And as I think about CapEx spending, we capitalize what we can in full compliance with GAAP like everybody else does, but some of those costs specific to ramps, end up going through the P&L as period costs. And so as ramps were lower in the fourth quarter, some of that cost good news drops through. And so margins, again, fantastic in the fourth quarter. And now as I look sequentially from Q4 to Q1, mix isn’t quite as good, a little bit less of that OpEx, CapEx, which we saw in the fourth quarter as CapEx does come back up as we move into Q1 and Q2, just to support ramps, we’re expecting in the back half of the year. But as I think about margins over time, year-on-year, the first quarter was up 20 basis points versus where we were a year ago.
And what we expect as we move forward is continued progression on margins because of: one, that inflation pass-through comes down; two, really strong mix of the business. We talked about some of the drivers of that right now in cloud and automotive. Those businesses look great. And given the IP that Revathi talked about, that helps with margin allows us to mix up. And then the third would be – and this is just because, look, we’re a huge manufacturing company. We have a large geographic footprint. It’s our job to focus on productivity, and we do that all the time. And so I do expect continued productivity as we move through the balance of 2025 and on.
Revathi Advaithi: I think you’ve said it well. I wouldn’t add anything other than, four, five years ago, we were talking about, hey, can you get past 3%, right? Today, we’re talking about can you get past 6%?And like Paul said, we’re well north of 5%, 5.4% in Q4. But how we get there is important, right? So mix will play an important role. We talked about 40% of our revenue coming from data center and automotive, which mixes up significantly for us. So that’s one thing. And then second is, there’s so much to be done on productivity and efficiency. The world is changing with robotics and AI in the factory floor, we are super excited about the benefits we’re getting from that. So we feel very comfortable about the margin profile, the six-plus percent, and we feel we’re well on our way to that.
Kyra Whitten: Thank you. Our next question comes from Steve Barger with KeyBanc. For auto, do you have relationships with the primary OEMs? And will growth come from seeing higher content per vehicle and higher unit volume? Or are there market share wins to come as well?
Revathi Advaithi: It’s all yours, Becky.
Rebecca Sidelinger: Thank you for the question, Steve. So for automotive, the answer is, yes. We do have relationships with the primary OEMs. And OEMs are coming to us based on our deep design expertise in power and compute. And I spoke earlier about the flexible design model. So we can design for our OEMs, we can jointly design with them or we can manufacture their designs. And all of this has resulted in a strong pipeline in automotive. I will also add that we do partner with Tier 1s as well. Where there is a benefit for Flex in the partnership with the Tier 1 is where we can be faster and more efficient in production. And that allows the Tier 1 to make investments in the other areas of the business. The second piece of the question that I’ll address is the content per vehicle.
So keep in mind that our auto portfolio is very well diversified across powertrain types, electric vehicle, hybrid, internal combustion engine, well diversified across all three of those and we’re well diversified across autonomy levels. You couple that with the broad breadth of our portfolio. So our portfolio includes compute. It includes power, lighting, actuators, wiring. All of that content across all of those platforms is what allows us to grow. And yes, we will see content gain as a result of that. So that translates to about an average content per vehicle of roughly $1,000 per unit. If you take everything in the portfolio that you can apply to a vehicle, that would take our content well north of $4,000 per vehicle.
Revathi Advaithi: And so I’d say, Steve, like Becky said, comes from content per vehicle, comes from market share gain, because we’re one of the few EMS providers that has a product portfolio that can design and jointly design with our OEMs. So that’s a fantastic place to be. So we’re again in a very unique position in automotive, and we can see that in the results from our bookings and our growth coming from automotive that this will just continue as we keep building on our platform.
Kyra Whitten: Thank you both. Our next question comes from George Wang with Barclays. Can you talk more about the potential impact from the consignment model in cloud, which might be margin accretive? Can you also provide color on margin profiles for power and DC racks?
Michael Hartung: Sure. I’ll take that one. First, we have a variety of different business models inside of Flex with a number of different customers. Consignment happens to be one of those business models. And yes, it is in place with our cloud customers. Now we’ve taken that consignment model into consideration in how we’ve run and how we forecast the business. So when we report you last time, we knew consignment was part of the model, we made a prediction on how we would grow that business in the neighborhood of 20% per year, and we more than doubled that result. So we feel like we’ve got a handle on the impact of consignment in the business, and it’s been taken into consideration in our future projections. Just as a quick reminder, consignment has a headwind effect on topline revenue but doesn’t have an impact in bottom line profit dollars.
So yes, margin does climb as a result of consignment. But again, all of that has been factored into both our results and our projections. On the second half of your question in terms of the margin profiles, I’d consider the power products to have a different margin profile than the DC racks per se. Let me explain why. So from a rack standpoint, that’s really part of our EMS umbrella. So we generate above-average margins compared to the corporation but it’s still at an EMS level. It tends to be elevated because we do have a high penetration of value-added services. Again, we fabricate our own sheet metal, we incorporate our private label components and we also include some of our other products into that integration. From a power standpoint though, we’re operating a product business that comes with product level margins.
So they’re a little bit different profiles, but both operating at well above the corporate average.
Revathi Advaithi: Yes. And the only thing I’d add to that would be to say in the vertical integration of racks, as complexity increases around things like cooling designs and all of that, those are all – they’ll all tend to be margin accretive because it’s complexity that you’re integrating in on behalf of your customers, right? So having your own reference design and being able to integrate that in requires a different margin profile. On power, in embedded power, there are not many like direct competitors in terms of who we work with, and we work directly with the silicon providers and the data center folks, I would say, in terms of critical power and embedded power put together. There are other companies that you can compare margin profile with, I’d say, the likes of Vertiv. So we operate more in that level. We don’t publicly tell you what we do, but to give you a feel for where the margin profile of that business would be.
Paul Lundstrom: Maybe just a couple of quick comments on revenue, too, George, and also to tie back to Mark Delaney’s question a couple of minutes ago about margin to margin rates. As I think about the full year guide for FY2025, which is the midpoint, down about 3%, you should think about two factors. One, what Michael just said. We do have some topline headwind from more consignment, I would peg that at maybe two points. We also have a headwind from the topline from the inflation pass-through, which I would peg at probably three points. So between those two, that’s about five points of sort of artificial top line headwind. And so as I think about sort of the organic performance of the business, the midpoint, we’re up a couple of percent.
Kyra Whitten: Thank you. Our next question comes from an investor. How much share repurchase is embedded in the FY guide of $2.30 to $2.50 per share. And what is the expected tax rate for the full year?
Paul Lundstrom: Sure. So maybe just quickly on buybacks. So I’ll just give you a straight answer. And the straight answer on our share count for the full-year, it’s 400 million, is what we’re assuming. As I think about the – what happened as we went through Q4, stock buyback was north of 500 million. We expect to continue that cadence here through the first quarter. And so that should provide some meaningful tailwind as we move into the balance of the year. So about 400 million. And then as for the tax rate question, I don’t love the question because I don’t love the tax rate. But right now, 18.5% or thereabouts is kind of what we’re thinking for the full year, which is a meaningful headwind year-on-year. And so one would be right your congressman.
Two, would be – this is just how it is. I think all big multinational companies over the last few years have been talking about in the tax landscape, they call it BEPS 2.0, but it’s – what it really is, is global minimum tax rates. And so if I think about specific examples, a 15% floor in a company – excuse me – in a country like Hungary, where we’ve historically seen 9%, as you mix up in those lower tax jurisdictions that used to help, now it doesn’t really matter because those tax floors are more like 15%. So it is a little bit of pressure on the rate. But what I’ll just say is we manage it as best we can, like we have over the last many, many years, and I sort of view it as a non-operational item.
Revathi Advaithi: And we’re delivering double-digit EPS CAGR with that tax rate.
Paul Lundstrom: It’s a great point.
Revathi Advaithi: So I think that’s an important takeaway.
Paul Lundstrom: Yes. It’s a great point.
Kyra Whitten: Thank you. Our next question comes from an investor. How much inventory do you have left to unwind? And how much cash are you going to keep on the balance sheet?
Revathi Advaithi: See my answer to this always is to Becky and Michael, we have too much inventory. But you heard me say that time and time again, but we’ve done a really fabulous job of starting to unwind inventory. So I will admit that. But Paul, do you want to answer this?
Paul Lundstrom: Yes. I mean, I think everybody knows the history on inventory. The whole industry saw inventory growth. We peaked out back middle of our FY2023. But what we’ve seen since then is meaningful improvement. I think you look year-on-year on March 2023 to our March 2024, we dropped by $1 billion, $1.2 billion. And so I’m very happy with that. I’m also happy with the performance just sequentially this past quarter. The December quarter to the March quarter, we dropped another $400 million. And so I like the momentum there. But like Revathi, we believe that inventory is still too high and that there is ample opportunity to continue to improve that. To sort of give you some perspective on that one. In December, I think our inventory days net of working capital advances was something in the order of 74.
That improved this past quarter to 70, but that’s still a 10 to 12-day opportunity. So meaningful inventory can come off the balance sheet. We just need to make that happen. In terms of cash to run the business, which was the second part of that, I think, we don’t need $1 billion to $1.5 billion, which is about where we’re sitting today, maybe a little under that. We need $2 billion or less. And we have and will continue to put that capital to work as you’ve seen us do the last couple of quarters. Priority one is stock buyback. Of course, we’ll continue to fund the business internally. And if there’s any sort of M&A, as I mentioned, we’ll, of course, have a open aperture to that. But right now, the priority is stock buyback.
Kyra Whitten: Thank you. Our next question comes from Samik Chatterjee with JPMorgan. For autos, given the focus on power, how does the moderating EV protection ramps in the out year influence your view on content per vehicle long-term? And can you also talk about the customer base diversity between Western OEMs and Asian OEMs?
Revathi Advaithi: So I’m going to hand that over to Becky. But one thing I’d say is, I think Becky said this a couple of times in her pitch and in the Q&A, there’s one takeaway on auto that would be great for everyone have is that really our product portfolio is agnostic of EV or hybrid or ICE, right? So – and that puts us in a really unique position in terms of how auto is set up for growth. So, Becky?
Rebecca Sidelinger: Yes. I’ll build on those comments, Revathi. So first, I’ll say that our customer base in automotive is very well diversified across customers, across OEMs, across the regions. And I mentioned that we’re very well diversified across the platform type, electric vehicle, hybrid, ICE. So if we think about how the EV market is impacting this business, I would say, first, it is growing, but maybe just at a slower pace than some people might have anticipated. But what I want you to remember is that many OEMs now are swapping investments or shifting investments into hybrid platforms to bridge the full EV transition. And our Power Solutions are completely independent of whether it’s a hybrid or whether it’s an electric vehicle.
So that benefits our Power Solutions regardless. The other important point that I’ll make here is that the vast majority of our portfolio, so compute, wiring, actuators, all of the stuff I mentioned earlier, that’s completely agnostic to all platforms. So whether it’s an EV, whether it’s a hybrid or whether it’s an ICE engine, all of that content will apply, and we will continue to expand in the market.
