How to Make Customers Stop Shopping Around

Most manufacturers celebrate when they figure out how to build something faster or cheaper. Celestica learned that efficiency had a catch, spending years getting more efficient and barely moving its margins.

Celestica’s FY2025 adjusted operating margin.

Here’s what you’ll learn: 

Traditional Electronics Manufacturing Services (EMS) is a structurally difficult business to profit from. Customers keep multiple suppliers on their approved vendor lists, rebid contracts regularly, and judge performance on three things: cost, yield, and delivery. Even great execution becomes a baseline expectation, because the customer can always point to a competitor and ask for a lower price.

Celestica's own filings describe the market as having "intense" competition and "aggressive" pricing. Large global rivals and original design manufacturers keep pushing rates down. Customers can threaten to bring production in-house or switch partners entirely. The buyer holds the power, and that advantage compounds over time.

Some of Celestica's contracts make the economics worse by design. The company discloses that certain agreements require scheduled price reductions over the contract term, and that these clauses have had, and are expected to continue having, a "significant adverse impact" on revenue, gross margin, and operating results. Factories get more efficient. Those savings flow back to the customer through pre-negotiated givebacks rather than accumulating as margin.

Customer concentration adds its own layer of risk. In 2024, Celestica's top 10 customers represented 73% of total revenue. Two customers alone accounted for 28% and 11%, meaning nearly 40% of the entire top line sat with two buyers. One pricing reset or program change from either of them can erase gains made across every other account.

These pressures showed up directly in the margin line. In Q4 2017, Celestica reported a non-IFRS operating margin of just 3.3%, a direct consequence of late demand changes from a handful of customers. It was a clear signal of how little buffer existed between strong execution and a bad quarter.

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Celestica didn't fix the pricing problem by pushing back harder in negotiations. It fixed it by changing what it sells.

The clearest expression of that shift is Hardware Platform Solutions, or HPS, inside its Connectivity and Cloud Solutions segment. HPS covers infrastructure platforms, hardware and software design, open-source software, and full program support from design through supply chain, production, and after-market service. That scope means Celestica works with customers early in development rather than waiting for a build specification to arrive. When a supplier helps shape the architecture, replacing them requires unwinding decisions that were made months or years earlier. The relationship stops looking like a vendor arrangement.

Celestica also chose markets where price competition is structurally limited. Its Advanced Technology Solutions segment serves aerospace and defense, industrial, healthtech, and semiconductor capital equipment industries with long qualification cycles, strict regulatory requirements, and certified supplier lists that don't turn over quickly. Defense programs frequently fall under ITAR, the International Traffic in Arms Regulations, and dual-use technologies carry EAR obligations under the Export Administration Regulations. Defense contractors also face rising cybersecurity requirements through CMMC, the Cybersecurity Maturity Model Certification, formalized through Department of Defense rulemaking. Compliance with these frameworks costs money and takes years to build. That friction is worth more to an incumbent supplier than any price advantage a competitor can offer.

The 2018 acquisition of Atrenne Integrated Solutions for $139 million made that positioning concrete. Atrenne brought two U.S.-based ITAR-certified manufacturing sites and more than 40 years of experience serving military and commercial aerospace customers. It was a sole-source provider on over 100 long-term programs, covering everything from design and manufacturing through testing and fulfillment. Customers on those programs had no alternative supplier waiting in the wings.

By FY2025, Celestica's repositioning had produced numbers that look nothing like a contract manufacturer. Revenue reached $12.39 billion, up 28% year over year. Adjusted EPS came in at $6.05, compared to $3.88 the prior year. Full-year adjusted operating margin hit 7.5%, the second consecutive year of 100 basis point improvement. Free cash flow was $458.3 million, exceeding the company's own outlook by $33 million.

The CCS segment drove most of that growth. In Q4 2025, CCS revenue reached $2.86 billion, up 64% year over year, with an 8.4% segment margin. HPS revenue came in at roughly $1.4 billion, up 72%. Celestica has noted that HPS carries a higher margin profile than traditional CCS work, which is what makes the revenue mix shift matter beyond the top line.

The center of that HPS growth is Ethernet switches for AI data center infrastructure. According to Dell'Oro Group, Ethernet accounted for more than two-thirds of data center switch sales in AI back-end networks in Q3 2025, up from less than half the prior year. In that Ethernet segment, Celestica and NVIDIA together held nearly 50% combined share. Total Ethernet data center switch sales exceeded $8 billion that quarter, more than doubling from three years earlier.

Three customers represented 36%, 15%, and 12% of Q4 2025 revenue. That concentration hasn't shrunk, but those are multi-year technology platforms, not assembly contracts that reprice every cycle.

Celestica announced 2026 capital expenditures of approximately $1 billion, roughly 6% of its annual revenue outlook, fully funded by operating cash flow, tied to customers' multi-year AI infrastructure plans. The U.S. expansion supporting Google's Tensor Processing Unit systems is targeted for completion in 2027.

Key takeaways to consider…

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$12.39 billion - FY2025 revenue (+28% YoY from $9.65 B)

$115.0 million - Share repurchases in first nine months of 2025

$458.3 million - FY2025 non-GAAP free cash flow

56% - FY2025 Adjusted EPS growth 

$1B - Projected capital expenditures for 2026

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