Q & A Highlights

Q : Can you talk about the relative margins of each segment and what we should expect for fiscal '25, particularly for regulated industries, Intelligent Infrastructure, and Connected Living? Which segment has the most upside to margins? A : Mike Dastoor, CEO: Margins for all three segments are expected to be north of 5%. Currently, there's some underutilization in the EV and renewable sectors, but there's potential for margin improvement as these markets recover. Intelligent Infrastructure is also above 5% and is expected to grow significantly over the next few years. Connected Living, driven by consumer demand, shows high seasonality, but digital commerce within this segment is expected to drive future growth with high margins.

Q : Has your expectation for AI-related revenues changed? You previously guided $6 billion for AI revenues in fiscal '25. Do you think your revenues related to AI can be higher? A : Mike Dastoor, CEO: We have increased our AI-related revenue expectations to $6.5 billion, up from $5 billion to $6 billion previously. This increase is driven by $500 million in the AI space, with $100 million from semiconductor capital equipment and $400 million from data cloud infrastructure, where we have strengthened our relationship with our largest hyperscaler.

Q : Can you talk about your capital allocation plans, including the cadence of buybacks and any focus on M&A this year? A : Gregory Hebard, CFO: We plan to allocate 80% of our free cash flow to share buybacks and are committed to completing our $1 billion share repurchase authorization in FY25. Buybacks will be more heavily weighted in the first half of the year. Regarding M&A, our recent acquisition of Mikros Technologies was for its engineering capabilities rather than direct revenue, and we see significant future growth opportunities in verticals like data centers and thermal management.

Q : Could you elaborate on your deepening relationship with your largest hyperscale customer and the potential size of the opportunity with the second hyperscale customer in the silicon photonics space? A : Mike Dastoor, CEO: We are winning new business with our largest hyperscale customer due to a strong relationship and performance. For the second hyperscale customer, we are focusing on silicon photonics, currently working on 100, 200, and 400G, with plans to quote 800G in the first half of '25 and 1.60G later. Our acquisition from Intel last year is paying dividends, and we aim to expand our capabilities in this area.

Q : How should we expect inventory levels to change in the back half of fiscal '25, given the anticipated higher revenue growth? A : Gregory Hebard, CFO: We expect inventory levels to remain within our target range of 55 to 60 days, with the back half of the year likely being at the lower end of that range. We are confident in our ability to manage inventory effectively despite the expected revenue growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .

This article first appeared on GuruFocus .