Flex Plans Data Center Infrastructure Spin-Off as AI Demand Drives Growth
Flex plans to separate its data center power and cooling business into a standalone company, executives said during a J.P. Morgan fireside chat. The move reflects the contract manufacturer's seven-year strategy to exit consumer markets and concentrate on higher-margin infrastructure tied to computing and artificial intelligence.
The new company, called SpinCo, will focus on thermal architecture, electrical infrastructure and cooling systems for data centers. Flex built this business from a power unit acquired from Ericsson, then combined it with compute integration capabilities to address what customers increasingly want: integrated solutions across power, cooling and computing rather than separate components.
Growth Targets Rest on Awarded Contracts
Flex expects its compute, power and infrastructure business (CPI) to grow 65% to 75% in fiscal 2027 and 80% or more in fiscal 2028. About 90% of fiscal 2027 revenue is already booked through customer contracts, reducing execution risk.
The power business alone is expected to grow at 75% or higher in fiscal 2027, above the overall CPI rate. Both critical power systems and embedded power are projected to grow at similar rates over time, though timing may vary by year.
CEO Revathi Advaithi said Flex's competitive advantage is its ability to address the full "thermal architecture envelope" at scale and speed. The company targets hyperscalers, colocation providers and silicon makers with products including cold plates, power pods, switchgear and integrated racks.
Power Architecture Standards Still Evolving
Data center power infrastructure is shifting toward greater power density and efficiency. Flex cited the move from power shelves to fully integrated 1-megawatt racks, and industry discussions around 400-volt and 800-volt architectures.
The 400-volt and 800-volt programs are mature and launching now, Advaithi said. Solid-state transformers are in development but may take longer to mature as standards evolve. Higher-voltage systems require more than product development-safety certifications, regulatory approval, infrastructure upgrades and worker training all must align.
Flex's power business currently targets mid-teens margins. The company aims to match its industry peer set over time, with current margins reflecting recent investment and scale-up costs. The broader CPI business ended fiscal 2026 at 9.2% margins, including about 100 basis points of investment spending that Flex expects to recoup in fiscal 2027.
Remaining Flex Will Be $22 Billion Platform
After the spin-off, Flex will retain a diversified manufacturing and services business with more than $22 billion in revenue. The remaining company will serve healthcare, industrial, automotive, communications and lifestyle markets.
Chief Commercial Officer Michael Hartung said Flex will continue applying its operating framework: financial rigor, high-quality earnings, cash generation and margin improvement. The company will deploy capital toward higher-value segments including medical devices, drug delivery, robotics, warehouse automation and satellite communications.
Flex will also keep exposure to data center infrastructure through networking products, optical components, power generation and distribution, storage systems and semiconductor capital equipment manufacturing.
Capital Spending Peaks in 2027
Flex guided to peak capital investment of $1.4 billion to $1.6 billion in fiscal 2027, or about 5% of revenue compared with a typical 2% level. The incremental spending secures power, capacity, footprint and cooling infrastructure for awarded CPI business.
Fiscal 2027 represents the peak CapEx year based on currently awarded programs and visibility through fiscal 2028. Some infrastructure investments like power and cooling loops in facilities are foundational and shouldn't require the same capital intensity for subsequent growth.
The planned structure allows Flex to retain up to 20% of SpinCo, which can later be used in a debt-for-equity exchange to reduce debt. Both companies are designed to operate with low debt levels and flexibility to pursue growth.
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