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Celestica Inc. CLS has plunged 18.4% over the past three months compared with the industry’s decline of 12.5%. It has underperformed its peers, such as Flex Ltd. FLEX and Jabil Inc. JBL. Flex has lost 16.7% and Jabil declined 8.9% over this period.
Three-Month CLS Stock Price Performance
Image Source: Zacks Investment Research
High Operating Expenses Dent CLS’ Prospects
CLS remains plagued by margin woes. Celestica’s products are highly sophisticated and typically based on the latest technological innovations, which have historically led to high research and development costs. High operating expenses have contracted margins. This has dented CLS’ prospects to some extent.
Moreover, Celestica faces stiff competition from industry giants like Foxconn, Jabil, Flex and Sanmina Corporation. Flex is well positioned to address the needs of customers who are looking to leverage the proliferation of Internet of Things (IoT), autonomous/connected cars, artificial intelligence (AI), Industrial automation, augmented & virtual reality (AR/VR), and 5G technologies. Jabil is benefiting from solid demand in key end markets driven by excellent operational execution and skillful management of supply chain dynamics. Apart from this, several smaller companies operating at a regional level also intensify competition. The highly cyclical nature of the semiconductor industry further remains an overhang.
In addition, persistent weakness in the ATS segment over the past few quarters is a concern. Elevated inventory levels in the Industrial end markets are primarily hindering net sales growth in this segment. Although management expects demand to stabilize in the first half of 2025, macroeconomic challenges remain a potent threat.
Portfolio Strength Lends Support to CLS
Nevertheless, with more than 25 years of experience in manufacturing, backed by a simplified and optimized global network, Celestica is committed to delivering next-generation, cloud-optimized data storage and industry-leading networking solutions to help customers balance performance, power efficiency and space as technologies evolve. The company had benefited from the ongoing generative AI boom, thanks to the solid demand trends for AI/ML (machine learning) compute and networking products from hyperscale customers.
In addition to the high-performance 800G family of network switches (which are vital for data centers that power AI applications) and storage solutions like the SC6100 controller and SD6200 platform (which provide efficient and scalable data storage for AI), Celestia offers Photonic Fabric – an optical compute and memory fabric solution capable of supercharging AI infrastructure. This solution provides a foundational technology to advance AI while maintaining scalable, sustainable and profitable business models.
By integrating next-generation networking products with silicon photonics packaging solutions, Celestica aims to optimize supply chain solutions to reduce time to market. The data center switches combined with optical transceivers have the potential to handle and sustain high volumes of both inbound and outbound network traffic and cater to the demand for data center bandwidth for supporting AI/ML and data analytics applications. These state-of-the-art products have translated into solid top-line growth in recent years.