different lenses potentially. You know, one of those lenses is through financial rigor. This isn't a company that chases revenue. We're a company that really strives to generate high -quality earnings that maximize our cash position, and then we want to underpin that with margin improvement.
That margin improvement has also been very methodical. It's come from things like productivity and portfolio mix that you've seen from the company, you know, very consistently. The third piece of that, though, is probably the one that's most germane to the question that you asked.
We have always deployed capital to the highest opportunities, wherever we could get the highest return. Up to this point in time, that has been the data center. Mission accomplished. We've done that to the degree to which we created this moment in time, and we now have a platform from which to build the company going forward. I'd say one of the takeaways from that should be, first, we have a platform that's able to identify those opportunities. We have a management team that's shown a willingness to decide to execute on those opportunities, and we have no shortage of growth markets to pursue if that next event should come to be.
Okay. Great. Maybe starting with SpinCo, can you talk about the synergies between the power and the compute and cooling segments that you have within that? When you think about, like, customers that you're going to, are you seeing synergies in the sales motion already on that front?
Yeah. I'd say, Samik, you know, like I said, we started investing in this business because we realized that we had a small business that Flex had bought from Ericsson many years ago that built power that powered the chip. We started investing in it. We knew we did compute integration. Then we're bringing those together, right? We had a view that compute is going to get power -intensive. Let's figure this out. ChatGPT happens. Then, of course, the computer gets power -intensive. You know, I've been in this energy space for what? 20 years now. I've seen every cycle of data centers and utilities there is to see. Within our end customers, we knew that the way they were developing their IT infrastructure was separate from power infrastructure and from cooling infrastructure.
It was very, very diverse within our end customers, and at some point it would all have to come together. We started talking to them that way, bringing our teams together and really approaching the customers in terms of let's work on this as an integrated architecture. For our customers, data center customers, first , we want to be with hyperscalers, we want to be with colos, we want to be with neoclouds, and we want to be with silicon providers. With all of them, we want to sell all the individual components. We want to sell the mechanical cutting metal, we want computer integration, we want to sell cooling, CDUs, or cold plates. We want to sell power pods or custom power. We want to sell, you know, switchgear or a fully integrated pod.
At the same time, we want to help them build this thermal architecture that is coming together more and more and more, and we are seeing that getting deployed. There are synergies in terms of technology development, and there are synergies in terms of speed to market. If you bring a good old-fashioned industrial company together with Flex's capability for scale and speed, that's what you get with a SpinCo, and that's what we're deploying now, and customers really want that.
Sure. Maybe on the growth forecast that you're providing now, along with the announcement of the spin, 65%-75% for FY 2027, +80% for FY 2028, is that driven by what backlog you already have visibility into? Or maybe just more broadly, what are you using to drive your confidence into that acceleration? How much of that is booked already versus business that you have in the pipeline that you know you need to go out and book?
Yeah. We guided it because we have good confidence in our ability to deliver against it. We've said that most of that for FY 2027 is booked. We said about 90% of that is booked. For FY 2028, you talked about the growth rate. It was 65%-75% growth in FY 2027 and 80% or more in FY 2028. As we look into FY 2028, we have line of sight to about 70%. Those are awarded programs, in programs where we have that demand see-through and we can understand what the customer needs.
Okay. Interesting. Okay, got it. It's been some time since you, I think, announced last year this: the partnership with Amazon is the one I'm referring to. How did that influence the outlook that you're providing for the CPI segment? How does that feed into the confidence that you have?
I would say the partnership or the warrant arrangement that we have with Amazon, first, when you look at it, has done what we wanted it to do. It's given great incentives for us to grow with them and for them to grow with us, and it's been mutually beneficial. When you look across the segments that we currently operate under, the three segments of which two are staying with Flex, they've all benefited from them. As we go forward, we would expect those businesses to benefit from it too. Of course, it's incorporated into our guidance, you know, for FY 2027 and FY 2028, because we expect to continue to work with them and those businesses to accrue the benefits of that.
Okay. Okay. Maybe on power, just for investors, how are you looking at the competitive landscape, and what's the differentiation that Flex brings? I mean, I get that demand's quite strong at this point, as you start to look at where you're compared as a place, how do you differentiate in that more?
Yeah. If you look at the power space, right, which I know really well, I would say if you look at the traditional kind of electrical players, all the usual names that you know, I'd say the places that we're all placed in are the same places, we probably provide switchgear components that go with switchgear, the power pods associated with it, mainly in the distributed power space. I would say in that, kind of, we all are pretty evenly spaced in terms of what we can deploy and deliver. Again, when you're looking for speed of execution and scale of execution, then Flex is good at that. I'd say on the cooling side, you know, everybody has different capabilities or they're buying into different capabilities, just like we have cold plates and CDUs.
There are multiple players who can deploy that. I would say the thing we have is we do have embedded power, which is where we started the whole business, and traditional electrical players may not have the same scale and capability in that space today, and we may be competing with a different set of players altogether. You know, they're all trying to approach the compute integration space with this idea of this thermal architecture, like I talked about, where we have a tremendous amount of scale. If you think about kind of traditional electrical players and where we are, we get to build this electrical infrastructure at a time when the electrical business is seeing the biggest technology shift it's ever seen in its lifetime without the baggage of existing products that could get disrupted in this technology play that's happening.
I would say we come at it from a very unique angle. We have built it from scratch. It's a fairly sizable business. It's growing rapidly. Like I said, we'll be one of the largest electrical players here in a few years. Our differentiation is being able to do everything in this thermal architecture envelope, which I would say we're uniquely qualified to do .
Oh. Revathi, a lot of the conversation recently with investors has been about the transition to 800-volt racks. I mean, how does that influence again the content that you see from the power segment within a data center?
Power is going through tremendous transition, coming from power density and power efficiency that the data centers are driving. You've gone from having power shelves that were powering the chip itself to now having fully integrated 1MW racks. We're going from that to having the conversation about 400 volt, 800 volt architecture to drive power efficiency. We are going from that to a potentially solid-state transformer conversation, which will drive a further pretty significant change in terms of electrical infrastructure. The good news is I've been doing this for 20 years, and a lot of these conversations haven't matured, and now they're maturing because we cannot continue the way we are with the amount of power that computers are going to need without fundamentally changing how power is applied and supplied.
That means that 4000- volt and 800-volt conversations are very mature. We have programs that are getting launched as we speak. Solid-state transformers are also very relevant conversations, and we're all developing products, many people are. That'll take a little longer to mature as the industry migrates to a common solution and standards evolve and things like that. The only thing I'll say is, as everyone gets super excited about the 800- volt conversation, the thing to remember is it's not just lett's supply a product and leave it there. Electricity has a lot of safety and regulatory environments. It changes the envelope around it. A lot of work has to happen not just with the product but with the infrastructure, the training, and the labor availability around that. You have to get ready for that also, which requires some work.
We are quite mature in a lot of these programs that we're working on and getting ready to deploy.
Maybe just to help and sort of quantify the trajectory here that we all sort of now track, given where the environment we're in is and what hyperscaler CapEx growth is, right? When you think about power and the growth outlook for power over the medium term, how would you compare that to the CapEx envelope growth? Like, is power going to exceed that because of the criticality of power? Or how are you thinking about power growth rate to hyperscaler CapEx growth?
Yeah. We've talked about our growth rates earlier on here, where FY 2027 for CPI segment is 65%-75%, in that we would expect power to be a little above that. You can say 75% or higher next year. As we go into the following year, we've said that our growth rate, we expect 80%, and we would expect power to be around there. Yeah, we expect good growth in power in that, you know, 70% or more over the next couple years.
Then, Samik, the question is related to hyperscalers' CapEx. You know, $750 billion with the four hyperscalers getting deployed. If you unpeel that onion within the CapEx getting deployed by each one, you would see that it migrates, right? Sometimes it is very compute -heavy.
Right.
Sometimes it's very power -heavy. It migrates within that envelope, and I'd expect we will migrate within that maybe a couple of years behind or forward, right? Lot of investments are going on right now just for capacity and compute integration. There's a lot of CapEx going into developing the 400 volt, 800 volt architecture, which won't be seen in play till another one or two years. I would say that we'll mirror it, but not like for like. There will be some time lag plus or minus that.
Okay. Margins in the power business, you've outlined mid-teens. We look at some of your competitors like Delta, they appear to have higher margins. Is that just a function of scale, or what would it take for the power business to have higher margins over time?
I would say today it's largely a function of, one, the investments that we've put into that business over the last couple years and, you know, to a certain extent , what we'll be investing in in FY 2027. Then it's to a function of scale and continuing to push volume against those investments that we've made. We, our target , are to be at the, you know, same level as our industry peer set. That's our expectation.
Okay. Yeah, great. Last one on Power. I think you've generally sort of outlined to investors the critical Power part and the embedded Power part. As you're sort of outlining these growth targets for Power, do you envision critical Power and embedded Power both having roughly similar growth rates? Are there differences between the two in terms of either, again, from a timing perspective, how they play out?
Kevin?
Yeah, I would say largely we have the same expectation between both of them from a growth rate standpoint. As Revathi said earlier, you know, demand comes in one year, you may see one grow faster than the other, but over time, we, you know, we would expect them both to grow commensurate to each other.
Okay. Okay, great. Maybe, just to move to some questions on the RemainCo side as well and on the Regulated Manufacturing Solutions and ITS. Maybe Michael, first for you, how would you position that business to investors at one point as a standalone company in the future? How should you think about that business being positioned? Like, if you had to give an earnings algorithm of how that investor should think about it, what would be that framework?
Well, the first thing I would hope is that investors would think about Flex in the future, much like they've thought about Flex for the past five, six, seven years. Even post-spin, as I mentioned earlier, Flex will still be a $22 billion manufacturing and services platform operating at a global scale, servicing diversified end markets, so it's still a very substantial company in that regard. The playbook we've mentioned, the playbook that's underpinned with the same financial rigor that we've seen, focuses on earnings, focuses on cash, focuses on margin, and focuses on portfolio optimization. I think the real exciting part of the business going forward is that we'll have an opportunity to deploy capital to different growth markets. Those growth markets that we think we have an opportunity to really expand in are all tied to these longer -term secular trends.
From a healthcare perspective, you know, if you think about the aging population and the increasing prevalence of chronic disease, our medical devices business and our drug delivery business are really well-positioned for long-term growth. When you think about industry and our industrial business, you've often talked about the geopolitical situation that we're in driving regionalization. Well, it just so happens that many of those regions aren't ready for regionalization, so they're facing things like labor scarcity and wage inflation as they ramp production, which leads perfectly into our robotics and our warehouse automation solutions. Again, these are long-term trends. Within communications, there's a lot of talk about the consumer's desire for ongoing reliable communications regardless of where they might be on the planet, and our satellite communications business is one of our fastest -growing growth markets in the business.
I would also point out that in addition to those, some of those traditional markets will still maintain a significant exposure to the data center. For instance, when you think about our networking business, that all stays within Flex. Our switch business, our optical business, our network interface cards—that whole secure communications environment remains inside of Flex. We talked a lot about SpinCo and really focusing on our product portfolio in Power. We'll continue a contract manufacturing focus in Flex on power generation, transmission, distribution, storage, and all those things that really make up that energy infrastructure. The third piece is all those semiconductors that are needed for computation have to be assembled and tested by the same capital equipment that we also manufacture.
I think there are some exciting opportunities to actually have this clarity around which growth markets will now be the new destination for capital, much like data centers have been for the past five years or so.
Yeah. Most of these growth areas for RemainCo, are these going to be higher margin, so you're looking at the similar playbook as you've implemented with Flex as well?
Absolutely. The way I would think about it is through two different things. One is on the base business. Even with the business we have, there's still opportunity to further optimize the base business. You know, what was the middle of the portfolio becomes the bottom of the portfolio over time as we continue to mix it up. Still opportunity to improve the base. We've always said we're going to lean in on high-value markets and de-emphasize low-value markets. Each one of those growth markets that I mentioned earlier is a higher-value market that should enable that transformation to continue.
Got it. Great. I mean, on that front, you talked about the investments, the focus of investments being in these high-growth areas. How do you think about capital allocation from an M&A perspective? As you sort of prune some of the lower -margin businesses, do you see an opportunity to acquire and build your capabilities in the higher -growth areas?
I think the benefit of the financial rigor that we have in the playbook is that we have options on what to do with the capital that we create. We'll always prioritize investing in very good, solid growth opportunities, as a matter of fact. Then with those types of things, we'll focus on markets that create those high-value market opportunities. It could be in markets that we already have, but it might be in markets that we don't have yet. If you think about what we've done successfully over the past few years , we acquired and spun off Nextracker. We acquired our Power businesses, combined that with existing capabilities, and spun that company as well.
When you think about what's to come, you can think about not only investing in the markets that we have today, but also investing in markets that aren't yet part of the portfolio that we could combine in a fashion that you've seen here recently. Without that, you would still have to underpin that with, we'll continue to invest in high-value markets and deploy capital accordingly.
Got it. Got it. Maybe moving to broader questions that we've got from investors about the combined business here. Kevin, for you, how is debt planned to be allocated between SpinCo and RemainCo? That's come up quite a bit with investors. How are you thinking about, maybe, Michael, for you, the RemainCo stake in SpinCo?
I'll talk about capital allocation. The design of this transaction is for Flex to retain a stake in SpinCo, and what we've said is that stake will be up to 20% or not to exceed 20%. What that does is it allows us an elegant way to disentangle the capital structure and allow Flex, subsequent to the spin, to issue those shares to pay down debt, so debt -for-equity exchange. After that, you basically have two companies with very low debt in their capital structure that will then allow them to use their capital structure to go pursue growth opportunities.
Okay.
From a Flex standpoint, I think that just puts the company in a terrific position to have flexibility to do some of the things we talked about earlier, whether that's invest organically in our high-value markets or look at opportunistic M&A or provide shareholder value in some other form. It just provides us with flexibility with really low debt to do a lot of different things.
Got it. Got it. On capital investment, you are guided to a peak spend of $1.4 billion-$1.6 billion in FY 2027. Maybe just highlight for us what the focus areas of the build-out here are in terms of capital investment?
Yeah. If you step back, that guidance is about 2x what we've generally spent as a % of revenue. We're usually in that approximately +2% range. We're now going to be about 5% in FY 2027. What we've done there and what we're doing with that capital, that additional CapEx, the second 2.5%, if you will, is going to be spent to secure power, capacity, footprint, and cooling infrastructure for businesses that have been awarded to us. We're investing commensurately with businesses that have been awarded. We've already talked about it earlier in this discussion . You see that in the growth rates that we get for CPI. Looking inside of that then, the lion's share of the additional CapEx is going to CPI.
It's really focused on the cloud side of our business as well as the embedded power side of our business. Last year we talked about it. We invested in critical things. This year these investments are really focused on those two businesses inside CPI.
Of course. What drives your visibility that this is the peak CapEx year and you can get sort of moderate in CapEx in FY 2028? Especially when we think about supporting the kind of growth that you're outlining in the medium term, how do you get the visibility that this will be the peak CapEx year?
Yeah, it all boils down to customer programs that have been awarded to us and us understanding what we need to support those programs. The disclosure and the conversation all came together at the same time. That's why we disclosed the CapEx number and the growth, not just in FY 2027, but in FY 2028. With those awarded programs, we have line of sight to that demand through FY 2028. Any additional revenue beyond that would maybe come with additional CapEx. We feel pretty good about our existing CapEx investment and the revenue it's going to drive over the next couple years.
Samik, one way to think about it is, you know, there's a base investment that has to be put in for infrastructure development, like power and cooling loops that have to be built into buildings and things like that we've been doing already, but more of it is needed. Once you get to that, the CapEx intensity for subsequent growth won't be identical.
Okay.
Right. I think that also plays into how we think about it. You know, time will tell in terms of how much more we do around this. We feel good based on what we know now that we can manage it within a profile, but it's based on these kinds of assumptions we have made.
Got it. Got it. Okay. Maybe, last couple of questions on margins. You highlighted that CPI segment margins declined 100 basis points due to capacity investments you made in FY 2026. I mean, from what you're outlining, these were primarily focused on power, or maybe just flesh that out a bit. Where did you see the most amount of capacity investments, and how do we think about the return of that sort of reverting back to a normal margin post that capacity investment?
We said we ended FY 2026 at 9.2% in that we invested about 100 basis points in CPI margin. The investments were one part critical power infrastructure there and another one in the cloud. We were investing in new programs that were coming on, so program ramps and more P&L type of investments. With the growth we're seeing in FY 2027, we've said that we expect to recoup the 100 basis points in FY 2027. As we move beyond FY 2027 and FY 2028, we do expect CPI to continue to expand margins. Both on the cloud side, we have expectations that the cloud can continue to expand margins. An element of that will be writing services into our existing revenue stream there. On the power side, we would expect power to continue to expand.
We talked about it earlier. You know, there's opportunity as we scale to increase margins. There's also a mix inside of the power business that's going to drive margins as we go forward, and our target is, as we said, sort of industry benchmarks that are out there from a margin standpoint for our power business.
Any thoughts in terms of what longer -term margins for SpinCo would be?
Well, I'd have to say longer term, that depends on what the revenue stream looks like. We've talked about inside of that; we got two different profiles of margin. Our cloud business is at margins less than the current average, and we've talked a bit today about power at mid-teens plus expectations. We clearly expect the business to continue to grow the top line; we expect margins to move north. Mix will have an impact on that as you move into the years beyond FY 2028. I'd leave it at that for now. Though some of it'll be dependent on what the revenue stream looks like.
Good. I have a couple of questions, but let me check if anyone in the audience has a question. Let's just wait for the mic.
Thank you. Can you compare and contrast the power piece of your SpinCo business with Vertiv as it relates to the products and also the margins?
Yeah
as you get to the scale in a few years?
On power, what we have built on our power business is, you know, what we call embedded power, which is the power modules , and custom power, which is powering the chip itself, and then distributed power, which is all the standard stuff, which is switchgear and power pods and all that going all the way from data centers to utilities. I would say if you look at the critical power of the side of the business, you know, very similar to what somebody like Vertiv would do, we all may have different elements of it. Like, you know, they have UPSs, we don't have UPSs, things like that. I would say if you look at the cooling side of it, you know, they started their business with the Emerson cooling business, right? Floor cooling, those kinds of things.
Going into rack integrated cooling. We bought JetCool with the idea of doing cold plates and CDUs and rack -integrated cooling, we have approached it in a different way. You know, they of course don't have the embedded power side of it as deeply as we do. You know, the compute side of it, everybody seems to be migrating into because you want to put the whole thermal architecture together these days for customers, we come at that from a position of strength, right? Then, on the power side, I would say that'll be the simple way to think about the portfolio. From a margin perspective, we're a fairly new electrical business, right?
We've just started over the last few years putting a whole bunch of acquisitions together, scaling up embedded power in a time when a lot of technological shifts are happening. We have a lot of work to do there. The good news is I've been in the electrical business for a long time. I've seen it through lower than 10% margins to, you know, high teens, too. I know structurally that we have all the right elements. We just have to get through the scaling piece to get to the margin requirement that we have. Our view is we'll get to the electrical margins that our peer set is at.
Yeah, please go on.
Michael, you used this phrase: Optimize the base of the business. I didn't know if that was code for there's a healthy amount of untapped revenue inside the existing client base. If so, is there some unlock that you're progressing on to get to that?
Yeah. For more perspective, I'd say, again, a diversified portfolio. I think about the base business through a spectrum. On one end of that spectrum, you have things like healthcare and industry, which are high -value, high -growth opportunities for us. On the other end of the spectrum, we have, call it, our consumer-related businesses that have been soft for a period of time now. When you think about the middle, you have things like pieces of our communications business and pieces of our automotive business, but it's this portfolio that has this really broad spectrum. There's still opportunity in that base business to de-emphasize some of the lower -value markets, like maybe towards the high -volume, low -margin consumer area, while still growing some of those growth markets that I talked about earlier.
Those six growth markets that I identified earlier are all part of the base business today. It's not like this aspirational vision ; we have to go out and get it. It's that we're in it, we have a beachhead established, and now how fast can we grow it? That was how I was thinking about the portfolio conversation.
Okay. That's clear. I think I appreciate it.
All right. I'll wrap it up there. Thank you.
[crosstalk]