Celestica (CLS) Q3 2025: CCS Revenue Soars 43% as 800G Ramp Drives Multi-Year Growth Visibility
Celestica’s Q3 revealed a decisive inflection in its business mix, with hyperscaler-fueled demand for advanced networking solutions driving record financial performance and a raised full-year outlook. The company’s strategic pivot toward high-complexity, AI-centric platform solutions is now translating into sustained operating leverage and durable margin expansion. With robust customer commitments and capacity expansion underway, Celestica’s outlook signals a multi-year runway for growth, but concentration risk and capital intensity remain key watchpoints.
Summary
- AI Data Center Tailwind: Hyperscaler demand for 800G and 1.6T networking drives Celestica’s business mix shift.
- Margin Expansion Momentum: Operating leverage and portfolio reshaping fuel record profitability and capital discipline.
- Multi-Year Growth Visibility: Capacity expansion and customer awards underpin confidence through 2027 and beyond.
Performance Analysis
Celestica delivered a standout Q3, with total revenue rising 28% year-over-year to $3.19 billion, driven by a 43% surge in its Connectivity and Cloud Solutions (CCS) segment, which now accounts for 76% of total revenue. The CCS business benefited from hyperscaler demand, particularly for data center networking and the ramp of 800G switch programs, resulting in communications end-market revenue climbing 82% and HPS (High Performance Solutions) revenue up 79%. In contrast, the Advanced Technology Solutions (ATS) segment, representing 24% of revenue, declined 4% due to ongoing portfolio reshaping in aerospace and defense (A&D).
Profitability reached new highs, with non-GAAP operating margin of 7.6% and adjusted EPS up 52%. Gross margin improved by 100 basis points to 11.7%, reflecting favorable mix and scale. Free cash flow generation remained robust, supporting ongoing capital investments and opportunistic buybacks. Inventory increased to $2.05 billion, reflecting both higher volumes and preparation for upcoming program ramps, while working capital discipline kept cash cycle days steady.
- CCS Segment Outperformance: Strong hyperscaler demand for 800G switches and optical programs drove record growth and margin expansion.
- ATS Margin Recovery: Portfolio pruning in A&D lifted ATS margin 60 basis points, offsetting revenue softness.
- Capital Allocation Discipline: CapEx remains tightly linked to customer programs, with growth investments outpacing maintenance spend.
The company’s ability to translate AI infrastructure demand into both top-line acceleration and sustained margin improvement marks a structural pivot from legacy contract manufacturing to a differentiated technology platform model.
Executive Commentary
"We aggressively ramped our investment in design engineering and technology roadmaps for the data center while we deliberately disengaged from low margin, low complexity programs, that offered limited opportunity for differentiation and value-add. By 2020, we introduced our 400G switch, marking a pivotal moment in our HBS business, establishing our presence in the high-performance Ethernet switch market."
Rob Mayonis, President and Chief Executive Officer
"At the segment level, CCS revenue is expected to grow by approximately 40%, driven by strong market tailwinds and program ramps in both our enterprise and communications and markets. Our outlook assumes continued strength in networking, supported by 800G demand growth and the ramps of our earliest 1.6T programs in the second half of the year."
Mandeep Chawla, Chief Financial Officer
Strategic Positioning
1. AI Infrastructure as a Core Growth Engine
Celestica’s transformation into a platform solutions provider is anchored by its leadership in AI data center networking and custom compute for hyperscalers. The company’s early investment in design engineering, now with over 1,100 engineers and growing, positions it at the forefront of 800G and 1.6T switch development, liquid cooling, and rack-scale integration—key enablers of next-generation AI workloads.
2. Vertically Integrated, Customer-Centric Model
Celestica’s vertically integrated capabilities—spanning design, manufacturing, supply chain, and software—enable bespoke solutions that deeply entrench it with hyperscaler and digital native customers. This approach has secured multi-year program wins and increased switching share, with CCS now holding 41% cumulative market share in high-bandwidth Ethernet switches and over 55% in custom solutions for AI data centers.
3. Regionalized Capacity Expansion and Risk Management
Capacity expansions in Texas and Thailand, funded by operational cash flow, are directly tied to customer commitments and program ramps. The company’s regional network strategy provides supply chain resilience amid geopolitical and trade uncertainty, while customer forecasts and ASIC commitments provide 12 to 15 months of demand visibility, reducing the risk of stranded assets.
4. Portfolio Reshaping for Sustainable Margin
The ATS segment’s proactive pruning of lower-margin and non-strategic customers has delivered margin expansion even amid flat revenue. Engineering-led engagements and deeper relationships with Tier 1 OEMs in industrial, health tech, and aerospace position ATS for improved profitability and selective growth as macro conditions recover.
5. Software and Ecosystem Leverage
Investments in software engineering (now nearly 400 engineers) and open source platforms like Sonic support Celestica’s shift to system-level solutions and recurring services. Strategic partnerships with silicon leaders such as Broadcom reinforce its preferred supplier status for the most complex AI and networking deployments, further insulating the business from price-led competition.
Key Considerations
Celestica’s Q3 marks a clear validation of its multi-year transformation, but also surfaces new strategic considerations for investors tracking the next phase of growth and risk:
Key Considerations:
- Customer Concentration Risk: Three customers represent 59% of revenue, magnifying exposure to hyperscaler capital cycles and program transitions.
- CapEx-Driven Growth: Expansion plans are tightly coupled to customer demand signals, with 1.6% of revenue allocated for growth CapEx and visibility extending into 2027, but require continued program wins to avoid underutilization.
- Portfolio Mix Evolution: CCS is rapidly outpacing ATS, raising questions about long-term diversification and the ability to sustain ATS margin recovery amid sector cyclicality.
- Software and Integration Upside: System-level solutions and software capabilities are expanding addressable market and deepening customer stickiness, but execution risk remains as complexity increases.
- Competitive Barriers: Accelerated technology refresh cycles (800G to 1.6T to 3.2T) are raising barriers to entry, but also require continuous R&D investment and flawless execution to maintain leadership.
Risks
Customer concentration, hyperscaler CapEx volatility, and timing of AI silicon deliveries represent material risks to Celestica’s growth trajectory. The company’s capital intensity and inventory build create exposure to demand shifts, while competitive dynamics in networking and compute remain fierce, with price-based entrants occasionally disrupting program economics. Macro factors such as trade policy changes and supply chain disruptions could also impact execution and profitability.
Forward Outlook
For Q4 2025, Celestica guided to:
- Revenue of $3.325 billion to $3.575 billion (36% YoY growth at midpoint)
- Adjusted EPS of $1.65 to $1.81 (56% YoY growth at midpoint)
For full-year 2025, management raised guidance:
- Revenue outlook to $12.2 billion (from $11.55 billion)
- Adjusted EPS to $5.90 (from $5.50)
- Free cash flow to $425 million (from $400 million)
Management highlighted several factors that underpin the outlook:
- Continued strength in AI-driven networking and compute ramps, with 800G and 1.6T programs in focus
- Visibility to new program awards and customer capacity commitments extending into 2027
Takeaways
Celestica’s Q3 results and guidance reflect a business in the midst of a secular upcycle, driven by hyperscaler AI infrastructure investments and a successful pivot to high-value platform solutions.
- Hyperscaler-Led Growth: Record CCS growth and margin expansion underscore Celestica’s entrenched position in next-gen networking and compute, with multi-year program ramps providing rare visibility.
- Portfolio Optimization: ATS margin gains validate the focus on higher-value engineering engagements, but revenue growth remains more muted versus CCS.
- Execution Watchpoint: Investors should monitor customer concentration, CapEx deployment, and the company’s ability to sustain leadership as technology cycles accelerate and complexity rises.
Conclusion
Celestica’s Q3 demonstrates the strategic payoff of its transformation into an AI infrastructure platform leader, with hyperscaler demand and design wins fueling record growth, margin expansion, and a robust outlook. While execution risk and customer concentration persist, the company’s capital discipline and technology leadership provide a strong foundation for continued shareholder value creation.
Industry Read-Through
Celestica’s results reinforce the scale and urgency of the AI data center investment cycle, with hyperscalers driving rapid technology refreshes and demanding bespoke, vertically integrated solutions. The company’s success highlights a broader industry trend: value is shifting from commodity manufacturing to design-led, system-level integration, favoring players with deep engineering, software, and supply chain capabilities. As networking and compute architectures evolve at an accelerated pace, barriers to entry are rising, and incumbents with proven execution and customer intimacy are well positioned to capture the next wave of AI-driven infrastructure spending. Competitors and partners across the electronics manufacturing and technology supply chain should expect continued consolidation of share among those able to deliver both innovation and operational excellence at scale.