Celestica (CLS) Q2 2025: 800G Networking Ramps 82%, Driving 20% Annual Outlook Raise
Celestica’s Q2 delivered a decisive inflection in hyperscaler networking demand, with 800G platform revenue surging and driving a substantial raise to full-year guidance. The company’s CCS segment now accounts for nearly three-quarters of total revenue, as hyperscale data center investments accelerate and next-gen AI infrastructure ramps. Management’s tone signaled confidence in capacity, program pipeline, and service expansion, while capital discipline and visibility into 2026 underpin the sustainability of this growth trajectory.
Summary
- Hyperscaler Networking Surges: 800G switch ramps and broad customer wins are reshaping Celestica’s revenue mix.
- Capacity and Execution Confidence: Management emphasized readiness to support further multi-billion-dollar growth across key geographies.
- Guidance Raised on Robust Pipeline: Upward revision to annual outlook reflects durable demand and expanding program breadth.
Performance Analysis
Celestica’s second quarter marked a structural step-up in growth, with total revenue up 21% year-over-year, outpacing guidance and fueled by hyperscaler demand for next-generation networking. The Communications and Cloud Solutions (CCS) segment, now 72% of company revenue, saw a striking 28% increase, driven by 800G switch programs and persistent strength in 400G. Notably, HPS (High Performance Solutions) networking revenue soared 82% and now comprises 43% of the company’s top line, reflecting Celestica’s deepening penetration with major cloud customers.
Adjusted operating margin reached a record 7.4%, expanding 110 basis points, as both CCS and Advanced Technology Solutions (ATS) segments contributed to profitability gains. ATS, representing 28% of revenue, grew 7% with improved industrial and capital equipment demand, though A&D (Aerospace & Defense) revenue was impacted by the exit of a margin-dilutive program. Free cash flow generation remained robust, supporting $40 million in buybacks and maintaining a strong liquidity position. Inventory and capital expenditures ticked higher to support growth, but working capital discipline and cash conversion remained a highlight.
- Networking Mix Shift: 800G now matches 400G in volume, with 800G expected to accelerate further in the back half.
- Enterprise Transition: Enterprise segment down 37% YoY, but next-gen AI/ML compute ramps in Q3, setting up a rebound.
- Capital Allocation: CapEx and share repurchases remain disciplined, with capacity investments targeted to high-demand regions.
Celestica’s results underscore a business model now tightly coupled to secular AI and cloud infrastructure investment, with margin and cash metrics tracking well above historical levels.
Executive Commentary
"Our CCS segment continues to experience very strong growth, driven by the demand for networking products from our hyperscale customers as they pursue significant expansions of their data center infrastructure to support new AI applications."
Rob Myonis, President and Chief Executive Officer
"Our second quarter adjusted operating margin was 7.4%, up 110 basis points, driven by higher margin across both our CCS and ATS segments."
Mandeep Chawla, Chief Financial Officer
Strategic Positioning
1. Hyperscaler Breadth and Platform Wins
Celestica’s 800G networking ramp has extended to all major hyperscaler customers, with management confirming that every 400G customer has transitioned to 800G, and that market share is even higher in the new generation. The company’s design-in success and early wins have positioned it as a strategic supplier for both current and next-gen (1.6T) platforms, with multiple programs set to generate revenue in late 2026 and beyond. This breadth is a critical differentiator as cloud providers race to deploy AI-optimized networks.
2. Capacity Readiness and Global Footprint
Management highlighted ample capacity to support $3-4 billion in additional revenue, underpinned by recent expansions in Thailand, Mexico, and Richardson, Texas. The company’s campus strategy enables rapid scaling within existing sites, and CapEx is being tightly focused on high-demand geographies. This global manufacturing network, spanning 16 countries, is a core lever in winning new business and supporting customer localization needs.
3. Service Expansion and Margin Leverage
Vertical integration into services is emerging as a future growth and margin driver, with Celestica’s NCS Global acquisition providing a foundation for broader offerings. Management signaled intent to expand services both organically and via M&A, particularly as the digital native win for full orchestrated AI racks opens doors for higher-value, recurring revenue streams. Service margins are expected to exceed company averages once scaled.
4. Capital Discipline and Cash Generation
Despite rapid growth, Celestica continues to deliver positive free cash flow each quarter for over five years, and raised its 2025 target to $400 million. CapEx intensity remains in the 1.5%-2% range, with only a minority allocated to maintenance. This discipline underpins both growth investments and opportunistic share buybacks, while maintaining a sub-1x leverage ratio and robust liquidity.
5. Pipeline Depth and Next-Gen Program Visibility
The company’s pipeline includes further expansion with existing hyperscalers, new digital natives, and broadening into AI compute, storage, and rack integration. Recent wins in full rack orchestration and proof-of-concept engagements position Celestica to capture incremental share as the ecosystem evolves. The upcoming ramp of 1.6T programs and next-gen silicon (Tomahawk 6) offers additional medium-term upside.
Key Considerations
Celestica’s Q2 results and guidance raise reflect a business at the intersection of AI infrastructure buildout and disciplined operational execution. Investors should weigh the following:
- Networking Momentum: 800G and 400G demand remain strong, with 800G volumes now at parity and set to outpace in H2.
- Enterprise Segment Recovery: AI/ML compute ramps are expected to restore enterprise growth by Q4, offsetting tech transition headwinds.
- ATS Steady, Margin Focused: ATS growth is muted by the exit of a margin-dilutive A&D program, but profitability is improving and industrial demand is stable.
- Services as Future Lever: Service expansion is underway, but material financial impact will emerge as digital native and rack programs scale.
- Capital Flexibility: Ample liquidity and disciplined CapEx enable Celestica to respond to upside demand scenarios without overextending balance sheet risk.
Risks
Key risks include potential volatility in hyperscaler demand, particularly if AI investment cycles pause or shift. Tariff and trade policy remain wildcards, though Celestica’s exposure is currently mitigated by customer pass-throughs and exemptions. Supply chain disruptions, silicon availability, and competitive pricing pressures could impact margin or growth. The transition to next-gen platforms introduces timing risk, while enterprise recovery is contingent on successful AI/ML program ramps.
Forward Outlook
For Q3 2025, Celestica guided to:
- Revenue of $2.875 to $3.125 billion, up 20% at midpoint
- Adjusted EPS of $1.37 to $1.53, up 39% at midpoint
For full-year 2025, management raised guidance:
- Revenue of $11.55 billion (20% YoY growth)
- Adjusted EPS of $5.50 (42% YoY growth)
- Free cash flow of $400 million
Management highlighted:
- Continued strength in CCS, with 800G and AI/ML compute ramps as drivers
- ATS expected to remain flat YoY, but margin improvement continues
Takeaways
Celestica’s results confirm the company as a key beneficiary of the AI-driven data center cycle, with structural growth in networking and compute programs. Capacity, capital discipline, and a robust pipeline support the sustainability of this trajectory.
- Networking Platform Shift: 800G and next-gen wins drive mix, margin, and revenue upside, with hyperscaler breadth expanding.
- Strategic Flexibility: Global campus footprint, disciplined CapEx, and strong cash flow provide resilience to demand shifts and enable opportunistic investment.
- Watch for Services and Next-Gen Ramps: Service expansion and 1.6T/AI compute programs are the next catalysts for margin and revenue growth into 2026.
Conclusion
Celestica’s Q2 marks a pivotal acceleration in AI infrastructure alignment, with hyperscaler networking demand, robust execution, and a raised outlook positioning the company for continued growth. Investors should monitor the pace of service expansion and next-gen platform adoption as the next phase of value creation unfolds.
Industry Read-Through
Celestica’s results reinforce the magnitude and durability of the hyperscaler AI infrastructure cycle, with networking and compute hardware demand showing no signs of abating. Suppliers with global manufacturing reach and design-in success are best positioned to capture share as cloud providers accelerate both 800G and 1.6T deployments. The transition to full rack solutions and services signals a broader industry shift toward integrated, higher-margin offerings. Competitors lacking scale or breadth may face increasing margin and share pressure as the market consolidates around a few strategic partners. End-market cyclicality remains a risk, but secular AI and cloud trends continue to drive industry-wide investment.