Executive Summary / Key Takeaways

• Jabil has strategically transformed into a more resilient, diversified manufacturing solutions provider, shedding lower-margin businesses like Mobility and legacy networking while investing in high-growth, high-value areas like AI infrastructure, healthcare, and digital commerce automation.
• The Intelligent Infrastructure segment, particularly AI-related cloud and data center solutions, is the primary growth engine, with AI-associated revenue expected to reach approximately $8.5 billion in FY25, a 50%+ increase year-over-year, driven by deep engineering collaboration and scale.
• Strategic capability acquisitions (Silicon Photonics, liquid cooling, pharmaceutical CDMO) and significant U.S. footprint expansion plans ($500M investment in the Southeast U.S. for AI infrastructure) underscore Jabil's commitment to technology leadership and capturing secular growth trends closer to the end customer.
• Despite near-term headwinds in certain end markets (EVs, renewables, 5G) and temporary margin pressure from underutilized capacity, Jabil delivered strong Q3 FY25 results, exceeding expectations, and maintains its FY25 outlook for approximately $29 billion in revenue and $9.33 core diluted EPS.
• Management remains confident in achieving a long-term core operating margin target of 6% and generating robust free cash flow (expected to exceed $1.2 billion in FY25), with a commitment to returning 80% of free cash flow to shareholders primarily through share repurchases.

A Foundation Built on Diversification and Engineering

Jabil Inc. (NYSE:JBL) stands as a global leader in providing comprehensive electronics design, production, and product management services. With a history spanning approximately 60 years in the U.S., the company has evolved significantly, particularly over the last six years, through a deliberate strategic refocusing aimed at achieving core operating margin expansion, consistent earnings growth, and robust predictable cash flows. This transformation has involved shedding lower-margin, capital-intensive businesses, notably the divestiture of the Mobility Business in December 2023 and the exit of certain legacy networking businesses by the end of fiscal year 2024. Simultaneously, Jabil has strategically invested in and acquired capabilities in high-growth, high-value end markets aligned with powerful secular trends.

This strategic pivot is reflected in Jabil's reorganized operating and reportable segments, effective September 1, 2024: Regulated Industries, Intelligent Infrastructure, and Connected Living & Digital Commerce. This new structure is designed to enhance focus, speed, and precision in serving distinct end markets, leveraging deep domain expertise within each segment. The company operates a vast global manufacturing footprint across approximately 30 countries, increasingly balanced across the Americas, Europe, and Asia, positioning it to meet the growing demand for localized manufacturing closer to the end customer.

Central to Jabil's strategy is its emphasis on engineering-led engagements and technological differentiation. The company views AI as the "next cloud technology cycle" and is positioning itself at the epicenter of this revolution. Its capabilities extend beyond traditional manufacturing to include advanced design architecture and engineering, enabling it to collaborate deeply with customers on complex system-level designs.

A key technological differentiator lies in Jabil's investments in photonics and liquid cooling solutions. Through the acquisition of Intel's Silicon Photonics business and Mikros Technologies, Jabil has gained expertise and capacity in high-speed interconnects and thermal management critical for the immense data transfer and energy demands of AI servers. The company is actively developing and showcasing capabilities in 800G and 1.6T pluggable transceivers, with the 1.6T expected to see an uptick towards the end of calendar year 2025 or early 2026. While specific quantifiable performance metrics for these technologies over alternatives are not detailed, management highlights that their engineering approach allows for higher yields at launch and the ability to keep pace with accelerated development cycles, which are twice as fast for GPU silicon compared to legacy architectures. These capabilities are crucial for transitioning from older computer architectures to GPU-led system designs at scale, establishing Jabil as a trusted partner for data center build-outs. Investments in advanced packaging (OSAT) and power management further enhance Jabil's ability to offer differentiated solutions in this space.

In the Regulated Industries segment, the acquisition of Pharmaceutics International, Inc. (Pii) in February 2025 added critical capabilities in aseptic filling and dry oral dosage manufacturing, enhancing Jabil's pharmaceutical solutions offering and opening up a significant $20 billion addressable market. This complements existing strengths in medical devices and drug delivery systems like autoinjectors, where long qualification cycles (18-24 months) lead to sticky, multi-year programs once ramped.

In Digital Commerce, Jabil leverages advanced automation engineering, robotics, and 3D printing expertise to address the increasing need for automation in retail and warehouse environments driven by labor dynamics and e-commerce growth. The company is actively involved in building autonomous mobile robots and exploring humanoid robotic solutions, providing solutions for automated picking, packing, and real-time inventory management.

These technological investments and engineering capabilities are not merely product offerings but strategic enablers that enhance Jabil's value proposition, foster deeper customer relationships, and contribute to margin improvement and stickiness compared to prior years. Approximately 70% of Jabil's engagements are now engineering-led, reflecting this strategic shift.

Performance in a Dynamic Environment

Jabil's financial performance in the first half of fiscal year 2025 reflects a dynamic market landscape. For the six months ended February 28, 2025, net revenue was $13.72 billion, down from $15.15 billion in the prior year period, primarily impacted by the Mobility divestiture and legacy networking exits. However, excluding these impacts, revenue showed modest growth. Gross profit for the six months was $1.18 billion, down from $1.41 billion, with gross profit margin decreasing slightly to 8.6% from 9.3%, primarily due to product mix in the Connected Living and Digital Commerce segment.

Operating income for the six months was $442 million, significantly lower than $1.43 billion in the prior year, largely due to the $944 million gain from the Mobility divestiture recorded in the prior year period. Excluding this gain and other adjustments (amortization, stock-based compensation, restructuring, etc.), core operating income was $681 million, down from $837 million. Net income attributable to Jabil Inc. (NYSE:JBL) for the six months was $217 million, compared to $1.12 billion in the prior year, again heavily influenced by the divestiture gain. Diluted earnings per share were $1.93, down from $8.66.

However, core diluted earnings per share, which adjust for these and other items, were $1.93 for the six months ended February 28, 2025, compared to $8.66 in the prior year period. Correction based on Q2 transcript data: Core diluted earnings per share for Q1 FY25 was $2.00, and for Q2 FY25 was $1.94, totaling $3.94 for the first half of FY25.

More recent performance in Q3 FY25 demonstrated significant upside. Revenue reached $7.8 billion, up an impressive 16% year-over-year and $800 million above the midpoint of guidance. This strength was primarily driven by the Intelligent Infrastructure segment, particularly AI-related revenue, as well as better-than-expected performance in capital equipment and Connected Living. Core operating income for Q3 was $420 million, with core operating margins at 5.4%, a 20 basis point improvement year-over-year. Core diluted earnings per share for Q3 was $2.55, up 35% compared to Q3 FY24.

Liquidity remains robust. As of February 28, 2025, Jabil held approximately $1.6 billion in cash and cash equivalents. The company has significant available borrowing capacity under its revolving credit facilities ($4 billion) and commercial paper program ($3.2 billion). The global asset-backed securitization program provides additional liquidity, with terms recently extended to January 2028. Debt to core EBITDA stood at approximately 1.4 times, indicating a healthy balance sheet.

Cash flow generation has been strong. Net cash provided by operating activities was $646 million in the first six months of FY25. Adjusted free cash flow for the same period was $487 million. The company is committed to returning value to shareholders, repurchasing 4.3 million shares for $636 million under its 2025 Share Repurchase Program as of February 28, 2025, and completing the $1 billion authorization by early April 2025.

Strategic Positioning and Competitive Landscape

Jabil operates in a competitive landscape against major Electronics Manufacturing Services (EMS) providers like Flex Ltd. (FLEX), Sanmina Corporation (SANM), Celestica Inc. (CLS), and Benchmark Electronics, Inc. (BHE), as well as facing indirect competition from in-house manufacturing and emerging technologies like additive manufacturing.

Jabil holds an estimated 15-20% aggregate market share in the global EMS market, a position it is actively working to strengthen through diversification and value-added services. Compared to its peers, Jabil's strategy emphasizes a diversified portfolio across multiple end markets and a strong focus on engineering-led solutions.

Financially, based on recent TTM data and historical trends, Jabil's Gross Profit Margin (8.86% TTM) is generally comparable to or slightly below peers like Celestica (CLS) (11% FY24) and Sanmina (SANM) (8% FY24), while its Operating Profit Margin (4.08% TTM) is also in a similar range to Flex (FLEX) (5% FY25 TTM), Sanmina (SANM) (4% FY24), and Benchmark (BHE) (4% FY24), but potentially lower than Celestica (CLS) (6% FY24). Jabil's Net Profit Margin (2.02% TTM) is also within the peer group range. However, Jabil's recent revenue growth trajectory, particularly driven by the Intelligent Infrastructure segment's AI demand, appears to be outpacing many competitors.

Jabil's competitive advantages, or moats, are increasingly rooted in its technological capabilities and global operational scale. Its advanced design and engineering tools offer quantifiable benefits like faster prototyping cycles and potentially lower failure rates compared to some competitors. The strategic investments in photonics and liquid cooling directly address critical needs in the booming AI infrastructure market, positioning Jabil as a specialized partner for hyperscalers and silicon providers, a capability management believes is unmatched in the industry. The company's ability to execute complex, high-volume production at scale, combined with its holistic approach to the data center ecosystem, makes it a "go-to partner."

Furthermore, Jabil's extensive global footprint, including over 30 sites in the U.S., is a significant differentiator, enabling it to offer diverse, resilient, and localized manufacturing solutions. This is particularly valuable in the current geopolitical climate and amidst discussions of near- and re-shoring, where Jabil believes its U.S. domicile status and established infrastructure position it better than many peers to assist customers in navigating these complexities. Management asserts that no company is better positioned to grow manufacturing in the U.S.

However, Jabil faces vulnerabilities, including customer concentration (top 5 customers accounted for 33% of revenue in the six months ended Feb 28, 2025) and supply chain dependencies, risks common in the EMS industry but potentially exacerbated by geopolitical factors. While Jabil views tariff costs as largely a pass-through, potential impacts on end customer demand remain a risk. Compared to some peers like Celestica (CLS), which emphasizes supply chain agility, or Sanmina (SANM) and Benchmark (BHE), which focus on cost leadership or niche expertise, Jabil's challenge is to maintain its margin profile while scaling its high-tech offerings and managing operational costs across its vast network. The company's strategic response involves leveraging its engineering-led model to enhance stickiness and value, thereby justifying its pricing and mitigating competitive pressures.

Outlook and Value Creation

Jabil's outlook for fiscal year 2025 reflects confidence in its strategic direction and the strength of its core growth drivers despite persistent headwinds in certain end markets. For FY25, the company anticipates approximately $29 billion in revenue. This includes significant growth in the Intelligent Infrastructure segment, particularly AI-related revenue, which is now expected to reach approximately $8.5 billion, representing a 50%+ increase year-over-year. The Digital Commerce business is also expected to see robust growth, increasing by 14% in FY25.

Core operating margin for FY25 is expected to be 5.4%. Management acknowledges that underutilized capacity, primarily due to geographic mismatches between growth areas and existing facilities, is currently weighing on margins (estimated 20-30 basis points impact). However, they are not planning significant capacity restructuring, based on the belief that end markets will recover, leading to improved utilization and margin expansion over time. Cost optimization initiatives are also expected to contribute to margin improvement, particularly in the second half of the year.

Core diluted earnings per share for FY25 is projected at $9.33. This outlook is back-half weighted, a shift in seasonality attributed to the Mobility divestiture, anticipated program ramps, recovery in semi-capital equipment, and cost initiatives.

Jabil forecasts another robust year for adjusted free cash flow generation, expected to exceed $1.2 billion in FY25. This strong cash flow is supported by lower anticipated capital expenditures (1.5% to 2% of revenue), a reduction partly enabled by the Mobility divestiture, and disciplined working capital management. The company is committed to returning 80% of this free cash flow to shareholders through dividends and share repurchases, having already completed its $1 billion buyback authorization for FY25 by early April 2025.

Looking further ahead, Jabil targets a long-term enterprise growth rate of 5% to 7%, driven by segment-specific growth expectations: Regulated Industries at 5-8%, Intelligent Infrastructure at 7-10%, and Connected Living & Digital Commerce at low-to-mid single digits (with Digital Commerce growing double-digits). The long-term core operating margin target remains 6%, supported by expected gross margins of 9% to 10% and operational efficiencies. This is expected to translate into long-term core EPS growth of 12% to 15% and sustained ROIC north of 30%.

Strategic investments continue, including the planned multi-year $500 million investment to expand the U.S. footprint for cloud and AI data center infrastructure, with a new site operational by mid-calendar year 2026, expected to impact results materially from FY27. Expansion in India for photonics also supports future growth.

Key Risks to Consider

While Jabil's strategic direction and growth prospects are compelling, investors should be mindful of several key risks.

• Customer Concentration: A significant portion of Jabil's revenue is derived from a limited number of customers. The loss of or significant reduction in business from a major customer could materially impact financial results.
• End Market Volatility: Despite diversification, Jabil remains exposed to cyclical downturns and demand fluctuations in specific end markets, as evidenced by recent softness in EVs, renewables, and 5G. The pace and timing of recovery in these markets remain uncertain.
• Geopolitical and Tariff Risks: While Jabil believes its global footprint and U.S. presence position it well to navigate geopolitical complexities and potential tariffs, changes in trade policies or increased global tensions could disrupt supply chains, impact customer demand, or necessitate costly operational adjustments.
• Supply Chain Management: Reliance on a limited number of suppliers for certain critical components poses a risk of shortages or increased costs, which could affect production and profitability.
• Execution Risk: Successfully executing on strategic initiatives, including integrating acquisitions, ramping new programs (especially in complex areas like healthcare and AI infrastructure), and managing the planned U.S. expansion, is crucial but carries inherent execution risks.
• Competition: The EMS industry is highly competitive. Pricing pressures, technological advancements by rivals, or shifts in customer outsourcing strategies could impact Jabil's market share and margins.

Conclusion

Jabil Inc. (NYSE:JBL) is in the midst of a significant strategic evolution, successfully shedding lower-margin legacy businesses to focus on higher-value, high-growth opportunities driven by powerful secular trends. The core investment thesis is centered on Jabil's transformation into a more resilient, diversified, and technologically advanced manufacturing solutions provider, particularly capitalizing on the accelerating demand for AI infrastructure, growth in healthcare, and automation in digital commerce.

The company's deep engineering capabilities, strategic investments in areas like photonics and liquid cooling, and extensive global footprint, including a growing U.S. presence, provide tangible competitive advantages in a complex geopolitical and technological landscape. While facing near-term headwinds in certain markets and managing temporary operational inefficiencies, Jabil's recent performance, particularly the strong Q3 FY25 results, underscores the effectiveness of its operating model and diversification strategy.

With a clear path towards achieving a 6% core operating margin target, robust free cash flow generation supporting significant shareholder returns, and a long-term growth outlook exceeding industry averages, Jabil appears well-positioned for sustained value creation. Investors should monitor the pace of recovery in challenged end markets, the successful execution of strategic initiatives, and the company's ability to leverage its technological edge and global footprint to navigate competitive dynamics and capture the full potential of its targeted growth sectors.