10-K: Celestica's 2025 Surge: AI & Data Center Demand Fuels 28% Revenue Growth

Celestica Inc. reports robust financial performance for fiscal year 2025, driven by significant growth in its Connectivity and Cloud Solutions (CCS) segment, particularly from hyperscaler demand for AI and data center infrastructure.

Summary

• Total revenue for 2025 increased by 28% to $12.39 billion, up from $9.65 billion in 2024.
• Net earnings for 2025 surged by 95% to $832.5 million, compared to $428.0 million in 2024.
• Diluted earnings per share (EPS) for 2025 rose by 98% to $7.16, from $3.61 in 2024.
• Gross profit increased by 45% to $1.49 billion in 2025, with gross margin improving to 12.1% from 10.7% in 2024.
• The Connectivity and Cloud Solutions (CCS) segment revenue grew by 42% to $9.19 billion in 2025, now representing 74% of total revenue.
• Hardware Platform Solutions (HPS) revenue, a key part of the CCS segment, increased by 81% in 2025, accounting for 41% of total revenue.
• The Advanced Technology Solutions (ATS) segment revenue saw a modest 1% increase to $3.20 billion in 2025, with segment margin improving to 5.3%.
• Cash provided by operating activities increased to $659.5 million in 2025, up from $473.9 million in 2024.
• Non-GAAP free cash flow for 2025 was $458.3 million, a 50% increase from $305.9 million in 2024.
• The company plans significantly higher capital expenditures of approximately $1 billion in 2026 (6% of anticipated revenue) to support growth in AI/ML and HPS programs.
• Three customers in the CCS segment individually represented 32%, 14%, and 12% of total revenue in 2025, highlighting customer concentration.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this filing as highly positive, reflecting exceptional financial growth driven by strategic positioning in high-demand AI and data center markets, strong operational efficiency, and a clear forward-looking investment strategy, despite inherent risks of customer concentration and significant capital outlay.

Positives

• Strong revenue growth of 28% year-over-year, reaching $12.39 billion in 2025.
• Exceptional net earnings growth of 95% to $832.5 million, demonstrating enhanced profitability.
• Significant improvement in diluted EPS, nearly doubling to $7.16.
• Gross margin expanded to 12.1% in 2025, driven by stronger productivity, improved operating leverage, and a more favorable business mix.
• CCS segment revenue increased by 42%, with HPS revenue growing by 81%, indicating strong demand in high-growth data center and AI markets.
• ATS segment margin improved to 5.3%, primarily due to better profitability in the Aerospace and Defense (A&D) business and the discontinuation of a margin-dilutive program.
• Cash provided by operating activities increased by $185.6 million, reflecting strong operational cash generation.
• Non-GAAP free cash flow increased by $152.4 million, indicating robust cash flow performance.
• Successful re-striking of the Total Return Swap (TRS) Agreement in December 2025 and March 2025, generating $246.6 million and $98.6 million respectively, recorded as cash provided by financing activities.
• Recognition of $68.1 million in tax benefits from previously unrecognized deferred tax assets in U.S. subsidiaries.

Negatives

• Enterprise end market revenue decreased by 19% in 2025, driven by a technology transition in an AI/ML compute program with a hyperscaler customer.
• Working capital requirements increased by $112.1 million in 2025, primarily due to increases in accounts receivable and inventory balances.
• Restructuring and other charges, net of recoveries, increased by 53% to $29.7 million in 2025.
• Selling, General and Administrative (SG&A) expenses, while lower as a percentage of revenue, included $14.1 million in higher foreign exchange losses and $15.4 million in higher expected credit losses in 2025.
• Research and Development (R&D) expense increased by $40.2 million in 2025, reflecting higher investment needs for the HPS business.
• Customer concentration remains high, with the top 10 customers representing 79% of total revenue in 2025, and three customers accounting for 32%, 14%, and 12% individually.
• The company faces ongoing tax uncertainties, including a $7 million assessment in Romania and a $13 million assessment in Thailand, which are being vigorously defended.

Risks

• Dependence on a limited number of customers and end markets, making revenue sensitive to their investment cycles and operating conditions.
• Challenges in managing changes in customer demand, which can impact planning, supply chain execution, and manufacturing, potentially leading to excess inventory.
• Reliance on third parties for materials, with potential negative impacts from availability, quality, and cost fluctuations.
• Inventory risk due to purchasing materials based on customer forecasts, which can lead to excess, surplus, or obsolete inventory if forecasts change.
• Increased capital expenditures to expand capacity may not proceed as anticipated, leading to delays, higher costs, or underutilized assets.
• Difficulties in expanding operations or introducing new competencies/offerings, potentially resulting in higher costs or failure to meet customer expectations.
• Quality and execution issues in manufacturing or supply chain activities could reduce demand and damage reputation.
• Operations are susceptible to disruptions from events outside control, such as natural disasters, geopolitical conflicts, and cybersecurity incidents.
• Uncertainty in the future development and adoption of AI and data center infrastructure, constrained by power and water availability, could affect demand.
• Operating in a highly competitive industry with aggressive pricing dynamics and competition from various EMS, ODM, and OEM providers.
• Inability to keep pace with rapidly evolving technology, potentially rendering equipment, designs, or processes obsolete.
• Uncertain global economic and political environment, including trade tensions and inflation, which could impact demand and operating costs.
• Exposure to foreign currency exchange rate fluctuations, which can adversely affect operating results and financial condition.
• Deterioration in financial markets could impact the ability to raise funds or increase borrowing costs.
• Rising labor costs and increased competition for skilled talent could negatively impact margins.
• Financial and reputational risks due to non-performance by counterparties (customers, suppliers, financial institutions).
• Potential for larger contributions to defined benefit pension and other benefit plans due to differing actual results or future expectations from actuarial assumptions.
• Inability to adequately protect intellectual property or facing claims of infringement from others.
• U.S. policies or legislation, including export controls and tariffs, could materially affect business, results of operations, and financial condition.
• Product liability/warranty claims could result in significant costs, reduced demand, or reputational damage.
• Compliance or failure to comply with governmental laws, regulations, and obligations (environmental, A&D, HealthTech, anti-bribery) could be costly.
• Litigation and proceedings may result in substantial expenses, divert management attention, and cause adverse publicity.
• Potential unenforceability of judgments due to the company's Canadian incorporation and assets/officers located outside the U.S.
• Adverse impact from sustainability initiatives due to increased scrutiny, compliance costs, or failure to meet external expectations.
• Volatility in the market price of Common Shares due to various factors, including financial estimates, market conditions, and sales of shares.
• Credit agreement contains restrictive and financial covenants, and failure to comply could cause outstanding debt to become immediately payable.
• Outstanding indebtedness may reduce the ability to fund future acquisitions/capital expenditures and increase vulnerability to adverse economic conditions.

Future Outlook

Celestica anticipates continued strong growth in its CCS segment in 2026, driven by robust demand from hyperscalers for networking switching programs and volume growth in AI/ML compute programs. This growth trajectory is expected to be sustained into 2027. The ATS segment revenue is projected to remain relatively flat or slightly increase in 2026, with growth in Industrial and HealthTech businesses offsetting lower volumes in Capital Equipment and the discontinuation of a margin-dilutive A&D program. The company plans significantly higher capital expenditures of approximately $1 billion in 2026 and 2027 to support this anticipated customer demand, particularly in AI/ML and HPS programs, including capacity additions and new design centers in the U.S. and Taiwan. Management intends to continue repatriating funds from foreign subsidiaries, which may incur additional tax liabilities.

Management Comments

• We are currently experiencing a period of historically strong demand, particularly with hyperscaler customers in our CCS segment, which we anticipate is likely to continue.
• To support this anticipated growth in customer demand, we plan to invest higher levels of capital expenditures in 2026 (approximately $1 billion or 6% of currently anticipated revenue) and 2027 as compared to our historical range.
• Our current operating goals and priorities include pursuing revenue growth in attractive markets, driving sustainable, profitable revenue growth, and growing our aggregate ATS segment revenue at an average rate above that of the underlying markets, over the long term.
• We aim to compound non-GAAP adjusted EPS consistently and sustainably over the long-term and continue to focus on improvements to our non-GAAP adjusted operating margin.
• We are focused on maintaining a strong balance sheet, generating non-GAAP free cash flow and balancing our debt and capital levels, while maintaining optimal financial flexibility.
• Our intended 2026 capital spending reflects alignment of our global footprint with a multi-year capacity road maps of our key customers in support of their large-scale investments in data center infrastructure and AI capabilities.

Industry Context

StockSavvy.ai notes that Celestica's strong performance, particularly in its Connectivity and Cloud Solutions (CCS) segment, aligns with broader industry trends of increasing demand for data center infrastructure, cloud computing, and artificial intelligence (AI) capabilities. The significant growth in Hardware Platform Solutions (HPS) revenue underscores the increasing reliance of hyperscalers and cloud service providers on specialized, customized hardware solutions. While the overall EMS/ODM industry is competitive, Celestica's focus on high-value, complex solutions for leading-edge technologies positions it well within this evolving landscape. The planned substantial increase in capital expenditures for 2026 and 2027 reflects the intense investment cycle currently underway in the AI and data center sectors, where companies are rapidly expanding capacity to meet surging demand. The slight growth in the ATS segment, despite some headwinds, indicates resilience in diversified markets like A&D, Industrial, and HealthTech, which often have more stable, regulated demand.

Comparison to Industry Standards

• Celestica's 28% revenue growth in 2025 significantly outpaces many traditional EMS providers like Flex Ltd. and Jabil Inc., which typically report more moderate growth rates, often in the single to low double digits, reflecting Celestica's strong positioning in high-growth AI/data center markets.
• The 81% increase in Hardware Platform Solutions (HPS) revenue highlights Celestica's success in the ODM space, a segment where companies like Quanta Computer Inc. and Wiwynn Corporation are key players. This growth suggests Celestica is gaining significant traction in providing customized technology platforms, a higher-value offering compared to traditional EMS.
• The improvement in gross margin to 12.1% in 2025, from 10.7% in 2024, indicates strong operational efficiency and favorable business mix, potentially placing Celestica's profitability closer to the upper quartile of the EMS industry, which often sees gross margins ranging from 7% to 15% depending on the service mix.
• The planned $1 billion in capital expenditures for 2026, representing 6% of anticipated revenue, is a substantial investment compared to the historical industry average of 1.5% to 2.0% for many EMS providers. This aggressive investment strategy is comparable to the large-scale infrastructure build-outs seen by leading hyperscalers (e.g., Amazon Web Services, Microsoft Azure, Google Cloud) and AI companies, indicating Celestica's deep integration into these capital-intensive customer roadmaps.
• The high customer concentration, with the top 10 customers representing 79% of total revenue, is a common characteristic for companies heavily involved with hyperscalers, similar to other large ODMs or specialized EMS providers serving a few dominant tech giants. This contrasts with more diversified EMS players that might have a broader customer base with lower individual revenue contributions.

Corporate Governance

Legal Proceedings

• The company is subject to a final assessment by Romanian tax authorities for approximately $7 million (at 2025 year-end exchange rates) for additional income and value-added taxes for the 2014-2018 tax years. The company has paid the full amount and is vigorously defending its position through appeals.
• The company is under examination by Thailand tax authorities for the 2019 tax year, with an assessment letter seeking approximately $13 million (at 2025 year-end exchange rates) for additional value-added taxes and surcharges. A bank guarantee has been issued, and the company is vigorously defending its position.
• The company may be subject to income tax examinations for tax years 2018 to present in major jurisdictions, which could result in additional tax expense, interest, and penalties.
• The company is from time to time party to various copyright, patent and trademark infringement, unfair competition, breach of contract, customs, employment and other legal actions incidental to its business. Management believes the ultimate resolution of currently pending matters will not have a material adverse effect.

Related Party Transactions

• In October 2023, in connection with the termination of a service agreement with Onex Corporation (the then-controlling shareholder), the company paid Onex approximately $9.2 million in cash to settle Onex's then-outstanding Director Share Units (DSUs).
• Onex Corporation, as the then-controlling shareholder, completed two underwritten secondary public offerings in June and August 2023, converting approximately 18.8 million Subordinate Voting Shares into Common Shares. Subsequent to these offerings, Onex is no longer the controlling shareholder.

Stakeholder Impact

• **Shareholders:** Significant increase in net earnings and diluted EPS, along with strong revenue growth, is positive for shareholder value. The Normal Course Issuer Bid (NCIB) indicates a commitment to returning capital to shareholders through share repurchases. However, high customer concentration and substantial capital expenditure plans introduce risks.
• **Employees:** Increased headcount (29,591 employees in 2025, up from 26,865 in 2024) indicates growth and job creation. The company emphasizes employee engagement, competitive compensation, and learning/development programs. Restructuring activities, however, may involve employee terminations.
• **Customers:** The company's expanded capital investments and new design centers aim to enhance capabilities and capacity, particularly for hyperscaler and AI customers, promising improved service and product delivery. High customer concentration means strong relationships are critical, but also exposes the company to customer-specific investment cycles and demand changes.
• **Suppliers:** Increased demand and capital expenditures will likely lead to higher procurement volumes, benefiting suppliers. However, the company's dependence on third-party suppliers for critical materials and components means supply chain disruptions or financial difficulties of suppliers could impact operations.
• **Creditors:** The company maintains compliance with credit facility covenants, and its strong cash flow from operations supports debt service. However, increased indebtedness and significant capital expenditure plans could impact future liquidity and debt leverage if not managed effectively.
• **Regulatory Bodies:** The company faces ongoing tax audits and assessments in Romania and Thailand, and is subject to various environmental, A&D, HealthTech, and trade regulations. Compliance efforts are significant, and any failures could result in fines or operational disruptions.

Next Steps

• Invest approximately $1 billion in capital expenditures in 2026 to support anticipated growth in AI/ML and HPS programs, including capacity additions and upgrades to manufacturing capabilities.
• Add new HPS design centers in the U.S. and Taiwan.
• Continue to ramp multiple networking switching programs and expect volume growth in AI/ML compute programs with hyperscaler customers throughout 2026 and into 2027.
• Pursue revenue growth in attractive markets, drive sustainable, profitable revenue growth, and grow the ATS segment at an average rate above underlying markets over the long term.
• Selectively pursue targeted and strategic acquisitions, investments, and partnerships to expand capabilities.
• Continue to focus on improvements to non-GAAP adjusted operating margin and compound non-GAAP adjusted EPS consistently.
• Repurchase up to approximately 5.7 million Common Shares under the 2025 NCIB from November 3, 2025, until November 2, 2026.
• Continue to vigorously defend tax positions in Romania and Thailand against assessments.

Key Dates

Recommendation

Celestica's 2025 financial results demonstrate exceptional growth, with revenue up 28% and net earnings nearly doubling, significantly exceeding expectations. The Connectivity and Cloud Solutions (CCS) segment, particularly its Hardware Platform Solutions (HPS) offering, is a major driver, benefiting from robust demand in AI and data center infrastructure. The company's strategic investments in capacity expansion and R&D, including new design centers, position it well for sustained growth in these high-value markets. While customer concentration and increased capital expenditures present risks, the strong operational performance, improved margins, and healthy cash flow generation indicate effective management and a compelling growth trajectory. The positive outlook for 2026 and 2027, coupled with a commitment to shareholder returns through share repurchases, makes Celestica a strong buy for investors seeking exposure to the booming AI and data center sectors.

Keywords

Electronics Manufacturing Services, ODM, AI Infrastructure, Data Center Solutions, Hyperscalers, Connectivity and Cloud Solutions, Advanced Technology Solutions, Supply Chain Management, Hardware Platform Solutions, Semiconductor Equipment, Aerospace and Defense, HealthTech, Industrial Automation, Contract Manufacturing, Global Operations, SEC Filing, 10-K, Financial Performance, Revenue Growth, Net Earnings, EPS, Capital Expenditures, Risk Management, Corporate Governance, Cybersecurity