Slowly but surely, Celestica has been transitioning from low-margin electronics manufacturing services in the consumer space to higher margin enterprise work.The signs were there as early as this past January, when a Celestica (TSX:CLS) spokesman told the National Post that an “unnamed customer” whose flagging demand had been “well chronicled in the press” had hurt the company’s numbers.
Today, however, Celestica laid it plain, announcing that within the next six months it will wind down its manufacturing services for Research in Motion.
Assembling Blackberrys, as well as XBoxs and iPhones, was once Celestica’s bread and butter. But the Toronto-based IBM spinoff saw continual valuation woes as its electronics manufacturing services faced increased competition from China. This meant an already difficult business was becoming razor thin, margin wise.
CEO Craig Mulhauser, a former exec with Ford and GE who joined Celestica in May 2005, says he has worked hard to transition the company competitive into higher margin businesses, moving it from a contract manufacturing concern to a supply chain solutions company.
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The transition appears to be working; the company’s fiscal 2011 revenue of $7.2-billion was up 11% from the prior year, and Celestica was putting more of that money to the bottom line. The company generated $196.3 million in cash from operations during 2011, compared to just $165.9 million in 2010.
The consumer market, which was the bulk of Celestica’s business, is slowly becoming less important. In fiscal 2011, the company’s enterprise communications end market represented 26% of total revenue for 2011, up from 24% in 2010. RIM was one of two customers, the other being Cisco, that represented more than 10% of Celestica’s total revenue. RIM accounted for 19% of total revenue for 2011, down from 20% in 2010.
In a press release today, Celestica said it estimates that “prior to any recoveries, its restructuring charges will not exceed (US) $35-million.” The company also reaffirmed the financial guidance it provided on April 24th for its Q2, in which it expects revenue will come in between (US) $1.65 and $1.75-billion earnings will be between (US) $.20 and $.26 cents a share.
Shares of Celestica on the TSX closed today up 2.9% to $7.83.