Flex (FLEX) Q1 FY27 earnings call: guidance and Q&A

Why did CPI segment operating margin dip sequentially, and what are the growth drivers for margins in power and compute, especially given investments and potential lower margins for some AI projects?

Revathi stated that CPI margins are on track with guidance, expecting at least 100 basis points improvement year-over-year for the full fiscal year. She explained that the power business requires investment due to its 70%+ growth, while compute margins fluctuate with new program ramps but typically mature well. The current performance is in line with expectations for the quarter and year.

“I would say that margins in CPI is pretty much in track with the guidance we gave for the quarter and the year. We said that in the CPI segment that the revenue is kind of back half loaded. We have been making investments in that. And then we also said that we expect to have at least 100 basis points improvement in margin in the CPI segment for the year from a year-over-year perspective and we're on track with that.”

asked by Ruplu Bhattacharya · answered by Revathi Advaithi

Are you satisfied with the product portfolio in the Regulated Manufacturing Solutions (RMS) and Integrated Technology Solutions (ITS) segments, or is there potential for further pruning and optimization, especially with a focus on longer lifecycle, higher-margin segments?

Kevin expressed satisfaction with the current portfolio, stating that the strategy is to emphasize high-value growth markets tied to long-term secular trends within both RMS and ITS. He noted that portfolio optimization is an ongoing process, and the strategic clarity from the spin-off allows for greater focus on these high-value markets.

“I'd say we're absolutely happy with where we're starting from in the business. And if you might recall, our strategy going forward will be to continue to emphasize the high-value growth markets that are tied to these longer-term secular trends.”

asked by Ruplu Bhattacharya · answered by Kevin Krumm

The full-year CPI guidance implies significant 2H acceleration (closer to 100% growth). What is the visibility into this acceleration, and how has the view for CPI growth into FY28 (over 80%) changed?

Kevin confirmed the directional ramp for CPI through the year, with strong growth expected in the back half. He stated that visibility remains strong, with over 90% of business booked for the next three quarters. For FY28, the previously offered framework (over 80% growth) still holds, supported by current CapEx investments and robust visibility.

“From a CPI perspective, yes, directionally, the ramp that you were referring to is what's going to happen as we move through the year. So we started at 35% in Q1. We're guiding to 45% to 55% in Q2 and then still the 65% to 75% for the full year. So certainly, strong growth in the back half of the year, as you referenced, I would say from a visibility standpoint, we've talked about our demand see through in this business, and it remains strong. We're still at that 90% plus booked business at this point for the next 3 quarters.”

asked by Mark Delaney · answered by Kevin Krumm

Can you provide more detail on the size of the liquid cooling market for Flex and the traction seen in areas like cold plates and CDUs?

Revathi noted that the liquid cooling market is growing well, with increasing replacement of air cooling. The JetCool acquisition provided cold plate capability, and Flex is developing and qualifying CDUs with customers. She emphasized that cooling is still nascent but will be a very important part of CPI's overall growth strategy within the Cloud segment, expressing bullishness despite ongoing scaling work.

“I'd say our acquisition with JetCool really got some cold plate capability as to industry-leading cold plate capability, and then we had to develop and introduce CDUs into the market. So we're in the process of qualifying those products with the written customers to scale that business up.”

asked by Mark Delaney · answered by Revathi Advaithi

Can you provide color on the visibility and sustainability of the strong performance in the communications business, and how broad-based is it across the customer base?

Michael explained that the advanced networking business within Communications is a high-value growth market, positively influenced by data center pull-through. He noted it's broad-based, covering high-speed switches, optical switches, and network interface cards, driven by both ongoing demand from existing customers and share gains. Revathi added that its durability extends into FY28 due to its relation to AI infrastructure spending.

“Yes, we've identified within our Communications business that our advanced networking business, in particular, is one of those high-value growth markets that we expect to drive growth over a sustained period in our business. And that's being positively influenced by pull-through demand from the data center.”

asked by Timothy Long · answered by Kevin Krumm

What is the updated perspective on the transition to high voltage (400V/800V), and are there any risks of delays or push-outs that could impact CPI guidance, especially for FY28?

Revathi stated confidence in the progress on 400V and 800V programs, seeing no major limitations to the FY27 and FY28 guidance. She acknowledged component constraint conversations but affirmed they are planned for, suggesting potential upside. Flex is considered a leader in this technology transition, and the pace of customer deployment is going well.

“I would say first is on 400 volt, which is kind of the immediate programs that we are working on, followed by 800 volt. We feel very good about the progress on those programs. I don't see any major limitations at least to the guide we have given for '27 and '28. We feel pretty good about that guide.”

asked by Luke Junk · answered by Revathi Advaithi

Can you provide a deep dive into the industrial strength, distinguishing how much is cyclical versus secular, and what Flex is doing to address this demand?

Michael clarified that the industrial strength is primarily secular. He highlighted energy infrastructure (power generation, transmission, distribution, storage) driven by data center and utility demand, and robotics/warehouse automation driven by regionalization, wage inflation, labor scarcity, and productivity needs. Both are considered high-value growth markets tied to long-term secular trends.

“I'd say when you think about our Industrial business, that's been identified as one of the business units that will be really containing multiple high-value markets that will be our growth focus going forward. Within that group, you have 2 different markets that I'd like to point out. The first one is around energy infrastructure.”

asked by Steven Fox · answered by Michael Hartung

Given other EMS companies are expanding into similar data center services, what differentiates Flex, particularly regarding its unified power, cooling, and compute portfolio, and how many engagements involve this full suite?

Revathi emphasized Flex's differentiation through true IP and product capability in its power and cooling businesses, enabling integrated design for 400V/800V and future solid-state technologies. She highlighted the ability to lead technology conversations with hyperscalers on next-generation silicon, power, and cooling. While not every engagement is for the full suite, the focus is on designing integrated solutions and leading the technology discussion.

“So I would say where I see the differentiation is we are an electrical player with true product capability, cooling player with true product capability and then integrated design capability, including all of compute integration. I would say I haven't seen anybody just have that capability yet.”

asked by Steven Barger · answered by Revathi Advaithi