Flex（FLEX）2027年度第2四半期決算説明会：売上高は25%増加、CPI見通しを引き上げ

主要なポイント

• Flexの2027年度第2四半期売上高は85億ドルと、前年同期比で25%増加し、調整後営業利益は48%増の6億700万ドルとなりました。
• 調整後営業利益率は110ベーシスポイント拡大して7.1%となり、調整後EPSは過去最高の1.18ドルに達し、49%増加しました。
• 将来Axiomとなる予定のクラウド・電源インフラ部門（CPI）の売上高は25億ドルとなり、前年同期比54%増を記録し、営業利益率は240ベーシスポイント拡大して10.7%となりました。
• 経営陣は2027年度のCPI売上高成長率の見通しを75%〜85%に引き上げ、全社売上高は349億ドル〜359億ドルを見込んでいます。
• 2027年度の調整後EPSは4.84ドル〜5.16ドルと見込まれ、中間値で52%の成長を示します。調整後営業利益率のガイダンスは7.6%〜7.8%です。
• Flexは引き続き2027年初頭のAxiomの分離を目標としています。同社は10月14日にEPC Powerの買収を完了し、短期的には支払利息が増加するものの、この買収は2027年度の業績にプラスとなると見込んでいます。

主要財務実績

特に記載がない限り、すべての数値は非GAAPベースです。変動率は特記のない限り前年同期比です。

事業および営業業績

クラウド・電源インフラ

CPIの成長は、電源、クラウド、冷却の各分野での好調さを反映しています。電源の営業利益率は約16%に達し、出荷量の増加と前年の投資拡大に支えられて約550ベーシスポイント上昇しました。

経営陣はCPIの利益率拡大要因として、良好な製品ミックス、価格設定、営業レバレッジを挙げました。電源分野はクラウドや冷却分野よりも早いペースで利益率の拡大を続けると予想されています。

Flexによると、Axiomは計算能力、電源、熱管理の機能を兼ね備える予定です。同社は800ボルトアーキテクチャおよび全固体変圧器の開発に投資しており、EPC Powerの買収によって追加されたデジタル電力変換技術は、現在利用可能な技術を用いて電力効率の向上をサポートできると経営陣は述べています。

冷却分野はまだ比較的初期段階の事業です。経営陣は、試験および導入時期に応じて、今後6か月間に新しい冷却製品が計画されていると述べました。

RMSおよびITS

RMSとITSを合わせた成長率は16%となり、4四半期連続で前年同期比増となりました。RMSは、エネルギーインフラ、倉庫自動化、ロボティクスなどの産業向け需要の伸びから恩恵を受けました。

ITSの成長は、データセンター拡張に伴う通信および先端ネットワークプログラムが牽引しました。消費財関連やライフスタイル向けエンドマーケットの伸び悩みにより、その力強さは一部相殺されました。

経営陣は、ヘルスケアと自動車事業について、製品サイクルが長く、規制要件があり、乗り換えコストが高い事業であると説明しました。通信分野では、Flexは衛星通信、先端ネットワーク、エンドユーザー向けインフラに及ぶ能力を強調しました。

経営陣の業績見通し（ガイダンス）

2027年度通期見通し

経営陣によると、当年度中に完了した買収は、予想されるCPIの成長率のうち約10パーセントポイントを占めています。従来の全社売上高ガイダンスからの約9億5000万ドルの上方修正のうち、約半分はFlexの事業自体の好調さを反映し、残り半分はEPC Powerの買収によるものです。

RMS内では、産業向け市場が牽引し、1桁台半ばから1桁台後半の売上高成長を見込んでいます。ITS売上高は通信分野に支えられ、10%台前半から10%台半ばの上昇が見込まれます。CPI内では電源分野がクラウドよりも早いペースで成長すると予想されています。

2027年度第3四半期見通し

リスクと注視点

• 経営陣は、部品不足と供給制限が引き続き課題となると予想しています。2027年度のガイダンスには、想定される供給制限が織り込まれています。
• 高成長かつ高付加価値なプログラムへの準備に伴い、棚卸資産が増加しました。同社によると、顧客による運転資本への関与は通常、そのビジネスモデルの一部となっています。
• ハイパースケーラーがインフラ支出の大部分を占めているため、Axiomの露出はそれらに集中しています。経営陣は、単一のプログラムに依存するのではなく、顧客、製品、および複数のプログラム全体での分散化を目指しています。
• 2027年度の設備投資額15億ドル〜16億ドルは高水準であり、その約3分の2がCPI向けです。下半期の支出の多くは、2028年度のキャパシティ拡大を支えることを目的としています。
• FlexはEPC Powerの買収に関連して44億ドルの負債を負いました。同社は取引完了を前提として、20億ドルのAxiom転換可優先株式による手取金を用いてその負債のうち約20億ドルを返済する計画です。
• 計画されているAxiomのスピンオフは、関係当局の承認および完了要件に従うことになります。経営陣は引き続き2027年初頭を目標としています。

アナリストQ&Aの要点

キャパシティおよびサプライチェーン

経営陣は、CPIの成長を支えるキャパシティおよび電力インフラ計画は十分に余裕を持って着手されたと述べました。これらのプロジェクトには電力会社や変電所との接続が必要となる場合があります。Flexは、自社の設備と計画されたキャパシティが見通しを十分にサポートできると考えている一方、部品の調達状況がサプライチェーン上の主要な制約要因であり続けています。

Axiomの技術戦略

経営陣は、計算能力と電源を既に強みのある分野と見なす一方、冷却はまだ発展途上であるとしています。Axiomは、組込み電源、クリティカル電源、800ボルトアーキテクチャ、EPC Powerの電力変換技術を含め、電力インフラからチップに至る包括的な電源ポートフォリオを構築することを目指しています。

分離後の資本集約度

Flexの2027年度の設備投資の約3分の2はCPIに割り当てられ、残りがRMSとITSの支援に回されます。スピンオフ後のFlexの事業については、当面の間、設備投資が過去の歴史的水準である売上高の2%以下に戻ると経営陣は見込んでいます。

ロボティクスの機会

Flexはロボティクスを高付加価値な6つの市場の1つとして位置づけています。現在の取り組みには、倉庫自動化、固定自動化、協働ロボットが含まれます。また、経営陣はヒューマノイド（人型ロボット）技術のロードマップにも参加していると述べましたが、今後1〜2年以内に社内で本格的なヒューマノイドシステムが導入されるとは予想していません。

決算説明会トランスクリプト全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Greetings, and welcome to Flex's Second Quarter Fiscal Year 2027 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

[Operator Instructions] It's now my pleasure to turn the call over to Michelle Simmons, Senior Vice President, Global Investor Relations and Public Relations. Michelle, please go ahead.

Michelle Simmons

Good morning, and thank you for joining us today for Flex's Second Quarter Fiscal 2027 Earnings Conference Call. With me today is Revathi Advaithi, our Chief Executive Officer; Kevin Krumm, our Chief Financial Officer; Michael Hartung, our Chief Commercial Officer; and Amy Schwetz, who we previously announced as the expected CFO of Flex post spin, will give brief remarks followed by Q&A.

Slides for today's call as well as a copy of the earnings press release are available on the Investor Relations section of flex.com. This call is being recorded and will be available for a replay on our corporate website. Today's call contains forward-looking statements, which are based on our current expectations and assumptions. These statements involve risks and uncertainties that could cause actual results to differ materially. These statements reflect expected results for the full fiscal year and did not give effect to the planned spin-off of the Cloud and Power Infrastructure segment.

Any references to the planned spin-off, including its timing, Form 10 status and the leadership of each company following the separation are forward-looking and remain subject to applicable approvals and completion of the spin-off. For a full discussion of these risks and uncertainties, please see the cautionary statements in our presentation, press release or in the Risk Factors section in our most recent filings with the SEC. Note this information is subject to change, and we undertake no obligation to update these forward-looking statements.

Please note, all growth metrics will be on a year-over-year basis unless stated otherwise. Additionally, all results will be on a non-GAAP basis, unless we specifically state it's a GAAP result. The full non-GAAP to GAAP reconciliations can be found in the appendix slides of today's presentation as well as in the summary financials posted on the Investor Relations website.

Now I'd like to turn the call over to our CEO. Revathi?

Revathi Advaithi

Thank you, Michelle. Good morning, and thank you for joining us to discuss Flex's Second Quarter Fiscal 2020 Results. Before I begin, I'd like to start by welcoming Amy Schwetz to the team, who will become the Chief Financial Officer of Flex after the spin-off. I look forward to working with both her and Michael Hartung, who will lead Flex as CEO through this transition and to seeing Flex continue to excel under their leadership.

Now I'll start with our performance for the quarter. We delivered another fantastic quarter in Q2 revenue growth accelerated. We expanded margin across all 3 segments and earnings reached a new record of $1.18 per share. Our results reflect continued execution across the portfolio and demonstrate the strength of our strategy, our diversified end markets and our ability to help customers navigate an increasingly dynamic environment. At the same time, we continue to make significant progress on one of the most important milestones in our company history, the planned spin-off of our Cloud and Power Infrastructure segment now known as Axiom.

Since our last earnings call, we have reached several important milestones as we've moved from announcing the transaction to building 2 focused industry-leading companies. Last month, Axiom filed a Form 10 registration statement, providing a more detailed view of Axiom's strategy, financial profile, leadership team and growth opportunities. That filing marked an important step forward and reflects the tireless work of our teams have been doing behind the scenes to prepare for the separation. We also announced the expected leadership teams for both Flex and Axiom.

One of the things that gives me great confidence in this next chapter is the strength of our leadership bench. Across both organizations, we have experienced leaders with deep expertise in technology, in manufacturing, operations, customer engagement and innovation who are ready to lead from day 1. And perhaps most exciting for me, we officially unveiled the Axiom name and brand. Building a new company is a rare opportunity. Over the past several months, we have spent a great deal of time defining not only what Axiom will do, but what it will stand for. For me personally, the name review was a meaningful milestone because it made something we've been building become more tangible.

Axiom is no longer just an idea. It's taking shape as a company with its own identity, leadership team, culture and purpose. It has been incredibly rewarding to share that vision with employees, customers, partners and our investors. As we've discussed before, we believe Axiom is uniquely positioned to lead the next generation of critical digital and electrical infrastructure. By bringing together power, thermal management and compute expertise Axiom helps customers deploy increasingly complex infrastructure with greater speed and scale as AI demands more of the physical infrastructure behind it.

The future of AI infrastructure goes beyond the chip itself. It depends on power, cooling, compute and the ability to deploy and operate infrastructure at scale. Those are the capabilities we've spent years building and honing and they're the reason we believe the company is uniquely positioned for the opportunities ahead. We have outlined our strategy for Axiom, and we are working diligently through the spin-off to position the company for further success. Earlier this month, we announced the closing of our acquisition of EPC Power which further strengthens Axiom's portfolio of end-to-end solutions and EPC's engineering expertise complements our existing research and development into 800-volt architecture and solid-state transformers, technologies that will define the next-generation data center.

The success of this strategy is evident in the results we are producing even before the spin. Our CPI segment grew 54% year-over-year in Q2 and delivered margin expansion of over 200 basis points. At OCP, earlier this month, we introduced prefabricated AI modules, which help accelerate AI factory deployment by up to 50%. The work we're doing leading up to the spin is building upon the strength of what is already an incredibly successful business. The spin is about creating 2 stronger companies with distinct identities focused strategies and ability to pursue their respective opportunities.

While Axiom will be purpose-built to help power the AI infrastructure revolution Flex will emerge as a more focused industrial technology, manufacturing and supply chain leader. I'm extremely excited about what Flex will become after the spin. Flex enters this next chapter from a position of strength with leadership positions in attractive end markets and a proven track record of profitable growth and cash generation. In Q2, our RMS and ITS segments together grew 16%, representing the fourth consecutive quarter of year-over-year growth.

Over the last several years, we have transformed Flex into a stronger, more focused companies with higher margin, improved returns and a more attractive portfolio. Under Michael's leadership, Flex will build on that transformation. The company will be focused on markets for its engineering, vertically integrated manufacturing and supply chain capabilities create meaningful competitive advantage and long-term value for customers. As a stand-alone company, Flex will have greater ability to continue evolving its portfolio and allocating capital towards its highest return opportunities. Many of the markets where Flex has been investing in building leadership position over time sit at the intersection of a long-term technology and industrial trends, including health care, energy, infrastructure and communications.

We believe these are attractive markets where complexity, reliability and speed matter and where our capabilities can continue to drive differentiated growth and returns over time. These businesses are supported by durable secular growth drivers strong customer relationships and capabilities that are difficult to replicate. Combined with our financial discipline, our cash generation ability, productivity culture and commitment to shareholder returns we believe Flex is exceptionally well positioned for its next chapter.

At Innovation Day, you will directly hear from the Flex leadership team, where they will take Flex from here. What excites me most is that we're not creating 2 companies searching for their future. We are creating 2 industry leaders, each with clear purpose, differentiated capabilities and substantial opportunities to create value. As we look ahead, I believe both companies are entering some of the most exciting periods in their history.

And we're looking forward to sharing much more on November 10 at our Innovation Day, where investors will hear directly from the expected leadership teams of both Flex and Axiom, and we'll provide a deeper look at the strategies, the market opportunities and long-term plans that will guide both companies going forward, including how each intends to strengthen its competitive position and create long-term shareholder value. Most importantly, we'll show why we believe both companies are built to win, built with clear purpose built with the right capabilities and leadership and build to create long-term value for customers, employees and shareholders.

With that, I'll turn the call over to Kevin, who will walk through the financials in more detail.

Kevin Krumm

Thank you, Revathi, and good morning, everyone. Before I go through the quarter, I'd also like to welcome Amy Schwetz to the team. I'm confident in her leadership and her impact, and I'm excited to be working with her through the remainder of the spin-off process.

I'll now review our results for the second quarter of fiscal year '27. We are continuing to execute well. We've got a great group of businesses and a great team and all are performing at a high level as we approach the spin-off in early 2027. I'll start with our key financials on Slide 8. Second quarter revenue came in at $8.5 billion, up 25% versus the prior year. Adjusted gross profit totaled $842 million, and adjusted gross margin improved to 9.9%, up 60 basis points year-over-year. Adjusted operating profit was $607 million, up 48% from the prior year, with adjusted operating margins at 7.1%, up 110 basis points year-over-year, driven by continued productivity improvements as well as business mix. Finally, adjusted earnings per share for the quarter increased to $1.18 per share, up 49% versus the prior year.

Turning to our quarterly segment results on the next slide. Regulated Manufacturing Solutions revenue was $2.7 billion, an increase of 9% versus the prior year driven by industrial. Adjusted operating income was $172 million adjusted operating margin was 6.4%, up 50 basis points year-over-year, primarily driven by industrial. Revenue from our Integrated Technology Solutions segment totaled $3.3 billion, up 22% versus the prior year, driven by continued strong growth in communications. Adjusted operating income was $181 million and adjusted operating margin was 5.5%, an increase of 20 basis points year-over-year driven by communications and offset by weakness in consumer-related end markets. Finally, Cloud and Power Infrastructure revenue totaled $2.5 billion, up 54% versus the prior year, driven by continued strength in both Power and Cloud and cooling.

Adjusted operating income was $268 million and adjusted operating margin was 10.7%, and up 240 basis points year-over-year driven by margin expansion in both power and cloud and cooling as well as favorable mix impacts from power growth. Power segment operating margin increased to approximately 16% and up roughly 550 basis points year-over-year driven by strong volume growth and the benefits of scaling the investments we made last year.

Moving to cash flow on Slide 10. Free cash flow in the quarter was $261 million and was negatively impacted by onetime cash costs of $61 million, driven by activity related to the announced spin-off. Q2 inventory was up 13% sequentially and 39% year-over-year, driven by revenue growth. Inventory net of working capital days was 60 days, an increase of 5 days from the prior year. The increase in inventory is primarily mix related, reflecting the inventory required to support our higher growth, higher value programs. Second quarter net CapEx totaled $240 million or approximately 3% of revenue.

Turning to our updated outlook on Slide 11. For fiscal year '27, our expectations are the following: revenue to be between $34.9 million and $35.9 billion, up 27% at the midpoint. Specifically, we expect CPI revenue to increase between 75% and 85%, while we expect combined RMS and ITS revenue to increase between 8% and 11%. Adjusted operating margin is expected to be between 7.6% and 7.8%, an increase of approximately 140 basis points year-over-year at the midpoint. For CPI, we expect adjusted operating margin to be between 11.5% and 11.7%. And for combined RMS and ITS, we expect adjusted operating margins to be between 5.9% and 6.1%.

We expect an adjusted tax rate of approximately 21%. We expect adjusted EPS to be between $4.84 and $5.16 per share, up 52% at the midpoint. Finally, we expect CapEx to be in the range of $1.5 billion to $1.6 billion, and we expect free cash flow conversion of approximately 40%. As previously announced, we completed our acquisition of EPC Power on October 14. We also announced on October 5, an agreement to sell $2 billion of Axiom convertible preferred stock. The net proceeds of which will repay approximately $2 billion of the $4.4 billion in debt incurred as part of the EPC acquisition. As such, we expect elevated interest expense associated with debt from the acquisition in the short term, which will be reduced upon completion of the convertible preferred equity transaction. Despite the increased interest expense, we expect the EPC power acquisition to be accretive in fiscal 2027.

Moving to our updated FY '27 segment outlook. For RMS, we expect revenue to be up mid-single digits to high single digits driven by strength in industrial, including energy infrastructure, warehouse automation and robotics. For ITS, we expect revenue to be up low double digits to low teens on continued strong growth in communications. As previously referenced, for CPI, we expect revenue to be up 75% to 85% and driven by both power and cloud and cooling with power growing faster than cloud. This guidance now includes our acquisition of EPC Power, which closed on October 14. We now expect CPI operating margins to expand approximately 240 basis points year-over-year, assuming the midpoint of our guidance, up from our prior expectation of approximately 100 basis points.

Looking ahead, we expect continued margin improvement supported by volume growth, productivity gains and the contribution from EPC power. Finishing off with our guidance for the third quarter on Slide 13, we expect RMS to be up low single digits to mid-single digits, driven primarily by industrial and health care. We expect ITS revenue to be up mid-single digits to high single digits as strong growth in communications is offset by weakness in consumer-related end markets. We expect CPI revenue to be up 105% to 115% and as recent investments in both cloud and cooling and power contribute to strong growth. For Total Flex, we expect revenue in the range of $8.87 billion to $9.17 billion, up 28% at the midpoint, with adjusted operating income between $685 million and $715 million.

Interest and other expense, which now includes debt associated with the EPC acquisition is estimated to be around $120 million and the adjusted tax rate to be around 21%. Lastly, we anticipate adjusted EPS to be between $1.19 and $1.25 per share up 40% at the midpoint based on approximately 375 million weighted average shares outstanding. In summary, we delivered a strong first half of fiscal year '27 and we are carrying that momentum forward into the second half of the year.

With that, I will now turn the call back over to the operator to begin Q&A.

Operator

[Operator Instructions] Our first question today is coming from Ruben Roy from Stifel.

質疑応答

Unknown Analyst

Kevin, maybe we could start with some of the guidance commentary and the fiscal '27 guide, you've got a $950 million increase from the prior guide. Can you help us out with organic growth embedded in that increase versus the acquisitions, EPC and others, et cetera.

Kevin Krumm

Yes, Ruben. So for the full year, we increased -- I'll talk first with CPI because that's where the line -- all the acquisitions this year have happened. So we guided to an increased range of 75% to 85% for the year. And inside of that, I would say about 10 percentage points of that is going to be growth related to acquisitions we've completed during the year. So you can -- the 2 that we've completed are the EP Squared acquisition, which we announced in the first quarter and then EPC recently.

Unknown Analyst

Right. But I was wondering if you could kind of split that. So I guess what you're saying is that there's not a lot of...

Revathi Advaithi

I think, Ruben, your question is only EPC power, right?

Unknown Analyst

Yes. I guess, is there any way to think about the contribution from PTC?

Kevin Krumm

Okay. Yes. So we've talked about EPC next year in our announcement and the growth that we were going to have, which was approximately $800 million this year growing next year inside of our guide -- increase guide to guide, if that's your question, we increased about $950 million of which, I would say, approximately half of that is underlying improvement in Flex and the other half would approximately would be the EPC acquisition we brought in.

Unknown Analyst

Perfect. And Revathi, for a follow-up, let me ask a sort of a bigger picture question here. You've done a few acquisitions now. You're spanning the embedded to critical power [Indiscernible] power conversion. And a lot of investors asked us about the power strategy longer term. But there's a lot of other things going on, cooling, compute, et cetera. How are you thinking about sort of having a broader set of technologies combined with Power? Is that showing up in your win rates and customer economics from a margin perspective? Or should we still focus mostly on power is sort of the key area of the strategy going forward?

Revathi Advaithi

Yes, Ruben, say, we'll talk a lot more about this on November 10 in our Innovation Day. But when I think about CPI or Axiom moving forward, I'd say all 3 compute, cooling and power, all 3 are important in terms of how we are building up the overall systems capability. Today our areas of strength where we are market share leaders and our technology leaders are both in compute and in power.

I'd say cooling, our presence is still nascent. It is something that we are growing into with new product launches that are planned over the next 6 months. So that I believe will accelerate in our overall capability. But both compute and power are pretty integral to our overall strategy, both from where we stand today as market share leaders and where we move forward with in terms of our overall capability.

Operator

Our next question is coming from Mark Delaney from Goldman Sachs.

Mark Delaney

So I'm going to start on the power business and putting the EPC deal aside for the moment, can you share more on the competitive positioning of Flex in the power portfolio? And has there been any meaningful change in the company's market share for either fiscal '27 or beyond? And then more broadly on CPI, how is that segment tracking relative to the prior [Indiscernible] outlook for fiscal '28?

Revathi Advaithi

Yes, I'll start off, Mark. I would say if you think about power overall, both our embedded power and our Critical Power business are both fantastically positioned from a technology perspective and a growth perspective. If you think about our Power segment growth this year and even what we'll share later in Innovation Day, I'd say well about its peers in our existing segments. And it's a good indication of where our technology stands and kind of how the teams are performing with our capacity execution we talked about that happened last year.

So feel really good about our positioning, both in embedded power and in critical power. As you know well, embedded is all about technology and where we are positioned in the technologies. So right now, embedded is all about continuing to execute on capacity and additions to drive the growth. CPI, I would say, performing extremely well. So both businesses, I feel really good about overall in terms of the position. I'd say for -- your second part of your question on CPI for next year. Kevin, do you want to handle that in terms of the 80%?

Kevin Krumm

Yes, sure. So as we move through -- we started the year mark 65 to 75. We increased that -- so underlying there, there is -- even excluding the EPC acquisition, we've been performing well. And our momentum this year has been north of our original expectations in CPI. While we're not going to offer a new guide for FY '28 right now, I would just say that momentum we expect it to carry through. And of course, as time has passed, we have better line of sight into next year, and we'll update you on that at Investor Day.

Mark Delaney

Understood. My other question was also on CPI. I mean the incremental EBIT margins in the just completed quarter were very strong and accelerated. I don't know if you could double click a bit more on what was driving the strong incremental margins and just how you see the potential for CPI organic EBIT margins going forward?

Kevin Krumm

So yes, in the quarter, we talked about a strong quarter. We finished with power margins in the mid-teens. The power growth is a big piece of the incremental margins you're seeing there. Although our cloud business continues to perform with different expectations with good incrementals as well. Across the board, we saw mix favorability, pricing and volume leverage. We talked about the investments we made last year. We're scaling through those, and we're seeing that volume leverage pull through from an incremental perspective as well. So those are the really the big drivers.

As we go forward here, again, expectations on the power side of the business continue to drive margins up. Cloud and cooling, as we talked about it, we had expectations there. We just don't expect them to move sequentially at the same rate as power as we continue to climb towards industry averages.

Operator

Your next question is coming from Ruplu Bhattacharya from Bank of America.

Ruplu Bhattacharya

I have 2. Revathi, it was interesting to hear Chris and Rob at OCP. I think their presentation was stressing that you can achieve 97% power efficiency to the rack even without [Indiscernible]. So as you start off as a new company, where do you see Axiom focusing on in terms of R&D and development? Is 800-volt and SSD development a priority for you? And just as you look at your competitors, which are larger companies, how do you see yourselves attacking this market? And how do you see yourself focusing on R&D versus acquisitions?

Revathi Advaithi

Yes. I'd say, Ruplu, first is, we are very, very committed to and focused on both the 800-volt technology. We're the market leaders in that, as we have talked about before, there's a couple of players who are very strong in this space. And Flex or Axiom is definitely one of them. Solid-state transformers. We've talked about we had our own organic program that was going on, which will now get added on to with the EPC power acquisition with their own organic technology development program that was going on.

But the way I think about this having done this for a very long time, Ruplu, is that it is important to drive incremental efficiency in the overall powertrain value without waiting for the SST transition to happen. And I think that's important to really have the focus on that because as most of you know, electrical transitions take a long time because of the regulatory and safety environment associated with it. So our view is, in the meantime, you can achieve the 97% power efficiency with digital rectifiers that exist in the marketplace today, which is a huge part of the reason why we bought the EPC acquisition because it provides a transition technology solution that is very strong and can get deployed today, while we wait for things like SSDs and all of that to show up.

So we feel very good about both but feel even strongly about the fact that we can deploy that power efficiency today, which a lot of customers are very excited about, Ruplu.

Ruplu Bhattacharya

My follow-up is for Kevin or Michael. RMS revenues were flat sequentially, but margins declined 20 bps sequentially. Can you maybe just talk about the puts and takes and which segments, which end markets are coming back, Michael, and what the levers do you have for margin improvement going forward?

Michael Hartung

Thank you for the question, Ruplu. Probably the easiest place to start is to really look at the business overall when you think about RMS and ITS combined. So as Revathi mentioned in her prepared remarks, Q2 actually represents the fourth consecutive quarter where both RMS and ITS delivered year-on-year growth. Because that growth was driven by our higher value markets, we are also able to expand margins at a higher rate than we were growing revenue. So the business is in very good shape and positioned from strength.

When you think about Q2, very strong result, high-value markets driving that growth across both RMS and ITS. As Kevin mentioned, on the ITS side, communications continues to be strong on the RMS side, Industrial continues to be strong. And so when you think about where we were at the beginning of the year, a couple of things are important to note. In the first half, we performed better than we expected across both ITS and RMS. Again, in ITS Communications driving that strength, but primarily from our advanced networking business which is one of our high-value markets and are tied to those AI-related trends for data center buildout. RMS also over-delivered in the first half.

Automotive performed as expected in a stable environment. Health care grew as expected, which should be no surprise. These are longer product life cycle businesses to perform on a consistent, steady basis. And then as mentioned, industrial over delivered primarily on the strength in our energy infrastructure business where those businesses are tied to the AI and data center build-out, but also our robotics business was strong. And those things are tied to the deployment of physical AI and regionalization of the supply chain.

Now as you look forward into the second half, keep in mind, we also highlighted that we're going to be lapping stronger comparables given that the second half of last year is really where that momentum started to build. And so in the second half, we're still delivering growth on top of growth. Now there is some nuance to that. And underlying that, we are seeing incremental weakness in lifestyle, but that is being offset by communication in the ITS business. And in RMS, we are continuing to see consistent performance. And although it might not be linear in every single quarter, you can rest assured that when we think about the guide for the year, we expect both revenue growth and margin expansion.

Operator

Your next question today is coming from Tim Long from Barclays.

Timothy Long

Two questions, if I could as well. First, maybe a little bit more generic thinking about the strong growth in CPI specifically for fiscal '27 and '28. I guess, both 80% at this point. Could you just touch a little bit on kind of capacity components, CapEx needed, power availability, things like that, that give you confidence that we can meet those numbers and what still could be a tight supply area?

And then secondly, I was hoping you could just touch on the cloud-related business. Maybe you could just give us a little sense on some of the subparts there, that might be more driving growth, whether it's rack assembly or custom ASIC programs or the growth in liquid cooling that you mentioned as a nascent business. So if you could just give us a little color there, that would be helpful.

Revathi Advaithi

Yes, Tim, I'll start off. I'd say in CPI, for the guide we gave for FY '27, which is the $65 million to $75 million midpoint of $70 million. And then the one for next year, which is 80%, I will update here in Investor Day. The capacity plans were already in place starting last year. And for the 80% guide, obviously, capacity plans have been in place this year. So that have been putting in place for a bit. The power requirements required for that also have been ongoing for a while.

In some cases, you have to connect utilities and substations into these factories for the power requirements, so these have been very, very stringent project planning by our teams to get the capacity in place for the CPI ramps that we have been talking about. So it will be -- it's a couple of year journey for this kind of growth, right? So I feel good about the things we control, that is capacity, power availability. And our teams are very good at standing up these types of facilities and ramping them up. So that is going really well.

I'd say on the components side, I mean, the shortage issue, I think you all know extremely well. We are going into -- we have been in a situation in the last 12 months, which will continue over the next I think few years in terms of component shortage and availability, the supply-demand equation is definitely tilted. But again, Flex is very good at being able to chase suppliers, look at open market availability. That's why customers come to us. And we take some of that into account, Tim, as we give our guidance, we estimate what kind of shortages we think we'll have, and we plan for that. You know very well how our guiding process was, and you guys give me a lot of pushback about being conservative. So I'd say component shortage is definitely plays into how we think about the guide, and we have included that and how we -- all the forecast that we have.

On the cloud-related business, I would say, Tim, our focus always in the cloud-related business has been more in the custom configuration. We have been very clear before that. Our focus is around where there is specialty work, where there's complicated work, highly technical in terms of testing capability. So while it is around rack integration and things like that, it is in the custom space. We don't do standard configurations in general.

The places we are -- I would say, pushing further into this space is more in terms of vertical integration. I've talked before about we like to be able to be the ones who are cutting metal and doing all of that. So doing most of the rack work is really important to us. So we can take that from industrial players who tend to do it today. So I would say vertical integration into that. The other big play is the service side, which is fairly nascent in some cases. We have a big ramp going on in Memphis as a result of that. So really doubling down into the aftermarket service because a lot of these racks are going to get pulled out over the next couple of years and need to get reconfigured and put back in.

And then I'd say on the cooling side, like I said, nascent for us, but we have big product lines coming out that is really going to position us extremely well. It will take a few months to get all the testing done and to deploy them, but feel really good about being able to ramp into the cooling business. So cloud overall, strong growth. And like Kevin said, we feel good about the incrementals in that business and how we are delivering. And for us, it's never been about just go get volume. We want the volume to come with great operating margins that are incremental to what we do, and we wanted to have good working capital metrics. Only those are the kinds of business we go pursue and cloud, which is a very high ROIC business as all of you know.

Operator

Next question is coming from Steven Fox from Fox Advisors.

Steven Fox

First question I had was you guys mentioned in the prepared remarks, focus on the legacy business with health, energy and comms, difficult to replicate capabilities I was wondering if you could just sort of dig into that a little bit, give us an idea of what you're thinking about when you make that statement? And then I had a follow-up.

Revathi Advaithi

Michael?

Michael Hartung

I'd say when you think about the high-value markets and where we intend to emphasize, they're really based on 2 underlying principles. One, the end market growth enables us to grow at double digits. And also, those markets tend to require complex solutions that enable us to earn margins above the company average. And those types of things include everything from, call it, regulatory environment. So on our health care business. We have an extensive footprint that is FDA certified that can not just ramp new programs, but sustain those over the long term. And that provides us with a certain amount of protection over the long term because the switching costs tend to be so high and the investments tend to be more considerable when you start up those businesses. So regulatory was one aspect.

When you think about automotive, I think it was also part of your question, similar things, highly regulated environments, long product life cycles and those things create a moat for a competitive advantage over the long term. When you think about communications, what we think about is this really unique offering that we now have, but you consider both our communications business that we've built over years, our recently talked about Advanced Networking business and our satellite communications business. So we now have a portfolio of solutions that scales from space to earth to end user. And those combined capabilities are truly differentiated in the marketplace, when you consider that they operate at scale in multiple regions across the globe. So those are the types of things, whether they be regulatory, technology or scale related items that provide us with that protection, that long-term competitive advantage.

Steven Fox

Great. That's helpful. And then as a follow-up, Revathi, I think one of the things people have been sort of dialing in on is just going to be the customer concentration of Axiom post-spin. And I was just curious -- maybe you can give us a little bit more color on how diversified you are with your top 2 customers, how maybe that business flow gives you sort of confidence in the visibility, things like that, to get comfortable with the idea that you have 2 customers that could be like 60%, 70% of sales.

Revathi Advaithi

Yes, Steven, I think as I've talked about diversity and customer concentration in the light of first is who's investing in this build-out that is happening. So if you start with that, it is clear obviously that of the $1 trillion expansion that is going on a significant portion of that comes from a few hyperscalers. And within those hyperscalers, it's very clear in terms of who do custom configuration where we can win, and where the spend is coming from. So our focus around hyperscalers is we want to be very diversified in these hyperscalers. So we just -- we don't want to do only cloud compute integration we want to be able to do everything from designing your power modules to designing your custom embedded power to our 800-volt [Indiscernible] to the entire distributed power now all the way to beyond the meter with our solutions around Crown, our EP Square and our EPC power capability.

So we want to start all the way from utility substation to be able to take it to the chip itself, and we want to be fully diversified inside each hyperscaler. So I think about customer concentration can't walk away from the fact that hyperscalers are spending the most amount of money. If you want to be able to grow your market share, you have to grow with these hyperscalers. So that is important, but we want to be diversified in our full portfolio across all of them. So -- and each of the business units have to have multiple programs for each of these hyperscalers not just individually 1 program that they're working on.

I would say it's interesting, I've been in the electrical space for a very, very long time, Steven, as you know, even the very traditional electrical players are now ending up with more concentration around hyperscalers because that's where the spend is. Even power spend is more concentrated towards hyperscalers. So I think this is a good story because if you are not concentrated towards hyperscalers, you're going to be losing market share in this space. So -- and our focus is across multiple products, multiple programs with these hyperscalers.

Operator

[Operator Instructions] Our next question is coming from Luke Junk from Baird.

Luke Junk

Kevin, I want to circle back to supply chain. It's been topical recently, especially in CPI. Just hoping you can walk us through some of the levers that you're pulling there in terms of inventory investment getting support from some of the larger customers or similar dynamics? And just maybe speak to your level of contents as well or maybe some specific buffers that you've included in guidance for supply chain.

Kevin Krumm

Luke, thanks for the question. As we look towards our guide in Q1 when we gave our full year guide, we had understood it was going to be a difficult year from a supply chain sourcing standpoint. So that's been reflected in our guide through the year and is, of course, reflected in our current guide. As Revathi talked about it, we have a unique capability here in this organization to manage through those elements in a year like this year, and our team is doing a fantastic job.

Our customers, as you know, as we think about inventory and the ramps that we have in place, of course, our inventory build is not going to be linear. As we move through the year, we've seen some inventory increases. Generally, our model requires our customers to participate in that. So we have -- we generally talk about inventory, net of working capital advances. But we've been working -- when you look at working capital across the board, our teams have been doing a good job to stay really well balanced from a working capital investment standpoint, rates specifically our teams have managed well too.

So rocky environment, it's been in our guide we're going to see it in inventory, especially as we ramp these programs, but we don't expect it to longer term to have any negative impact from a rate standpoint.

Luke Junk

Got it. And then for my follow-up, Revathi, just be great to get your perspective on the power portfolio margins and CPI now that the Form 10 is out, just how you think about the embedded portfolio today relative to critical and some of the major chunks moving towards industry averages, I'm sure we'll get into that more at Investor Day as well.

Revathi Advaithi

Yes. Look, we'll share a lot more at the Investor Day. But I'd say that if you think about embedded power and critical power they both play and then now EPC, they all have different roles to play in the powertrain. But why it makes more sense to build this out end-to-end is -- when you think about all the step-up step down that happens in power conversion starting all the way from utilities to the trip itself, having an end-to-end kind of 800-volt transition [Indiscernible] sales will drive maximum power efficiency someday, right?

And so when we're working with kind of the semiconductor and the chip providers 2, 3 years ahead when they're developing their chip and developing the right kind of future power technology for the chip itself, then we can start getting ready with our critical power business and now with our EPC power business to be way ahead of the game compared to where everyone else is at in terms of driving the right technology. So that's why building this out end-to-end has been very important because if you do it piecemeal, you're still going to lose out on power efficiency because you'll have all the step up, step down that will happen through the power chain.

And that's why EPC power is a good addition because we add more to the end of the line where we were -- didn't have as much product and then having all the digital rectifier, we can get to that power efficiency today. So Luke, we'll show this in great detail in terms of Innovation Day, you'll be able to see this end-to-end and why it makes sense as a complete portfolio.

Operator

Our next question is coming from Steve Barger from KeyBanc Capital Markets.

Unknown Analyst

Revathi, I think the prior question mentioned CapEx and maybe I missed the answer. Can you talk about capital intensity to support growth over the next year or 2 for Axiom. And then same question for Michael. Any change to CapEx to revenue for Flex from here?

Revathi Advaithi

Okay. Kevin, you'll talk about CapEx.

Kevin Krumm

Yes, sure. I'm happy to. So Steve, thanks for the question. From a CapEx standpoint, we talked about this year being a year of outsized investment. We've guided to a number of about $1.5 billion to $1.6 billion. The work we've done with respect to CapEx in the first half of the year was largely to secure the capacity we needed to perform at the levels we are this year. So that's the work that's largely been done. As we go into the back half of the year, Revathi mentioned it earlier, that CapEx is largely focused on building out the capacity and the requirements we need power included to deliver the results that we're guiding towards or looking towards, I'll say, in FY '28.

So that's really how it's stacked up. We also have talked about the outsized investment this year being largely for CPI. So I'd say rough numbers, about 1/3 of the investment this year is related to ITS and RMS and about 2/3 of that is related to CPI. And you can see in the first half of the year, we've done about 1/3 of it. So about 1/3 of it this year was related to FY '27 and about 2/3 is related to current capacity for FY '28.

Revathi Advaithi

Michael?

Michael Hartung

Yes. And then on the Flex side post spend, you should see RMS and ITS revert back to historical levels, which should mean we should be at that 2% or below level for the foreseeable future.

Unknown Analyst

Got it. And then, Michael, you mentioned the Robotics business has been a growth driver for industrial this year. Does that feel like the beginning of a multiyear production ramp? And can you talk about trends across cobot robot, AMR and maybe humanoid if you're seeing any inquiry or prototype activity there?

Michael Hartung

Yes, great question, and thanks for it. So when you think about robotics, we've named robotics as 1 of the 6 high-value markets that we're emphasizing, and that's because we do believe that, that industry is tied to these longer-term secular trends that our capabilities are well aligned against. When you think about robotics, think about it on a spectrum of opportunities, and they range from, call it, warehouse automation and fixed automation all the way through humanoids. And when we think about that range of possible, we also think about the unique role that we play in the industry as a consumer, as a supplier and as an innovator.

So let me build on what we're seeing there. So inside of Flex, we've already deployed our own manufacturing automation platform, which is standard automation that we can deploy across our network. To make sure that we've got not only standardized platform, but also that we're automating what were previously manual processes to set the stage, not just for automation, but also for physical AI deployment.

In the industry, we're starting with warehouse automation. It tends to be more fixed in nature, but still provides the benefit of automation and lays the groundwork for physical AI. We are also not just a consumer of but a supplier of cobots. These cobots, we've talked about in our relationship with Teradyne, as an example, where we utilize their equipment on our production floor and where we build elements of that cobot for them that they in turn bring to the market.

And then when you think about humanoid, although I don't envision that we'll deploy humanoid-type technologies in the next year or 2 we are on road map developing that technology. And we're in a position where we can leverage both the capability that we've developed in automotive with our centralized compute capability with our actuation capability, combine that with our mechanical aptitude to actually help customers bring those solutions to market more quickly than they could otherwise do on their own. So short answer, yes, we believe this is the beginning of a long-term trend, and we're looking forward to participate in that over the next years.

Operator

We reach the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.

Revathi Advaithi

Thank you, everyone. We had a strong first half for the fiscal year and we're carrying that momentum forward to the second half and the spinoff. I want to thank our customers and our shareholders, and then a big shout out to the Global Flex team for executing so well in this environment as they work through kind of the spin and everything else that's going on. I also want to encourage all of you to join us for Innovation Day, where you can take all this from seeing it in PowerPoints and slides to touching and feeling and seeing how the products really work. So I'd like to see all of your innovation date November 10. Thank you.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Michelle Simmons

Goodbye.