Celestica has just launched its new 800G switch which is optimized for AI and ML workloads. The market has been expecting this for the last month or so, and over the last 4 weeks CLS has risen over 45%. It is now over a 10% holding for me.
From the press release:
The DS4100 is optimized for key use cases, including:
** AI/ML and Big Data Analytics*
** Hyperscale Data Centers and Cloud Computing*
** High-Performance Computing (HPC)*
** Network Backbone (800GbE Data Center Leaf / Spine)*
“With AI/ML fueling demand for high-performance data center switches, Celestica has developed a suite of powerful 800G switches that deliver high bandwidth and port density,” says Gavin Cato, Head of Portfolio Solutions and CTO, Connectivity and Cloud Solutions, Celestica. “The DS4100 delivers the performance required for demanding applications like AI/ML with the redundancy and flexibility required of modern data centers.”
Putting my ignorance on display for all, is Alab a competitor, or is it complimentary or maybe just indifferent to this company? To say the least, I am highly confused about the connectivity and data transmission requirements for an AI factory (as Jensen likes to call it). But based on the CTO statement above the products of this company seem to play in that arena, and I’m pretty sure Alab’s products also find application in the same space.
I too will put my ignorance on display while simultaneously trying to help with your question.
Overall context PART ONE: things need to be connected to each other, via a direct channel or cable, at different layers:
A1. Intra-server connectivity: GPU-to-CPU, for instance. $ALAB product: retimers
A2. Inter-server connectivity: server-to-server connectivity, for instance connecting servers to external memory banks. $ALAB product: Active Electrical Cable (AEC) called “PCI Express”
A3. Server-to-switch connectivity via Ethernet with super low latency and super high data throughput: Another AEC product called Taurus Ethernet Smart Cable Module
Overall context PART TWO: Switches are necessary at different layers:
B1. Intra-server switches: for GPU-to-CPU via PCIe: “Scorpio P-Series” PCIe switch
B2. Inter-server switches: “Scorpio P-Series” is also applicable for Inter-server, and so is their “Scorpio X-Series”
B3. Ethernet switches: $ALAB does not have an Ethernet switch on the market.
Based on B3), I don’t think $ALAB competes (…yet?) with Celestica’s switch, which is an 800GB Ethernet switch.
Competitors for 800GB Ethernet switches include $NVDA, $CSCO and $ANET
I think I was wrong, according to this they design not build out the product.
Celestica competes with other companies in the design, manufacturing, and supply chain solutions industry, including:
Hon Hai Precision Industry Co Ltd: A Taiwanese company
Broadcom Inc: A company with a headquarters location
Quanta Computer Inc: A Taiwanese company
Jabil Inc: A company with a headquarters location
Celestica is a company that provides design, manufacturing, and supply chain solutions for products. They offer global expertise at every stage of a product’s development, from the initial drawing to full-scale production and after-market services. Celestica’s customers include over 100 electronics OEMs, such as Cisco Systems, Dell, EMC Corporation, Hewlett-Packard, IBM, and others.
My understanding is from a high level Celestica is similar to a Supermicro where they are building AI servers and racks for hyper-scalers. This is why their overall gross margin is in the ~10% range, but they are operating at huge scale similar to Supermicro.
Astera Labs is most similar to Broadcom (AVGO) and Marvell (MRVL) where they are building component parts of connecting servers/racks/data centers.
Where there is some subtlety here is that I believe this new product they are talking about above the DS4100 is entering the space that Astera/Broadcom/Marvell are in. Interesting though that the DS4100 is designed with “Broadcom TH4-12.8T switch chipset” which indicates to me that Broadcom and possibly Astera are working on lower level components that a Celestica may use to build a solution.
Would be interesting to find out if this Celestica product is higher margins that their typical sales, which could make it a more interesting investment. I’ve held off on writing up about Celestica before because their overall growth rate is in mid 20s. They have a legacy business which isn’t growing but the AI server part of their business is growing at 90% from the last time I was looking into them.
It is getting harder and harder to determine what products are competing in the hardware space so you are not alone there. There’s a constant stream of innovation going on now where the landscape is changing month to month. Lots of changes on what’s cutting edge, and tons of product announcements are coming out. I heard it said recently that since software got popular in the 1990s, hardly anyone looked to create new hardware companies, but since the AI boom that has changed quite significantly where hardware is looking again nascent or greenfield on this new AI cycle.
Celestica reported a strong quarter yesterday and raised guidance, yet again, for full year revenue and EPS.
Market likes it - up nearly 10% at one point in AH.
Total revenue up 22% YoY, but their CCS segment which is their cloud and connected services segment is growing 42% YoY thanks to the demand for AI data centres and the parts they provide for this.
Headlines and press release link below.
Much to like. I continue to hold a 10% allocation.
Jonathan
Q3 2024 revenue and non-IFRS adjusted EPS* exceed the high end of guidance ranges; 2024 full-year outlook raised and 2025 outlook provided