Jabil at JPMorgan Conference: Strategic Diversification Amid Challenges

On Tuesday, 13 May 2025, Jabil Circuit Inc. (NYSE:JBL) participated in the 53rd Annual JPMorgan Global Technology, Media and Communications Conference. The company conveyed a cautiously optimistic outlook, emphasizing its strategic diversification and resilience in the face of economic uncertainties. While the macro environment presents challenges, Jabil’s diversified portfolio and regionalized supply chain offer a robust foundation for future growth.

Key Takeaways

• Jabil aims for a margin increase to 6%-6.5%, driven by operational efficiencies and vertical integration.
• The company is expanding in healthcare, digital commerce, and silicon photonics.
• Jabil’s regionalized supply chain strategy helps manage tariffs and economic uncertainties.
• Growth opportunities are identified in liquid cooling technologies and next-generation innovations.
• The company is leveraging the USMCA agreement to expand its presence in Mexico.

Financial Results

• Jabil is targeting a margin of 6% to 6.5% in the near term.
• Capacity utilization is currently at 75%, below the typical 85%.
• Digital commerce revenues are around $2.25 billion.
• Healthcare is expected to grow by 5% to 7%.
• Networking and Communications revenues are projected at $500 million.
• Hyperscale customer revenues are anticipated to reach between $750 million and $1 billion.
• Focus remains on free cash flow accretion and stock buybacks.

Operational Updates

• Jabil has implemented a regionalized supply chain to enhance tariff management.
• A new facility was established in St. Petersburg, Florida, within six months.
• The Americas account for 35%-40% of Jabil’s capacity, with utilization at 75%-80%.
• Factories are being retrofitted for liquid cooling infrastructure manufacturing.
• The company is the fourth or fifth largest supplier of 400-gig parts.
• Plans to ramp up to over 1 million units of capacity annually by 2026.
• Jabil is diversifying its automotive business to offset challenges.

Future Outlook

• Jabil anticipates a semiconductor capital cycle within the next 12 months.
• The company aims for 5% to 7% growth in healthcare.
• Expansion in automation, robotics, and engineering capabilities is underway.
• Plans for co-packaged optics are set for the next three to five years.
• Jabil will pursue acquisitions to support organic and inorganic growth.
• Operational efficiencies are expected to improve by 10 to 20 basis points annually.

Q&A Highlights

• Jabil discussed the Total Addressable Market (TAM) in hyperscale and cloud sectors.
• Plans to engage a third hyperscale customer after ramping up revenues with the second.
• The company has been involved with its first hyperscale customer for six years.
• Jabil is entering the business through transceivers, targeting $250 million in revenues this year.
• The automotive sector is shifting focus to agnostic components, moving away from certain EV aspects.

In conclusion, Jabil Circuit Inc. remains focused on strategic diversification and operational efficiency to navigate a challenging macro environment. For more detailed insights, readers are encouraged to refer to the full conference call transcript.

Full transcript - 53rd Annual JPMorgan Global Technology, Media and Communications Conference:

Samit Chatterjee, Analyst, JPMorgan: Good afternoon. I’m Samit Chatterjee, and I cover the hardware and networking companies at JPMorgan. I have the pleasure of hosting Jabil, here for the next session at the fireside chat. And with me are Mike Gustu, who’s the CEO, Matt Crawley, and Steve Burgess from the company. Thank you all for taking time to come to the conference.

And thank you to the audience as well. I’ll start you off with a question I’ve been asking every company to sort of opine on and so I know it’s not very company specific, but let’s sort of get your views given the amount of insights you get from customers. Clearly a lot of macro concerns on investors minds at this point and given the conversations you’re having with customers, how worried are you that we potentially go into a much slower macro backdrop in the second half or potentially recession?

Mike Gustu, CEO, Jabil: So I have a very different answer today than I would have had last week. I think there’s a lot of relief amongst customers, a lot of relief amongst all our peers and companies as well. We do think the administration has done a good job in trying to fend off recession. There was definitely concerns maybe two, three, four weeks ago on a possible recession. I think the world supply chain still comes from China.

So any deal that’s been made with them is going to help out considerably. So I feel good about that. I think if you look at Jabil specifically, the recession fears were there, but it was more at the back of my mind. It wasn’t right at the front and center. Our well diversified portfolio, our range of end markets that we look at and especially in Match World where a lot of the intelligent infrastructure is actually U.

S. Based. And a recession would not have stopped the spending in that particular field as Steve’s business had healthcare in it and then there was digital commerce in our third segment. So different segments, different sort of recession fears, but most of them were sort of I think we have the diversified portfolio, which would have helped us manage through a recession really well. So no major fears now.

I think there’s always going to be changes. There’s always going to be puts and takes. But I think we fended off a big recession in my view.

Samit Chatterjee, Analyst, JPMorgan: Great. No, thanks for that. The unpredictability around the tariff environment, I mean, are you navigating that? How are you sort of overall managing it day to day just given the amount of changes that have been happening?

Steve Burgess, Jabil: Yes, I would say that we’re not seeing big movements of business from an enterprise level standpoint. We like the first Trump, we call Trump one point zero, we did a lot of regionalization of our supply chain and our manufacturing. So a lot of what we do is in country production for consumption in the country. So Asia for Asia, China for China, Europe for Europe, etcetera. So we’re really well positioned from that perspective.

I also think that customers are being thoughtful. They see the volatility in the tariffs. And they know that it’s also very expensive to move business, not just expensive to move it, but risky to move it. And so they’re being thoughtful. We are doing what if analysis for our customers so they have a better understanding of what the impact could be.

But at this point, we’re not seeing movement of business.

Samit Chatterjee, Analyst, JPMorgan: Okay. I was going to actually follow-up with that because interestingly, one of the conversations I was having with one of our covered companies, which is a hardware supplier, did mention booking business with Jabil in Mexico as their sort of overall manufacturing footprint plan. So not saying it’s as material to you as it’s to them in terms of size of the business. But is there more interest in Mexico relative to all other facilities globally? Or are you seeing any trends on that front?

Steve Burgess, Jabil: Well, think with USMCA in Mexico, that’s a good advantage for our customer base. Most of the business that we do there is USMCA compliant. We do have available capacity. We’ve been running at about 75% loading. And so there’s opportunities for our customers to leverage that excess capacity.

We’ve also typically, when we build a facility, greenfield a facility, we buy the associated land around that as well for potential expansion. So we are seeing, as we did it with Trump one point zero opportunities for Mexico, most certainly. But I would also say that even if USMCA goes away, I think it’s up for renegotiation in July of next year, if I have my facts right. But even if there’s a 10% to 15% tax levied tariff levied on Mexico, it still becomes from a landed cost perspective, and that’s the way you have to look at it, a highly competitive solution for our customers.

Samit Chatterjee, Analyst, JPMorgan: Okay. Interesting. And I’m trying to compare the backdrop we have today to what we saw during COVID with the supply chain crisis, then a pull forward and then the digestion. And from your standpoint, when you’re managing these businesses, like how does it look different or similar to what we went through just 2020 to 2023? Feels like, at least from my standpoint, we went through a very similar dynamic.

And why is this maybe even different from that?

Steve Burgess, Jabil: It’s a good question. From a supply chain standpoint, we’re not seeing pull forward of demand by our customers like we may have done during the COVID time period. And again, being that we’re regionalized, I think that also plays a factor in that. Now, what we are seeing is, as we evaluate the supply chains of our customers and the impact that components have on their business, depending on where it’s imported and who’s the importer of record, We are providing solutions to that by looking at alternative components, AVL components that we can change. We did the same during COVID, which provide, in the end, a much more robust supply chain when we came out of COVID for a lot of markets that struggle with alternative supply.

And so part of our value add to our customer base is evaluating the challenges they have on the tariffs and giving them alternatives. And then from there, a lot of times, they need design support to redesign the product to be able to support the alternative component. And all that’s incredibly valuable for us and value add that we like to provide our customers. So it’s pretty advantageous to us.

Samit Chatterjee, Analyst, JPMorgan: Got it. Got it. Maybe going back to the capacity comment that you had. Can you just discuss what’s your current capacity in U. S, Mexico and Canada and the flexibility you have in those three geographies in terms of what you can theoretically take your capacity to?

Mike Gustu, CEO, Jabil: So I think if you look at our the way we handled Trump one point zero, I think Steve talked about regionalization of supply chains. That’s been an ongoing piece for us. A lot of the supply is localized. I think if you look at The Americas between U. S.

And Mexico, about 35% to 40% of our entire company’s capacity is in The Americas. Today our capacity utilization out of that is in that 75, 80 percent range. So ample room to grow. We’ve actually recently we opened a facility in St. Petersburg in Florida.

That entire segment took about six months to set up a factory. So if we have to expand capacity in The U. S. Or in Mexico, we can do that quite easily. I think the capabilities there, we’ve been in The U.

S. For sixty years, close to sixty years. And we’ve been in Mexico for close to what thirty years. So huge local presence. We’ve got thousands of employees in Mexico, thousands of employees in The U.

S. As well. So we have the right foundation, the right base. And then we’ve been sort of expanding our automation, our robotics, all the capabilities that we have going, our engineering piece, our supply chain piece. So the offering that we can provide to a potential customer, an existing customer to move if they want to move to The Americas is plenty.

Samit Chatterjee, Analyst, JPMorgan: And just given the cost of labor associated with each of these geographies, like is there a specific area where or specific product category or overall segment that is more sort of easier to shift to The U. S. Compared to where if you’re looking at probably Mexico, like are there easy ways to think about what is more likely to move to The U. S. Versus Mexico?

Mike Gustu, CEO, Jabil: I think price elasticity does come into play. You look at our different end markets that we serve, healthcare, it’s not as price elastic. You can increase the cost. You can pass on tariffs if you need to. The cost of moving a factory is considerably higher in the healthcare world.

If you look at the consumer world, that’s slightly different. Consumer business is very price elastic and even a 1020% increase in price will have a difference. So I see the consumer piece moving first if it does and once the tariff situation is sorted out. I think right now there’s still some uncertain parts of the whole tariff position. Customers are adopting a wait and see approach.

And then I mentioned earlier, Mats business, the intelligent infrastructure, that entire ecosystem that we have around capital equipment, around silicon photonics, data centers, cloud infrastructure, liquid cooling, all of that mainly resides in The U. S. Already. So a large part of our business in terms of end markets is already here or can be shifted relatively easily.

Samit Chatterjee, Analyst, JPMorgan: Okay. Got it. Moving to the maybe moving away from tariffs and into more key drivers of the business, Jabil along with other EMS companies has focused on improving margins over time. And largely it’s come from a focus on higher margin businesses and sort of growing those cultivating those over time. How do you think about balancing that going forward along with sort of the growth opportunities on the top line?

Mike Gustu, CEO, Jabil: Sure. So the way I see margin going forward and how we’re focused on margin accretion, free cash flow accretion and buybacks. The margin accretion path today we’re about 5.4%. I see a path to 6%, six point five % relatively soon. It’s not going to happen tomorrow, but it’s not five or ten years out either.

It’s three or four main drivers and factors of that margin accretion. We’ve been diversifying our portfolio quite a bit. So the mix has a big impact. Our healthcare business has a different margin structure. Our digital commerce business has a different margin structure.

Our silicon photonics will have a different margin structure. Your liquid cooling is different. So mix does play a path. And then one of our main strategies has been vertical integration. And what I mean by that is you don’t go to a customer and say, hey, we’re going to increase your price and that’s it.

It’s the offering. What do you offer the customer? We’re doing A, B and C for you. We can do D, E and F as well. So one of the things we’ve been doing over the last few years is actually making tuck in capability driven acquisitions and we need to leverage those acquisitions to expand that solution.

The end to end solution always is easier for customers and is a path to higher margins. Operational efficiency is another one we look at especially in today’s world where you have AI, machine learning, you have automation, you have robotics. If you’re moving things around, you need to have some level of standardization and consistency. I expect 10 bps, 20 of operational efficiencies almost every year. So that’s the third path and my thing that’s better, right?

Samit Chatterjee, Analyst, JPMorgan: Before we move to Mac segment and discussing AI, last couple of quarters you’ve been revising up the full year guide in what is was still a very challenging macro overall. And from my understanding, most of that came from more resilient cloud spending relative to intelligent infrastructure. So can you just help us think about sort of the confidence level you have in that spend continuing from your cloud customers, the sustainability of the growth rates that you’ve seen in that segment?

Matt Crawley, Jabil: Yes, mean we feel very confident about the spending there. So we took up the second half by $1,000,000,000 on the strength of some share that we took from competitors as well as the strength of our capital equipment business. In general, I would tell you that all of the hyperscalers just reported, none of them took down their CapEx numbers for the year. They all reaffirmed them. Everything we’re hearing from the market as well as the hyperscalers is that regardless of any macro, they continue to view it as an arms race.

And so we don’t see any indication that they’re going to slow down in the near term.

Samit Chatterjee, Analyst, JPMorgan: And Matt, a lot of the concern right now from investors has moved from 2025 to what does 2026 look like? Like are you getting any more visibility in terms of timeline from your customers on that front? Are there any early indications for 2026?

Matt Crawley, Jabil: Yes, we’re actually I mean, we get a forecast and it’s as good as any forecast. And we’re not getting any materially different visibility from that perspective. What I can tell you is that we are in the midst of retrofitting factories so that we’ll be able to do liquid cooled infrastructure manufacturing, which frankly is another super cycle that’s about to start. Today, data centers are designed for air. Soon they will be very soon, they will be liquid to liquid.

And so the manufacturing of the racks that go into those data centers has to be outfitted with liquid cooling as well. So as a pretty decent indicator of where ’26 is going to go, I can tell you that in the next quarter, we will be in the midst of retrofitting our factories, specifically for our hyperscale customer to accommodate liquid cooling.

Mike Gustu, CEO, Jabil: Okay. Got it. And we continue to expand the capacity, in that space, particularly in The U. S. So that would be a further impetus for 2026 revenue.

Samit Chatterjee, Analyst, JPMorgan: Got it. Okay. And so to break down the I think the guidance for now $7,500,000,000 of revenue in fiscal twenty twenty five, like just maybe break that down in terms of what are the different sort of broader categories you would break that $7,500,000,000 into?

Matt Crawley, Jabil: Yes. So if you just look at our Q2 call, we break it out by so my segment reports is capital equipment, cloud and DCI and networking and comms. And so, the simplest way to think about the contribution across those three sectors is that 80% of semi cap contributes to the $7,500,000,000 80 percent of cloud and DCI contributes and the remaining roughly $500,000,000 comes from networking and comps.

Samit Chatterjee, Analyst, JPMorgan: Got it. And the growth drivers, I think it’s fair to assume DCI is the strongest growth followed by semi cap?

Matt Crawley, Jabil: Yes. Heavily weighted towards cloud and DCI where we have a hyperscale customer. We’ve won our second hyperscale customer. We’ll be ramping that business in ’twenty six. It will look something like $750,000,000 headed to $1,000,000,000 the following year.

So heavy contribution from that business. Semi cap remains growth growing as well. So we have a really nice portfolio in that sector. We have attached to Advantest. We have Micron as a customer where high bandwidth memory has a very heavy attach to AI.

So I think we’re going to see very healthy growth rates continuing into ’twenty six.

Samit Chatterjee, Analyst, JPMorgan: Got it. Okay. On the hyperscale customers that you’re working with, and I know you mentioned the second hyperscale customer, but maybe help us think about the opportunity set here and how that is really stemming from the broader capabilities that you have?

Matt Crawley, Jabil: Yes, we’ve been obviously engaged with our first hyperscale customer for roughly six years now. And we very intentfully put together a strategy to deploy capabilities that were complementary and not redundant, so that we aren’t going to other hyperscalers to do the exact same thing that we’ve done for our first hyperscaler. That includes the acquisition of Intel’s transceiver business about one point years ago. And we did that acquisition primarily to be ready for co packaged optics when it comes in three to five years. But what we found is a really healthy near term business.

I think today, we’re the fourth or fifth largest supplier of 400 gig parts. Hyperscalers still need 100, two hundred gig and 400 gig. So we have three quals currently in flight in the first half of the year on 800 gig parts. We just announced our 1.6T transceiver at OFC. We’ll begin ramping into production in the second half of this calendar year.

And we will add alternative suppliers to that BOM as we get closer to the beginning of calendar twenty twenty six. On the back end, we added the acquisition of Micros, so on chip liquid cooling, where we’ve seen and we want to sell a lot of cold plates, yes, but that’s not why we did that acquisition. We did it because of the pull through opportunity on new customers. So especially in the Ethernet switch space where a lot of customers are looking to go and enable liquid cooling for their switch gear, we’ve seen a lot of traction there. And we feel really good about our large metal business where we’re building CDUs, we’re building hose kits, we’re building the rest of the infrastructure that enables liquid cooling.

So we really feel strongly that that’s where we’re going to see a lot of growth. By the way, those businesses will be margin accretive over time. And so the portfolio rounds out relatively well. Okay.

Samit Chatterjee, Analyst, JPMorgan: Got it. On the optics front specifically, I know you mentioned the acquisition was meant to position you for CPU. I mean, most of the feedback I’ve seen from your peers as well as competitors is very favorable on the Intel IP on the optic side. How do you envision the long term mix in optics for you being creative to sort of IP versus being an EMS company supporting some of the IP manufacturing for some of the other IP holders in this space?

Matt Crawley, Jabil: Yes, I mean the strategy really is one to deploy our capabilities across anything our customer would need. So whether we’re enabling the disaggregation of the supply chain for a hyperscaler who wants to apply their procurement power and ability to allocate supply and then re aggregating that transceiver for them, we’ll do that. We’re happy to do Jabil branded transceivers. We’re also happy to work with U. S.

Companies like the Lumentum’s of the world if they have the need for added capacity. And so I would tell you from an IP perspective, we do right now our 1.6 part will launch with Intel’s PIC. We feel like that may very opportunistically be an advantage as there is a shortage of external lasers in the industry and Intel’s PIC actually has an embedded laser as part of the foundry process. So we’re ramping into 1,000,000 plus units of capacity a year starting at the front end of twenty twenty six. We feel like that’s going to give us an advantage, and we’re pretty bullish about where that business is going.

Samit Chatterjee, Analyst, JPMorgan: Got Okay. Let me move over to the automotive business. And there, it seems like given where we were sort of overall before some of the exemptions on the tariffs or pauses started to come through. I mean, you still do have a bit of a headwind from the tariffs that you’re dealing with for the industry as well as there’s the exposure to EVs, which also has seen some pullback in terms of demand. So how are you thinking would be relative to the medium term outlook in autos, both given price increases potentially because of tariffs as well as EVs seeing a pullback as well in terms of consumer adoption?

Steve Burgess, Jabil: Yes. We’ve certainly been impacted by some headwinds in automotive. Tariffs is just one of them. You have government incentives as well as long term and short term interest rates being higher. So those combined factors really for me and my team, it’s about how do we emerge from the softness to be better positioned for the future.

And the team has done a really nice job in that regard, and I’ll highlight a few areas. One in particular, as you know, we’ve announced in the last quarter, we took our numbers down. You probably would have thought we would take them down even further. But the team has done a nice job by adding a Chinese branded OEM company into the portfolio. We’re getting good growth out of that customer.

Obviously, in China, we’re seeing growth of about 7% in the EV space. So that’s been very valuable to help offset some of the declines elsewhere. On top of that, we’ve taken a look at the equipment set that’s fungible and even the equipment set that’s highly automated and how can we use that by partnering with our customers to use those assets in a more fruitful way. And what we’ve done is we’ve been able to pivot from some of the EV aspects of the vehicle into what we call agnostic side of the vehicle. So you can think of zonal controllers, domain controllers, sensors and very complex compute modules that require automation.

And so we’ve been able to add that to the portfolio, which helped us offset further declines as well in that particular area. And since then, just recently, we’ve added a second OEM customer from China, and that’s going to provide dividends for us over the long term. Won’t launch until late this fiscal year into next fiscal year, but positions us incredibly well when things turn around. It could be any of the catalysts that are headwinds today. You could see interest rates change, government incentives could change.

And on top of that, consumer sentiment can change. We’re seeing a lot of increase on the battery side to where today, depending on how fast you drive, it’s 300 miles. What happens when it’s 600, seven hundred? And how does consumers feel about buying an EV vehicle at that point? And so when that happens, we’re going to be better positioned than we were going into the softness.

And so I’m actually pretty excited about how the team’s positioned us for that.

Samit Chatterjee, Analyst, JPMorgan: Okay. And relative to your largest customer there on the automotive side, I mean, there are always concerns in terms of overall further downside risk from that individual customer, given how big overall to your automotive segment that is in terms of relevance. Like how would you encourage investors to think about the downside risk to potentially the biggest customer continuing to lose share?

Steve Burgess, Jabil: Well, couple of things. One is we took that into account when we gave our guidance, number one. Number two is that we’ve done a nice job, as I mentioned, diversifying our business and providing other opportunities to offset that. And then we also do other parts of their business as well on the power side, which is becoming a larger portion of the total with that particular customer. So I think we’ve done a good job kind of isolating ourselves with that customer but then branding out further with existing customers and new customers to help derisk that particular side of the business.

Samit Chatterjee, Analyst, JPMorgan: Okay. Let me just see if there’s any there are any questions in the audience.

Unidentified speaker: Matt, it sounds like your TAM is probably fairly enormous. So how are you starting to break down who to pursue and what segments of the marketplace? Then can you also just tell us a little bit about how these contracts play out? Do they sort of start with a small bite with you first and then start to build and expand? Or are they trying to sole source their way through a build cycle?

Matt Crawley, Jabil: Yeah, I mean we break down the marketplace. So obviously there’s hyperscale and then there’s cloud. So we think about the top 200 CSPs after the hyperscalers. We’ve got our second hyperscaler and it is ramping into significant revenues. I would tell you that we will pursue a third.

I think if you open up the aperture on what hyperscaler means and include NVIDIA, they will continue to be a customer as well. But do we really want to have every hyperscaler as a customer significantly? Not necessarily. Right now, we’re super focused on the second hyperscaler and ramping that business. We entered through transceivers and we’ll do about $250,000,000 this year with them.

And then we won a storage opportunity, which was architected by us from the ground up. So we’ll look to leverage and continue to win business there and grow that business. I think we have plenty of opportunity to do and to deliver more value for that customer. But we’re always looking at the marketplace. And so we’ve been investing heavily also in our networking, engineering and architecture capability.

And what we found is that as a U. S. Domiciled company right now, there is enormous value in having that capability and being able to differentiate versus the ODMs like the Qantas of the world. And so I think that we have a lot of opportunity and upside in that space as well, and we’re already seeing traction there.

Samit Chatterjee, Analyst, JPMorgan: Okay. So maybe if I can switch gears to the healthcare market and the group like just maybe talk about the growth opportunities you see in that market. And again, when it comes to the breadth of the capabilities you have in that market, how should we think about where you stand today and opportunities that you can expand further?

Steve Burgess, Jabil: Yes. Pretty passionate about the health care market. We’re 2x the size, roughly 2x the size of our nearest competitor. And that creates its own set of opportunities for us, but also shows the success we’re having in changing patients’ lives. And that’s pretty important to our team.

When I look overall, it’s a highly diversified business. We’re in diagnostics, pharmaceutical delivery systems, med devices and orthopedic surgery devices as well in orthopedics. So a highly diversified business. We’ve spent a lot of time organically growing our domain expertise in the areas of automation, injection molding, auto injectors, all very critical to the success of that business. We’ve also tried to take a look at how do we kind of grow our share of wallet more exponentially so that we can achieve instead of the market range of 4% for med device growth overall, how do we get to 57%, if not more.

And so one of the things we’ve been focused on is what’s that share of wallet expansion, where is the best place to go after that and how much can we do organically and how much can we do acquisitively. Recently, you saw an announcement we acquired a company called PII, Pharmaceutical International Incorporated. That provides us the capability to do aseptic filling, reagent filling for diagnostic equipment, dry dose gel packs as well. So that’s a nice share of wallet expansion in a market today that we don’t have access to. But prior, we’ve been building auto injectors for twenty years.

And we do 5,000,000,000 auto injectors. And now I can take the auto injector and potentially fill the drug for the customer to make that more sticky with the customer relationship. And then that share of wallet expansion is going to be pretty beneficial to us as we go forward. We’re going to continue to look at acquisitions as well in that space to continue to grow organically, but also inorganically. And I think we’ll see it be pretty aggressive in that space.

Samit Chatterjee, Analyst, JPMorgan: Okay. I mean, any way to quantify you had to sort of put numbers in relation to what that industry underlying industry grows at and what your healthcare business?

Steve Burgess, Jabil: Our expectation to grow to in the 5% to 7% range overall.

Samit Chatterjee, Analyst, JPMorgan: Okay. Yes. On the semi cap side, I mean, know you had a good quarter on that front, but some companies that we talked to have already started to highlight that customers are evaluating capital expenditure decisions a bit more closely. Are you seeing any signs of that in your business? And is it very customer specific that your growth outlook is driven by your specific customers doing very well rather than the industry?

Matt Crawley, Jabil: Yes, I think more than most having the right customers in the semi cap space is important and we happen to have the right customers. On the ATE side, we’ve seen significant growth beyond expectations. That’s because there’s a large attach rate to NVIDIA, Blackwell. I think if you just think about some of the challenges that have been kind of messaged in the industry around getting Blackwell out, having more tester capacity has allowed them to get from wafer to chip, more chips are bidding out. But I also think that there was potentially an under calling of the capacity required.

And so as we move into Rubin, while I don’t know that there will be the same exact need from a tester perspective, I don’t anticipate that there’s going to be a trough. They don’t usually make the same mistakes twice. So I think ATE could be seen something that looks like a new normal potentially. On the WFE side, still don’t see clear signs of the cyclical recovery that you typically see in that industry. But I do think it looks like it’s going to come in the next twelve months.

And right now, we’re working on trying to zero in on exactly which quarter that’s

Steve Burgess, Jabil: going to be.

Samit Chatterjee, Analyst, JPMorgan: Got it. Again, moving sort of to the other segment here, networking and comms, maybe if you can sort of flesh out what the underlying trends they look like because you’ve been going through a bit more of a slower patch just given some of the low margin businesses you’re exiting. So what does the underlying growth outlook there look like at this time?

Matt Crawley, Jabil: Yes. I mean, so Ethernet has definitely got plenty of traction. We’ve had the five gs space has been bouncing around the bottom. It continues to bounce around the bottom. I don’t see any clear indication that that’s changing significantly in the near term.

Certainly where we have Ethernet customers, things are looking very favorable there. The Micros acquisition that we did for on chip liquid cooling has given us a strategic advantage with those customers. All of them are moving to a liquid cooled version of their switch, which is going to be a hard requirement as data centers move to liquid cooled design data centers. And we’ve exited a customer in that space, and that’s why you see a little bit of the trough that we’re coming out of now. But all in all, we think that there is end market tailwinds specifically around Ethernet, and we’re in a good position to serve it.

Samit Chatterjee, Analyst, JPMorgan: Got it. Okay. The last one on that front, digital commerce. And I think you’ve highlighted that you’re seeing positive trends there, but maybe talk about the drivers on that front and how influenced will those be by the macro? So if you think

Mike Gustu, CEO, Jabil: of digital commerce, whether it’s digital commerce in the warehouse, whether it’s in the aisle, whether it’s on the shelf or even at checkout, there’s different aspects where we participate. We’ve made really good headway in the largest brick and mortar retailer indirectly and then the largest online retailer as well directly. So lots of automation in terms of automated HDDs, automated warehousing where it’s not manned at all. The automatic robots moving around, changing of labels on the shelves, digital labeling, restocking, all of that takes place in that digital commerce world. And I think the progress we’re making there, it’s still relatively small numbers.

I think that overall digital commerce in that $2.2500000000.0 dollars range, but that will continue to grow in

Samit Chatterjee, Analyst, JPMorgan: the future as more retailers adopt that particular strategy. So maybe just last couple of questions. One, you did talk about initially in your remarks a 6% margin or a 6.5 is possible. So maybe talk to us about the drivers like what do you need in terms of revenue scale to get to six? What do you need in terms of revenue scale to get 6.5?

And is it really a function of revenue and operating leverage or do you see certain mix changes that get you there as well?

Mike Gustu, CEO, Jabil: So it’s not about revenue. We’re not earlier I said my focus here is a margin accretion, free cash flow accretion. It’s all about mix. Let’s get the mix right. I think Steve gave examples on vertical integration.

Matt talked about liquid cooling. Again, another vertical integration play operational efficiencies. I mentioned that earlier today. We’ve mentioned this on our calls, our capacity utilization is at around 75%. Normally, it’s about 85%.

So there’s a little bit of a gap between where we normally stand and where we are today. As that capacity starts getting utilized or starts coming online, that margin goes up as well. And then in Mats business, we’ve had a number of wins. Revenue has grown quite a bit. Each win comes with some level of ramp costs.

That’s all included in our guidance. That’s all part of it. But if you can imagine on the other side of it, I think that’s how if you take ten, twenty bps on each of the items that I talked about, the path to 6.5 percentage is not very far.

Samit Chatterjee, Analyst, JPMorgan: I will yes, I’ll wrap it up there just given that we are getting close to time here. But thank you for coming to the conference and thank you for to the audience as well.

Steve Burgess, Jabil: Yeah. Thank you. You.

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