Flex Announces Spin-Off of Cloud, Power Infrastructure Unit

First, Tim and Carol, thanks for having me. And maybe the best way to tell the story is to tell a little bit about Flex. Flex is one of the world's largest contract manufacturing companies, or the name behind the brand. So we make everything for folks who are in the automotive industry, in the healthcare industry, industrial companies, consumer brands. Think of something we probably make that. Through the years, when I joined Flex in 2019, I don't have a contract manufacturing background. I came from industrial companies. I ran Eaton's electrical business, worked in Honeywell, so didn't know much about contract manufacturing when I joined. But I knew one thing is that the world in contract manufacturing was changing. Contract manufacturing is built on the logic of labor arbitrage, scale, lowest cost, and with geopolitics and how the world was changing, it felt like a new model needed to emerge. So what we started doing at Flex was really other than kind of fixing the fundamentals of the business, exiting some kind of non-core parts of the portfolio. We spun off an asset called Nextracker in the solar space. That's a $17 billion market cap company today. But then we focused on kind of a few end markets that we felt had potential. One of them, this was much before the ChatGPT moment, was power in the data center space. And now me coming from electrical and running its electrical business, I noticed that Flex made the power that powered the chip. And I thought, well, compute is going to get power hungry someday. Let's figure out how to invest in power end to end. And we started putting a whole bunch of acquisitions together to really put together compute cooling, because there was a lot of heat getting generated, and the power of the chip itself, and all the power up to kind of utilities. So in the last seven years, we have created this business that is focused on data centers and utilities, that has been scaling up really, really fast. And so it felt like the perfect time to take that part of the company, which is more like a products business, and then spin it off into a standalone business that is catering to data center space and utilities, and then keep the contract manufacturing portion of the company focused on investing in kind of new growth markets.

Yeah. So, Tim, our fiscal year just ended. So we just started a new fiscal year, and we changed our reporting segments to help clarify this, because our data center portfolio was split between parts of Agility and Reliability. So compute was in Agility. Power was in Reliability. And so it wasn't all together in terms of external reporting segment. So we've just changed that. And our new fiscal year, it's called Cloud and Power Infrastructure, CPI. And that is the segment that will be getting spun off into a new entity.

Yeah. So the growth in the CPI business last year was around 38%, which was our last fiscal year. We have guided to this year being 65 to 75% and then next year being 80 plus percent. So obviously heavy growth. Yeah. In all the rest of the business right now, we have guided to kind of low to mid-single digit growth in that also in this part of energy infrastructure that's growing fast. Consumer is growing slowly. So net net we're more comfortable about the mid-single digit growth for what will remain in Flex.

Correct. It's fair to say that that's what this represents. It is a little bit of the AI build out, but really it is what is changing from a technology perspective. So I talked about, you know, if you think about the electrical infrastructure, what is going to change, I would say in that infrastructure is pretty significant and driven by data centers. In the sense that data centers are power hungry and power density has become a huge thing, but that is going to change how electrical infrastructure gets delivered within kind of the context of data center to grid. So big reason is, yes, the growth of data center. But electrical infrastructure is going to change. So it means that distributed power is going to change. It's going to look different. So there's a technology revolution also happening. The growth is driving it. But the technology change is also driving why this makes sense at this point in time.