Good afternoon. I'm Samik Chatterjee, and I cover the hardware and networking companies at JPMorgan. I have the pleasure of hosting Jabil here for the next session at the Fireside Chat. With me are Mike Dastoor, who's the CEO, Matt Crowley, and Steve Borges from the company. Thank you all for taking time to come to the conference, and thank you to the audience as well. I'll start you off with a question I've been asking every company to sort of opine on, and I know it's not very company-specific, but let's sort of get your views given the amount of insights you get from customers. Clearly, a lot of macro concerns on investors' minds at this point.
Given the conversations you're having with customers, how worried are you that we potentially go into a much slower macro backdrop in the second half or a potentially recession?
I have a very different ques-answer today than I would have had last week. I think there's a lot of relief amongst customers, a lot of relief amongst all our peers and companies as well. We do think the administration's done a good job in trying to fend off a recession. There was definitely concerns, maybe, you know, two, three, four weeks ago, on a possible recession. I think the world supply chain still comes from China, so any deal that's been made with them is gonna help out considerably. I feel good about that. I think if you look at Jabil specifically, the recession fears were there, but it was more at the back of my mind. It wasn't right at the front and center.
Our well-diversified portfolio, our range of end markets that we look at, and especially in Matt's world, where a lot of the intelligent infrastructure is actually U.S.-based, and a recession would not have stopped the spending in that particular field. Steve's business had healthcare in it, and then there was digital commerce in our third segment. Different segments, different sort of recession fears, but most of them were sort of, I think we have the diversified portfolio, which would have helped us manage through a recession really well. No major fears now. I think there's always going to be changes. There's always going to be puts and takes, but I think we've fended off a big recession in my view.
Great. No, thanks for that. The unpredictability around the tariff environment, I mean, how are you navigating that? How are you sort of overall managing it day-to-day just given the amount of changes that have been happening?
Yeah, I would say that, you know, we're not seeing big movements of business from an enterprise-level standpoint. We like to, you know, the first Trump, we called Trump 1.0, we did a lot of regionalization of our supply chain and our manufacturing. A lot of what we do is in-country production for consumption in the country. Asia for Asia, China for China, Europe for Europe, etc. We're really well-positioned from that perspective. I also think that customers are being thoughtful. They see the volatility, you know, in the tariffs, and, you know, they know that it's also very expensive to move business, not just expensive to move it, but risky to move it. They are being thoughtful. We are doing what-if analysis for our customers so that they have a better understanding of what the impact could be.
At this point, we're not seeing, you know, movement of business.
Okay. I was gonna actually follow up with that because, interestingly, one of the conversations I was having with one of our covered companies, which is a hardware supplier, did mention booking business with Jabil in Mexico, as their sort of overall manufacturing footprint plan. Not saying it's as material to you as it is to them in terms of size of the business, but is there more interest in Mexico relative to all other facilities globally, or are you seeing any trends on that front?
I think, you know, with USMCA in Mexico, that's a good advantage for our customer base. Most of the business that we do there is USMCA compliant. You know, we do have available capacity. We've been running at about 75% loading, and so there's opportunities for customers to leverage that excess capacity. We've also typically, when we build a facility, greenfield a facility, we buy the associated land around that as well for potential expansion. We are seeing, as we did with Trump 1.0, opportunities for Mexico, most certainly. I would also say that even if USMCA goes away, I think it's up for renegotiation in July of next year if I have my facts right.
Even if there's a 10-15% tax, you know, tariff levied on Mexico, it still becomes, from a landed cost perspective, and that's the way you have to look at it, a highly competitive solution for our customers.
Okay. Interesting. I'm trying to compare the backdrop we have today to what we saw during COVID with the supply chain crisis, then a pull forward, and then the digestion. From your standpoint, when you're managing these businesses, how does it look different or similar to what we went through just 2020 to 2023? It feels like, at least from my standpoint, we went through a very similar dynamic. Why is this maybe even different from that?
That's a good question. I, from a supply chain standpoint, we're not seeing pull forward of demand by our customers like we may have done during the COVID time period. Again, being that we're regionalized, I think that also plays a factor in that. Now, what we are seeing is, as we evaluate the supply chains of our customers and the impact that components have on their business depending on where it's imported and who's the importer of record, you know, we are providing, you know, solutions to that by looking at alternative components, AVL components that we can change. We did the same during COVID, which provided, in the end, a much more robust supply chain when we came out of COVID for a lot of markets that struggle with alternative supply.
Part of our value add to our customer base is evaluating the challenges they have on the tariffs and giving them alternatives. From there, a lot of times they need design support to redesign the product to be able to support the alternative component. All that's incredibly valuable for us and value add that we like to provide our customers. It's pretty advantageous to us.
Got it. Got it. Maybe going back to the capacity comment that you had, can you just discuss what's your current capacity in the U.S., Mexico, and Canada, and the flexibility you have in those three, in the three geographies in terms of what you can theoretically take your capacity to?
I think if you look at the way we handle Trump 1.0, I think Steve talked about regionalization of supply chains. That's been an ongoing piece for us. A lot of the supply is localized. I think if you look at the Americas, between U.S. and Mexico, about 35-40% of our entire company's capacity is in the Americas. Today, our capacity utilization out of that is in that 75-80% range. So, ample room to grow. We've actually recently opened a facility in St. Petersburg in Florida. That entire segment took about six months to set up a factory. If we have to expand capacity in the U.S. or in Mexico, we can do that quite easily.
I think the capabilities there, we've been in the U.S. for 60 years, close to 60 years, and we've been in Mexico for close to, what, 30 years. Huge local presence. We've got thousands of employees in Mexico, thousands of employees in the U.S. as well. We have the right foundation, the right base. Then we've been sort of expanding our automation, our robotics, all the capabilities that we have going, our engineering piece, our supply chain piece. The offering that we can provide to a potential customer and existing customer to move if they want to move to the Americas is plenty.
Okay. Just given the cost of labor associated with each of these geographies, like, is there a specific area where or specific product category or overall segment that is more sort of easier to shift to the U.S. compared to if you're looking at probably Mexico? Like, are there easy ways to think about what is more likely to move to the U.S. versus Mexico?
I think price elasticity does come into play if you look at our different end markets that we serve. Healthcare, it's not as price elastic. You can increase the cost. You can pass on tariffs if you need to. The cost of moving a factory is considerably higher in the healthcare world. If you look at the consumer world, that's slightly different. Consumer business is very price elastic, and even a 10-20% increase in price will have a difference. I see the consumer piece moving first if it does and if once the tariff situation is sorted out. I think right now, there's still some uncertain parts of the whole tariff position. Customers are adopting a wait-and-see approach.
If I mentioned earlier Matt's business, the intelligent infrastructure, that entire ecosystem that we have around capital equipment, around silicon photonics, data centers, cloud infrastructure, liquid cooling, all of that mainly resides in the U.S. already. A large part of our business, in terms of end markets, is already here or can be shifted relatively easily.
Okay. Got it. Moving to maybe moving away from tariffs and into more the drivers of the business, Jabil, along with other EMS companies, has focused on improving margins over time, and largely it's come from a focus on higher margin businesses and sort of growing those, cultivating those over time. How do you think about balancing that going forward along with sort of the growth opportunities on the top line?
Sure. The way I see margin going forward and how we're focused on margin accretion, free cash flow accretion, and buybacks, the margin accretion path, today we're about 5.4%. I see a path to 6-6.5% relatively soon. It's not gonna happen tomorrow, but it's not five or ten years out, either. It's three or four main drivers and factors of that margin accretion. We've been diversifying our portfolio quite a bit, so the mix has a big impact. Our healthcare business has a different margin structure. Our digital commerce business has a different margin structure. Our silicon photonics will have a different margin structure. Your liquid cooling is different. The mix does play a path. One of our main strategies has been vertical integration.
What I mean by that is you do not go to a customer and say, "Hey, we're gonna increase your price," and that's it. It is the offering. What do you offer the customer? We're doing A, B, and C for you. We can do D, E, and F as well. One of the things we've been doing over the last few years is actually making tucking capability-driven acquisitions. We need to leverage those acquisitions to expand that end-to-end solution. The end-to-end solution always is easier for customers and is a path to higher margins. Operational efficiency is another one. We look at, especially in today's world where you have AI, machine learning, you have automation, you have robotics. If you're moving things around, you need to have some level of standardization and consistency. I expect 10-20 basis points of operational efficiencies almost every year.
That's the third path. I have to think that's better, right?
Okay. Okay. Before we move to Matt's segment and discussing AI, last couple of quarters you've been revising up the full year guide, in what is was still a very challenging macro overall. From my understanding, most of that came from more resilient cloud spending relative to intelligent infrastructure. Can you just help us think about sort of the confidence level you have in that cloud spend continuing from your cloud customers, the sustainability of the growth rates that you've seen in that segment?
Yeah. I mean, we feel very confident about the spending there. We took up the second half by $1 billion on the strength of some share that we took from competitors as well as the strength of our capital equipment business. In general, I would tell you that all of the hyperscalers just reported. None of them took down their CapEx numbers for the year. They all reaffirmed them. Everything we're hearing from the market as well as the hyperscalers is that regardless of any macro, they continue to view it as an arms race. We do not see any indication that they are going to slow down in the near term.
Okay. Matt, a lot of the concern right now from investors has moved from 2025 to what does 2026 look like? Like, are you getting any more visibility in terms of timeline from your customers on that front? Are there any early indications for 2026?
Yeah. We're actually, I mean, we get a forecast and it's as good as any forecast, and we're not getting any materially different visibility from that perspective. What I can tell you is that we are in the midst of retrofitting factories so that we'll be able to do liquid-cooled infrastructure manufacturing, which frankly is another supercycle that's about to start. Today, data centers are designed for air. Soon they will be, very soon they will be liquid to liquid. And so the manufacturing of the racks that go into those data centers has to be outfitted with liquid cooling as well. As a pretty decent indicator of where 2026 is gonna go, I can tell you that in the next quarter we will be in the midst of retrofitting our factories specifically for our hyperscale customer to accommodate liquid cooling.
Okay. Okay. Got it.
We continue to expand the capacity, particularly in that space, particularly in the U.S., so that would be a further impetus for 2026 revenue.
Got it. Got it. Okay. To break down the, I think the guidance for now, $7.5 billion of revenue in fiscal 2025, like, just maybe break that down in terms of what are the different sort of broader categories you would break that, that $7.5 billion into?
Yeah. If you just look at our Q2 call, we break it out by, so my segment reports is capital equipment, cloud, and DCI, and networking and comms. The simplest way to think about the contribution across those three sectors is that 80% of semi-cap contributes to the $7.5 billion, 80% of cloud and DCI contributes, and the remaining roughly $500 million comes from networking and comms.
Got it. Got it. The growth drivers, I think it's fair to assume DCI is the strongest growth followed by semi-cap?
Yep. Yes. Heavily weighted towards cloud, and DCI where we have a hyperscale customer. We've won our second hyperscale customer. We'll be ramping that business in 2026. It'll look something like $750 million plus, headed to $1.5 billion the following year. Heavy contribution from that business. Semi-cap remains, growth growing as well. We have a really nice portfolio in that sector. We have attached to Advantest. We have Micron as a customer where high bandwidth memory has a very heavy attached to AI. I think we're gonna see very healthy growth rates, continuing into 2026.
Got it. Got it. Okay. On the hyperscale customers that you're working with, and I know you mentioned the second hyperscale customer, but maybe help us think about the opportunity set here and how that is really stemming from the broader capabilities that you have.
Yeah. You know, we've been obviously engaged with our first hyperscale customer for roughly six years now. And we very intentfully put together a strategy to deploy capabilities that were complementary and not redundant so that we aren't going to other hyperscalers to do the exact same thing that we've done for our first hyperscaler. That includes the acquisition of Intel's transceiver business about a year and a half ago. And we did that acquisition primarily to be ready for co-packaged optics when it comes in three to five years. But what we found is a really healthy near-term business. I think today we're the fourth or fifth largest supplier of 400 gig parts. Hyperscalers still need 100, 200 gig, and 400 gig. So we have three quals currently in flight in the first half of the year on 800 gig parts.
We just announced our 1.6T transceiver at OFC. We'll begin ramping into production in the second half of this calendar year, and we will add alternative suppliers to that BOM as we get closer to the beginning of calendar 2026. On the back end, we added the acquisition of Mikros, so on-chip liquid cooling, where we've seen, and we want to sell a lot of cold plates, yes, but that's not why we did that acquisition. We did it because of the pull-through opportunity on new customers. Especially in the Ethernet switch space where a lot of customers are looking to go and enable liquid cooling for their switch gear, we've seen a lot of traction there, and we feel really good about our large metal business where we're building CDUs, we're building hose kits, we're building the rest of the infrastructure that enables liquid cooling.
We really feel strongly that that's where we're gonna see a lot of growth. Oh, by the way, those businesses will be margin accretive over time. The portfolio rounds out relatively well.
Okay. Got it. On the optics front specifically, I know you mentioned you acquired—the acquisition was meant to position you for CPO. I mean, most of the feedback I've seen from your peers as well as competitors is very favorable on the Intel IP, on the optics side. How do you envision the long-term mix in optics for you, being relative to sort of IP versus being an EMS company supporting some of the IP manufacturing for some of the other IP holders in this space?
Yeah. I mean, the strategy really is one to deploy our capabilities across anything our customer would need. So, whether we're enabling the disaggregation of the supply chain for a hyperscaler who wants to apply their procurement power and ability to allocate supply, and then re-aggregating that transceiver for them, we'll do that. We're happy to do Jabil branded transceivers. We're also happy to work with U.S. companies like the Lumentum of the world, if they have the need for added capacity. I would tell you from an IP perspective, we do right now, our 1.6T part will launch with Intel's PIC. We feel like that may very opportunistically be an advantage as there is a shortage of external lasers in the industry. Intel's PIC actually has an embedded laser as part of the foundry process.
We're ramping into a million plus units of capacity a year starting at the front end of 2026. We feel like that's gonna give us an advantage, and we're pretty bullish about where that business is going.
Got it. Got it. Okay. Let me move over to the automotive business. There it seems like given where we were sort of, before, overall before some of the exemptions on the tariffs or pauses started to come through, I mean, you still do have a bit of a headwind from the tariffs that you're dealing with for the industry as well as there's the exposure to EVs, which also has seen some pullback in terms of demand. How are you thinking over the, relative to the medium-term outlook in autos, both given price increases potentially because of tariffs as well as EVs seeing a pullback as well in terms of consumer adoption?
Yeah. We've certainly been, you know, impacted by some headwinds in automotive. Tariffs is just one of them. You have government incentives as well as long-term and short-term interest rates being higher. Those combined factors really for me and my team, it's, it's about how do we emerge from the softness to be better positioned for the future. The team's done a really nice job in that regard. I'll highlight a few areas. One in particular, as you know, we've announced in the last quarter we took our numbers down. You probably would've thought we would take 'em down even further. The team's done a nice job by adding a Chinese branded OEM company into the portfolio. We're getting good growth out of that customer. Obviously, in China, we're seeing growth of about 7% in the EV space.
That has been very valuable to help offset some of the declines elsewhere. On top of that, we've taken a look at, you know, the equipment set that's fungible and even the equipment set that's highly automated and how can we use that by partnering with our customers to use those assets in a more fruitful way. What we've done is we've been able to pivot from some of the EV aspects of the vehicle into what we call the agnostic side of the vehicle. You can think of zonal controllers, domain controllers, sensors, and very complex compute modules that require automation. We've been able to add that to the portfolio, which has helped us offset, you know, further declines as well in that particular area. Since then, just recently we've added a second OEM customer from China.
That is gonna provide dividends for us over the long term. It will not launch until late this fiscal year into next fiscal year, but positions us incredibly well when things turn around. It could be any of the catalysts that are headwinds today. You could see interest rates change, government incentives could change, and on top of that, consumer sentiment can change. You know, we are seeing a lot of increase on the battery side to where today, depending on how fast you drive, you know, it is 300 miles. What happens when it is 600-700? And how do consumers feel about buying an EV at that point? When that happens, we are gonna be better positioned than we were going into the softness. I am actually pretty excited about how the team has positioned us for that.
Okay. Relative to your largest customer there on the automotive side, I mean, there are always concerns in terms of overall further downside risk from that individual customer given how big overall to your automotive segment that is in terms of relevance. Like, how would you encourage investors to think about the downside risk to potentially the biggest customer continuing to lose share?
A couple of things. One is, you know, we took that into account when we gave our guidance, number one. Number two is that we've done a nice job, as I mentioned, diversifying our business and providing other opportunities to offset that. We also do other parts of their business as well on the power side, which is becoming a larger portion of the total, with that particular customer. I think we've done a good job kinda isolating ourselves with that customer, but then branching out further with existing customers and new customers to help de-risk, you know, that particular side of the business.
Okay. Let me just see if there are any questions in the audience.
Thank you.
Matt, it sounds like your TAM is probably fairly enormous. So how are you starting to break down who to pursue and what segments of the marketplace? And then can you also just tell us a little bit about how these contracts play out? Do they sort of, you know, start with a small bite with you first and then start to build and expand, or are they trying to sole source their way through a, a build cycle?
Yeah. I mean, we break down the marketplace. So, you know, obviously there's hyperscale and then there's cloud. So we think about the top 200 CSPs after the hyperscalers. We've got our second hyperscaler, and it is ramping into significant revenues. I would tell you that we will pursue a third. I think if you open up the aperture on what hyperscaler means and include NVIDIA, you know, they will continue to be a customer as well. But, do we really wanna have every hyperscaler as a customer, significantly? Not necessarily. Right now we're super focused on the second hyperscaler and ramping that business. We entered through silicon photonics transceivers, and we'll do about $250 million this year with them. And then we won a storage opportunity, which was architected by us from the ground up.
We'll look to leverage and continue to win business there and grow that business. I think we have plenty of opportunity to do, and to deliver more value for that customer. We're always looking at the marketplace. We've been investing heavily also in our networking, engineering, and architecture capability. What we found is that as a U.S. domiciled company right now, there is enormous value in having that capability and being able to differentiate versus the ODMs like the Quantas of the world. I think that we have a lot of opportunity and upside in that space as well. We're already seeing traction there.
Okay. Maybe if I can switch gears to the healthcare market and, the grow, like, just maybe talk about the growth opportunities you see in that market. Again, when it comes to the breadth of the capabilities you have in that market, how should we think about where you stand today and opportunities that you can expand further?
Yeah. Pretty passionate about the healthcare market. You know, we're two times the size, roughly two times the size of our nearest competitor. You know, that creates its own set of opportunities for us, but also shows the success we're having in changing patients' lives. That's pretty important to our team. When I look overall, you know, it's a highly diversified business. We're in diagnostics, pharmaceutical delivery systems, med devices, and orthopedic surgery devices as well in orthopedics. A highly diversified business. We've spent a lot of time organically growing our domain expertise in the areas of automation, injection molding, auto injectors, all very critical to the success of that business.
we've also tried to take a look at how do we, you know, kinda grow our share of wallet more exponentially so that, you know, we can achieve, instead of the market range of 4% for med device growth, overall, how do we get to 5-7%, if not more? One of the things we've been focused on is what's that share of wallet expansion? Where is the best place to go after that? How much can we do organically? How much can we do acquisitively? Recently, you saw an announcement. We acquired a company called PII Pharmaceutical International Incorporated. That provides us the capability to do aseptic filling, reagent filling for diagnostic equipment, dry dose gel packs as well. that's a nice share of wallet expansion in a market today that we don't have access to.
You know, prior we've been building auto injectors for 20 years. You know, we do half a billion auto injectors. Now I can take the auto injector and potentially fill the drug for the customer to make that more sticky, with the customer relationship. That share of wallet expansion is gonna be pretty, pretty beneficial to us as we go forward. We're gonna continue to look at, you know, acquisitions as well in that space to continue to grow, you know, organically, but also inorganically. I think we'll see it be pretty aggressive in that space.
Okay. I mean, any way to quantify if you had to sort of put numbers in relation to what that industry, underlying industry grows at and what your healthcare business?
You know, our expectation to grow to in the 5-7% range overall.
Okay.
Yeah.
On the semi-cap side, I mean, I know you had a good quarter on that front, but some companies that we talked to have already started to highlight that customers are evaluating capital expenditure decisions a bit more closely. Are you seeing any signs of that in your business? Is it very customer specific that your growth outlook is driven by your specific customers doing very well rather than the industry?
Yeah. I think, more than most, having the right customers in the semi-cap space is important. And we happen to have the right customers. On the ATE side, we've seen significant growth beyond expectations. That's because there's a large attach rate to NVIDIA, Blackwell. I think, you know, if you just think about some of the challenges that have been kinda messaged in the industry around getting Blackwell out, having more tester capacity has allowed them to get from wafer to chip. More chips are bidding out. I also think that there was potentially an undercalling of the capacity required. As we move into Rubin, while I don't know that there will be the same exact need from a tester perspective, I don't anticipate that there's gonna be a trough. They don't usually make the same mistakes twice.
I think ATE could be seeing something that looks like a new normal potentially. On the WFE side, still do not see clear signs of the cyclical recovery that you typically see in that industry. I do think it looks like it is going to come in the next 12 months. Right now we are working on trying to zero in on exactly which quarter that is going to be.
Okay. Got it. Again, moving sort of to the other segment here, networking and comms, maybe if you can sort of flesh out what the underlying trends look like because you've been going through a bit more of a slower patch just given some of the low margin businesses you're exiting. What does the underlying growth outlook there look like at this time?
Yeah. I mean, I, so, you know, Ethernet has definitely got plenty of traction. You know, we've had the 5G space has been bouncing around the bottom. It continues to bounce around the bottom. I don't see any clear indication that that's changing significantly in the near term. Certainly where we have Ethernet customers, things are looking very favorable there. The Mikros acquisition that we did for on-chip liquid cooling has given us a strategic advantage with those customers. All of them are moving to a liquid-cooled version of their switch, which is gonna be a hard requirement as data centers move to liquid-cooled design data centers. And so, you know, we've exited a customer in that space. That's why you see a little bit of the trough that we're coming out of now.
All in all, we think that there is end market tailwind specifically around Ethernet, and we're in a good position to serve it.
Got it. Okay. The last one on that front, digital commerce. I think you've highlighted that you're seeing positive trends there, but maybe talk about the drivers on that front and how influenced will those be by the macro?
If you think of digital commerce, whether it's digital commerce in the warehouse, whether it's in the aisle, whether it's on the shelf, or even at checkout, there's different aspects where we participate. We've made really good headway in the largest brick and mortar retailer, indirectly, and then the largest online retailer as well directly. Lots of automation in terms of automated HTVs, automated warehousing where it's not manned at all. The automatic robots moving around, changing of labels on the shelves, digital labeling, restocking, all of that takes place in that digital commerce world. I think the progress we're making there, it's still relatively small numbers.
I think the overall digital commerce in that $2 billion-$2.5 billion range, but that will continue to grow in the future as more retailers adopt that particular strategy.
Got it. Okay. So maybe just, last couple of questions. One, you did talk about initially in your remarks a 6% margin or a 6.5% is possible. So maybe talk to us about the drivers. Like, what do you need in terms of revenue scale to get to 6%? What do you need in terms of revenue scale to get 6.5%? And is it really a function of revenue and operating leverage, or do you see certain mixed changes that get you there as well?
It is not about revenue. We are not the, I earlier said my focus area is margin accretion, free cash flow accretion. It is all about mix. Let us get the mix right. I think Steve gave examples on vertical integration. Matt talked about liquid cooling. Again, another vertical integration play. Operational efficiencies, I mentioned that earlier today. We have mentioned this on our calls. Our capacity utilization is at around 75%. Normally it is about 85%. So there is a little bit of a gap between where we normally stand and where we are today. As that capacity starts getting utilized or starts coming online, that margin goes up as well. In Matt's business, we have had a number of wins. Revenue has grown quite a bit. Each win comes with some level of ramp costs. That is all included in our guidance.
That's all, that's all part of it. If you can imagine on the other side of it, I think that's how, if you take 10, 20 basis points on each of the items that I talked about, the path to 6.5% is not very far.
Got it. Got it. I will, yeah. I'll wrap it up there just given that we are getting close to time here. Thank you for coming to the conference and thank you to the audience as well.
Yeah. Thank you.
Thank you.