Key Points
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Flex plans to spin off its CPI segment into a new company focused on data center power, cooling and electrical infrastructure. Management says the business is large enough and growing fast enough to deserve a different capital structure, similar to Flex's prior Nextracker spin-off.
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The company outlined very strong growth targets for CPI, forecasting revenue growth of 65% to 75% in fiscal 2027 and 80%+ in fiscal 2028, with much of that revenue already tied to awarded programs and customer demand visibility.
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Flex says the remaining business will still be a $22 billion+ diversified platform, while the spin-off structure is meant to keep debt low and support growth, even as capital spending peaks at $1.4 billion to $1.6 billion in fiscal 2027.
Flex (NASDAQ:FLEX) executives used a J.P. Morgan fireside chat to outline the rationale for the company's latest planned spin-off, describe the growth expectations for the business being separated and frame the remaining Flex as a large, diversified manufacturing and services platform.
Revathi Advaithi, Flex's chief executive officer, said the company's portfolio strategy over the past seven years has focused on improving business mix, productivity and financial returns. She pointed to Flex's exit from several consumer end markets, the earlier spin-off of Nextracker and reinvestment in areas tied to compute, power and data center infrastructure.
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Advaithi said the latest spin-off reflects the scale and growth profile of the company's CPI segment, which she described as requiring a different capital framework than the rest of Flex.
"We know how to do spins. We've done it well," Advaithi said, noting that Nextracker has reached a market capitalization of about $17 billion.
SpinCo to Focus on Data Center Power, Cooling and Electrical Infrastructure
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Advaithi said the new company, referred to during the discussion as SpinCo, will be positioned as an industrial company with a focus on data center thermal architecture, electrical infrastructure and cooling infrastructure. She said Flex began investing in the area before the recent surge in artificial intelligence demand, building from a power business acquired from Ericsson and combining it with compute integration capabilities.
She said customers are increasingly seeking integrated solutions across compute, power and cooling, rather than treating those areas separately. Flex is targeting hyperscalers, colocation providers, neoclouds and silicon providers with products including mechanical components, compute integration, cooling distribution units, cold plates, power pods, custom power, switchgear and integrated pods.
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Advaithi said the company's differentiation is its ability to address the full "thermal architecture envelope" at scale and speed. She also said SpinCo's focus will be on diversifying within electrical and utility-related infrastructure rather than pursuing another spin-off.
Executives Reiterate Strong Growth Targets
Flex executives said the company has confidence in its CPI growth outlook because a large portion of the expected revenue is already tied to awarded programs. The company expects CPI growth of 65% to 75% in fiscal 2027 and 80% or more in fiscal 2028. A company speaker said about 90% of fiscal 2027 expected revenue is booked, while Flex has line of sight to roughly 70% of fiscal 2028 revenue through awarded programs and customer demand visibility.
The company also discussed the role of its Amazon partnership and warrant arrangement. A Flex representative said the agreement has provided incentives for both companies to grow together and that benefits from the relationship are incorporated into fiscal 2027 and fiscal 2028 guidance.
On power, Flex said growth is expected to run above the overall CPI growth rate in fiscal 2027, at about 75% or higher, and around the CPI growth rate in fiscal 2028. Executives said both critical power and embedded power are expected to grow at broadly similar rates over time, though timing may vary by year.
Power Architecture and Margin Expansion Remain Key Themes
Advaithi said data center power infrastructure is undergoing major change as customers seek greater power density and efficiency. She cited the evolution from power shelves to fully integrated 1-megawatt racks, as well as industry discussions around 400-volt and 800-volt architectures and potential solid-state transformers.
She said 400-volt and 800-volt programs are "very mature" and are being launched, while solid-state transformers are also being developed but may take longer to mature as standards evolve. Advaithi cautioned that higher-voltage architectures require more than product development because safety, regulatory requirements, infrastructure, training and labor availability must also be addressed.
Flex executives said the power business currently targets mid-teens margins and that the company aims to reach the level of its industry peer set over time. They said current margins reflect recent investment and scale-up costs. In CPI overall, the company said margins ended fiscal 2026 at 9.2%, including about 100 basis points of investment, and that Flex expects to recoup that 100 basis points in fiscal 2027.
RemainCo Positioned as a $22 Billion Platform
Michael Hartung, Flex's chief commercial officer, said the remaining Flex business after the spin-off will still be a manufacturing and services platform with more than $22 billion in revenue and a diversified set of end markets, including healthcare, industrial, automotive, communications and lifestyle.
Hartung said the company will continue to apply the same operating framework it has used in recent years, emphasizing financial rigor, high-quality earnings, cash generation, margin improvement and portfolio optimization. He said Flex will deploy capital toward higher-value markets, including medical devices, drug delivery, robotics, warehouse automation, satellite communications and data center-related networking products.
Hartung said Flex will also retain exposure to data center infrastructure through networking, switches, optical products, network interface cards, power generation, transmission, distribution, storage and semiconductor capital equipment manufacturing.
Capital Allocation, Debt and CapEx
Flex executives said the planned transaction is designed for Flex to retain a stake in SpinCo of up to 20%, which can later be used in a debt-for-equity exchange to help reduce debt. They said the structure is intended to leave both companies with low debt levels and flexibility to pursue growth opportunities.
The company also addressed its elevated capital spending plan. Flex guided to peak capital investment of $1.4 billion to $1.6 billion in fiscal 2027, compared with a typical capital spending level of about 2% of revenue. Executives said fiscal 2027 spending is expected to be around 5% of revenue, with the incremental investment focused on securing power, capacity, footprint and cooling infrastructure for awarded business, primarily within CPI.
Executives said the company views fiscal 2027 as the peak year for CapEx based on currently awarded programs and visibility into demand through fiscal 2028. Advaithi added that some infrastructure investments, such as power and cooling loops in facilities, are foundational and that subsequent growth should not require the same level of capital intensity.
About Flex (NASDAQ:FLEX)
Flex (NASDAQ: FLEX), formerly known as Flextronics, is a global provider of electronics manufacturing services (EMS) and original design manufacturing (ODM). The company offers end-to-end product lifecycle solutions including product design and engineering, prototyping, volume manufacturing, testing, and aftermarket services. Its offerings extend into supply chain management, component sourcing, logistics and distribution, and advanced manufacturing capabilities such as automation and digital manufacturing to support customers from concept through end-of-life.
Flex serves a broad range of industries, including automotive, healthcare, industrial, communications, and consumer electronics, working with original equipment manufacturers (OEMs) and technology companies to accelerate time to market and manage complex supply chains.
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The article "Flex Pitches AI Data Center Spin-Off as Power and Cooling Growth Accelerates" was originally published by MarketBeat.
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