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00:00Why does this spinoff make sense right now? Tell us kind of the fundamental reason for doing this
00:05and why you want to be with that part of the business.
00:08Yeah, first, Tim and Carol, thanks for having me. And maybe the best part is a way to tell
00:15the story is to tell a little bit about Flex. Flex is one of the world's largest contract
00:21manufacturing company. We're the name behind the brand. So we make everything for folks who are in
00:27the automotive industry, in the healthcare industry, in industrial companies, consumer brands.
00:33Think of something, we probably make that. Through the years, when I joined Flex in 2019,
00:41I don't have a contract manufacturing background. I came from industrial companies. I ran Eaton's
00:47electrical business, worked in Honeywell, so didn't know much about contract manufacturing when I
00:53joined. But I knew one thing is that the world in contract manufacturing was changing. Contract
01:00manufacturing is built on the logic of labor arbitrage, scale, lowest cost. And with geopolitics
01:07and how the world was changing, it felt like a new model needed to emerge. So what we started doing
01:13at Flex was really other than kind of fixing the fundamentals of the business, exiting some kind
01:19of non-core parts of the portfolio. We spun off an asset called NextTracker in the solar space. That's
01:26a 17 billion dollar market cap company today. But then we focused on kind of a few end markets that
01:34we felt had potential. One of them, this was much before the TrackGPT moment, was power in the data center
01:43space. And now me coming from electrical and running Eaton's electrical business, noticed that Flex made
01:50the power that powered the chip. And I thought, well, compute's going to get power hungry someday.
01:55Let's figure out how to invest in power end to end. And we started putting a whole bunch of acquisitions
02:01together to really put together compute, cooling, because there was a lot of heat getting generated,
02:07and the power of the chip itself and all the power up to cutting utilities. So the last seven years,
02:14we have created this business that is focused on data centers and utilities that has been scaling up
02:22really, really fast. And so it felt like the perfect time to take that part of the company,
02:28which is more like a products business, and then spin it off into a standalone business that is catering to
02:36data center space and utilities, and then keep the contract manufacturing portion of the company
02:42focused on investing in kind of new growth markets that we see happening.
02:47For investors watching and understanding how you report right now,
02:51does it mean that the Flexigility Solutions part of the business is the part that's being spun off?
02:57Are there parts from both of these reportable segments that are being spun into the spin co?
03:02Yeah, so Tim, our fiscal year just ended, so we just started a new fiscal year, and we changed our
03:10reporting segments to help clarify this, because our data center portfolio was split between parts of
03:16agility and parts of reliability. So compute was in agility, power was in reliability, and so it wasn't
03:24all together in terms of external reporting segments. So we've just changed that, and our new fiscal year,
03:30it's called Cloud and Power Infrastructure CPI, and that is the segment that will be getting spun off into a
03:37new entity.
03:38So what's the growth in that segment versus the growth in the traditional manufacturing segment?
03:43Yeah, so the growth in the CPI business last year was around 38%, which was our last fiscal year.
03:51We have guided to this year being 65% to 75%, and then next year being 80 plus percent.
03:59So obviously heavy growth. In all the rest of the business right now, we have guided to kind of low
04:07to
04:07mid single digit growth. And that also in this parts of energy infrastructure that's growing fast,
04:14consumer is growing slowly. So net net, we're more comfortable about the low to mid single digit growth
04:21for what will remain in flex. So kind of almost, I hate to say old versus new economy, but it
04:28is
04:28very much a play on the AI build out, correct? It's fair to say that that's what this represents?
04:34It is a little bit of the AI build out, but really it is what is changing from a technology
04:40perspective.
04:41So I talked about, you know, if you think about the electrical infrastructure,
04:46what is going to change, I would say, in that infrastructure is pretty significant. It's
04:51driven by data centers in the sense that data centers are power hungry and power density has become a huge
04:58thing, but that is going to change how electrical infrastructure gets delivered within kind of
05:05the context of data center to grid. So a big reason is, yes, the growth of data center,
05:11but electrical infrastructure is going to change. So it means that distributed power is going to
05:16change. It's going to look different. So there's a technology revolution also happening. The growth is
05:21driving it, but the technology change is also driving why this makes sense at this point in time.
05:27You know, Ravati, I want to ask you though, that's interesting because I do think
05:30some of the conversations we're having starting slowly while everybody says we're early innings in
05:36this build out for AI, that this idea of an exit plan at some point, whether data centers are up
05:42in
05:42more, you know, up in space, like at some point that growth slows down. So is it the data center
05:49really
05:49fueling the growth now along with utilities, but longer term, do you feel like it will be utilities that
05:57are really the engine of growth longer, longer term?
06:00I believe so, Carol. So I believe that today data centers are fueling the growth, but data centers are
06:08also fueling the issue that the technology needs to change. Power density is so significant that we
06:15can't deliver power the same way that we were dealing with it before. So this idea of solid state
06:23transformers and how power is going to get delivered is becoming a very important way,
06:28which means that the grid needs to change, which means that utilities need to change.
06:33So it is, the growth is driven by data centers, the technology revolution is driven by them,
06:39but that has to make its way to the utility sector. So my belief is that now what you're seeing
06:45is with
06:46data centers, but that's going to translate into how power is getting distributed, how it's getting
06:51transmitted. All of that is going to change with time, which is going to drive a different kind
06:56of growth. Yeah. The big question that we've been asking, and we've been reporting on this a lot,
06:59is the effect that it has on consumers and in a world where we don't necessarily have
07:06all of that power right now. So where do you think that that power ends up coming from and what
07:12happens
07:12if we don't have the grids resilient enough to handle that power and we don't have a way to produce
07:20it
07:20in a way that doesn't cause all of these prices to go up for all of us?
07:26Yeah. Unfortunately, in the short term, prices have been going up because there is so much power
07:33getting consumed. And right now, it's somewhat of a zero-sum game in the sense that new power
07:40generation methodologies are not coming up fast enough. So a lot of people are making do by putting
07:48cogeneration systems, solar and alternate energy systems to get things up and running in the
07:55interim. But in the larger, in the longer timeframe, things like what is happening with nuclear and
08:02small-medium reactors, those kinds of alternate forms of power generation have to come into play.
08:09I have been in the energy space, Tim and Carol, for a long period of time. I remember going to
08:16so
08:16many utilities companies talking about we needed to change our distribution system, our substations,
08:22our transmission systems. Money wasn't there to be invested. So we are going through a generational
08:29change right now. And the idea that we're going to have to have new forms of power generation,
08:34like SMR, nuclear reactors, I think is an important way to think about this.
08:40I would say that we're making do in the medium term with other forms of power generation,
08:46but we will have to have new forms of this moving forward.
08:50Yeah. I feel like everybody we talk to about data centers, and we say,
08:53what kind of power? Solar, renewables, you know, carbon and nuclear. They're like,
08:59check, check, check. We need it all. Hey, we only have about 40, 50 seconds left here. You guys have
09:06a
09:06network of more than 100 facilities in approximately 30 countries across four continents. How resilient
09:12are your supply chains with what you guys have to do? You know, Carol, we're built for this purpose.
09:20I mean, I wouldn't take any credit for this, but we have managed through tariff issues,
09:27geopolitical issues, through trade wars, you know, through supply chain crisis, through a pandemic,
09:33we have such complex systems built, both from a software perspective, a very complex set of
09:42supply chain metrics that we track and manage on behalf of our customers and ourselves,
09:47that Flex is very competent to manage through any supply chain crisis that's thrown in front of us.
09:54And I would say this is our core competency. We do it amazingly well.
09:58Well, when does the spin-off, when is it completed? Just real quickly.
10:02We have said early next year, calendar year.
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