Sanmina Corporation (SANM) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A indicate strong financial performance with increased margins and cash flow. The strategic acquisition of ZT Systems is expected to significantly boost revenue, and management is optimistic about growth in key markets. While some guidance details were deferred, the overall sentiment is positive with potential for revenue doubling in three years. The market cap suggests a moderate reaction, leading to a positive stock price movement prediction (2% to 8%).
Key Financial Performance
Revenue for fiscal year 2025 $8.13 billion, growth of 7.4% year-over-year. This growth was driven by solid performance across the majority of end markets, with notable strength in the communication networks and cloud and AI end markets.
Non-GAAP operating margin for fiscal year 2025 5.7%, an expansion of 30 basis points year-over-year. This improvement was attributed to revenue growth, favorable product mix, and strong operational execution.
Non-GAAP EPS for fiscal year 2025 $6.04, growth of 14.4% year-over-year. This increase was driven by revenue growth and operational efficiencies.
Cash flow from operations for fiscal year 2025 $621 million, reflecting strong operational performance and disciplined working capital management.
Revenue for Q4 fiscal year 2025 $2.1 billion, an increase of 3.9% year-over-year. This growth was primarily driven by broad-based demand across most end markets, with particular strength in the communication networks and cloud and AI end markets.
Non-GAAP gross margin for Q4 fiscal year 2025 9.4%, a 70 basis point improvement year-over-year. This was due to favorable product mix and ongoing operational efficiencies.
Non-GAAP operating income for Q4 fiscal year 2025 $126 million or 6.0% of revenue, representing a 70 basis point improvement year-over-year. This was driven by revenue growth, favorable mix, and disciplined execution.
Non-GAAP diluted EPS for Q4 fiscal year 2025 $1.67, representing a 16.7% increase year-over-year. This was driven by revenue growth and operational efficiencies.
IMS revenue for Q4 fiscal year 2025 $1.68 billion, up 3.3% year-over-year. This growth was driven by strength in the communication networks and cloud and AI end markets.
IMS non-GAAP gross margin for Q4 fiscal year 2025 7.8%, up 50 basis points year-over-year. This improvement was due to favorable mix and operational efficiencies.
CPS revenue for Q4 fiscal year 2025 $448 million, up 7.3% year-over-year. This growth was driven by revenue growth, favorable mix, and ongoing operational efficiencies.
CPS non-GAAP gross margin for Q4 fiscal year 2025 14.5%, up 90 basis points year-over-year. This improvement was driven by revenue growth, favorable mix, and operational efficiencies.
Cash and cash equivalents at the end of Q4 fiscal year 2025 $926 million, reflecting a strong balance sheet and liquidity position.
Inventory net of customer advances at the end of Q4 fiscal year 2025 $1.1 billion, a 12.1% decrease year-over-year. This was due to disciplined inventory management.
Inventory turns net of customer advances for Q4 fiscal year 2025 6.7x, an improvement from 5.7x year-over-year. This was due to improved operational efficiency.
Non-GAAP pretax ROIC for Q4 fiscal year 2025 28.3%, an improvement from 23.0% year-over-year. This reflects strong operational performance and efficient capital management.
Free cash flow for fiscal year 2025 $478 million, reflecting strong cash flow performance and disciplined capital allocation.
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Operating Highlights
ZT Systems acquisition: Sanmina completed the acquisition of ZT Systems, a data center AI infrastructure business from AMD. This acquisition is transformative, increasing scale, expanding capabilities, and enabling growth in the cloud and AI end market. ZT Systems' current annual run rate revenue is about $5 billion to $6 billion.
End market performance: Strong demand in communication networks, cloud, and AI infrastructure, which grew 17% year-over-year. Industrial, energy, medical, defense, aerospace, and automotive segments showed consistent performance, with 2.2% growth year-over-year.
Operational efficiencies: Non-GAAP gross margin improved by 70 basis points year-over-year to 9.4% in Q4, driven by favorable product mix and operational efficiencies. Inventory turns improved to 6.7x from 5.7x year-over-year.
Strategic priorities for FY 2026: Focus on customer needs, smooth integration of ZT Systems, and driving profitable growth. Targeting revenue doubling to $16 billion within two years and aiming for long-term margin expansion to 6%-7%.
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Risk or Challenges
Macroeconomic uncertainties: The company acknowledges ongoing market uncertainties stemming from tariffs and the geopolitical landscape, which could impact operations and financial performance.
Foreign currency fluctuations: Non-GAAP other income and expense resulted in a net expense of $5.1 million, largely due to foreign currency, which could continue to pose challenges.
Inventory management: While inventory turns improved, the company still faces challenges in optimizing inventory levels, which could impact cash flow and operational efficiency.
Integration of ZT Systems: The acquisition of ZT Systems is transformative but poses risks related to integration, alignment of accounting policies, and achieving anticipated synergies.
Automotive and transportation market softness: Short-term softness in the automotive and transportation market could impact revenue growth in this segment.
Capital structure optimization: The company is targeting a net leverage ratio of 1.0x to 2.0x and aims to achieve an investment-grade rating, which requires careful financial management and could limit flexibility.
Margin expansion challenges: While the company aims to expand margins to 6%-7% in the long term, achieving this goal will require disciplined execution and could face headwinds from market conditions.
Dependence on key markets: Strong reliance on communication networks, cloud, and AI end markets for growth could expose the company to risks if demand in these sectors weakens.
Customer concentration: Top 10 customers represent 51.7% of revenue, indicating potential risks if any major customer reduces business.
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Guidance & Outlook
Revenue Expectations: Sanmina expects revenue for Q1 2026 to be between $2.9 billion to $3.2 billion, with legacy Sanmina revenue in the range of $2.05 billion to $2.15 billion, reflecting 4.7% growth year-over-year. ZT Systems is expected to contribute $850 million to $1.05 billion for the two months post-acquisition. At the midpoint, total company revenue reflects 52% growth year-over-year.
Margin Projections: Non-GAAP operating margin for Q1 2026 is expected to be between 5.6% to 6.1%. Longer-term, the company aims to expand margins to a range of 6% to 7%+.
Capital Expenditures: Capital expenditures for Q1 2026 are expected to be around $85 million, with ongoing investments in capacity and technologies across operations in the U.S., India, and Mexico.
Market Trends and Segment Performance: Positive trends are expected in Industrial and Energy, Medical, and Defense and Aerospace segments for fiscal 2026. Automotive and Transportation is expected to see growth despite short-term softness. Communication Networks and Cloud and AI infrastructure are projected to experience strong demand, with new programs driving growth in calendar year 2026 and beyond.
Strategic Plans: Sanmina plans to integrate ZT Systems smoothly, leveraging its capabilities to provide end-to-end solutions for cloud and AI infrastructure. The company aims to double its revenue to around $16 billion within the next two years, driven by growth in cloud and AI markets.
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Shareholder Return Plan
Share Repurchase Program: Sanmina repurchased 1.44 million shares for $113.7 million during the fiscal year. As of September 27, 2025, $239 million remained under the authorized share repurchase program.
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Key Q&A
Q:Did the ZT Systems acquisition maintain a $5 billion to $6 billion annual run rate, and is its operating margin around 5.9%?
A:Jonathan Faust confirmed that ZT Systems is at a $5.7 billion annualized run rate, within the $5 billion to $6 billion range. He also stated that ZT Systems' operating margin aligns with Sanmina's, in the 5.6% to 6.1% range.
Q:Is the legacy business expected to grow high single digits in fiscal '26, and what drives this growth?
A:Jonathan Faust confirmed high single-digit growth for the legacy business in fiscal '26, driven by opportunities in industrial, energy, medical, defense, and AI-related markets. Jure Sola added that the company aims to diversify and grow its business to a $9 billion to $12 billion run rate.
Q:Does the implied guidance for fiscal '26 suggest $14.5 billion to $14.6 billion in revenue, and can this grow to $16 billion in fiscal '27?
A:Jure Sola expressed optimism about achieving $16 billion in fiscal '27, but deferred providing detailed guidance until January. He mentioned the potential to double Sanmina's size within three years, leveraging legacy business and ZT Systems' growth.
Q:How should we think about cash conversion cycle and free cash flow going forward?
A:Jonathan Faust stated that the cash conversion cycle is back in the 50s, and the legacy business is expected to continue generating cash flow. For ZT Systems, cash flow impact will depend on growth and working capital needs, with more details to come in future guidance.
Q:What is the opportunity to rebuild the accelerated compute arm of ZT Systems, and how long will it take?
A:Jure Sola highlighted the strong team and investments in ZT Systems, including integrating Viking Enterprise and expanding engineering capabilities. He emphasized immediate efforts to work with AMD and other platforms, aiming to enhance the ODM business.
Q:Will the $2 billion purchase price for ZT Systems change, and how does it affect cash flows?
A:Jonathan Faust stated that the $2 billion purchase price is subject to a 90-day true-up process but is unlikely to change significantly. Legacy Sanmina is expected to generate cash flow, while ZT Systems' impact will depend on its growth trajectory.
Q:What AI opportunities exist for ZT Systems, and how will they affect growth?
A:Jure Sola mentioned significant AI opportunities in the pipeline, leveraging ZT Systems' capabilities for full system integration. He expects growth in fiscal '26, '27, and '28, driven by strong leadership and strategic investments.
Q:How will the ZT Systems acquisition affect the Indian joint venture?
A:Jure Sola stated that the acquisition complements the Indian joint venture, with opportunities in cloud AI growth. A new factory in India is being built to expand AI capabilities, expected to come online early next year.
Q:What is the outlook for the automotive segment?
A:Jure Sola acknowledged a slight slowdown in automotive towards the end of the year but noted new program wins for fiscal '26 and beyond, expressing optimism about the segment's future.
Q:Review of Unclear Management Responses
A:Management avoided providing detailed guidance for fiscal '26 and fiscal '27, deferring specifics until January. Jure Sola's comments on doubling Sanmina's size within three years and achieving $16 billion in fiscal '27 were optimistic but lacked concrete details. Additionally, the impact of ZT Systems on cash flow remains uncertain, with more information promised in future updates.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI end
CEO afternoon
Chairman CEO
Co Founder
Executive Chairman
Founder Executive
Jure Co
Sanmina Term
Sanmina cash
Systems acquisition
Systems legacy
Term Loan
ZT Systems
beginning
capital process
closing AMD
closing date
cloud AI
communication network
draw Term
increase
legacy Sanmina
market strength
network cloud
point Non
point improvement
policy
premium
purchase price
strength communication
transaction detail
working capital
SANM Transcript
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The earnings call summary shows positive financial performance, with growth in revenue, gross margin, operating income, net income, and EPS. However, the lack of strategic initiatives, guidance, and risk discussion limits the positive impact. The market cap suggests moderate sensitivity to news, but without clear strategic direction or guidance, the stock is unlikely to experience significant movement. Thus, the overall sentiment is neutral.
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The earnings call reflects strong financial performance with significant revenue and EPS growth, improved margins, and robust cash flow. The Q&A section highlights confidence in future growth, particularly with ZT Systems and market recovery. However, management's lack of specificity on certain transitions and investments introduces minor uncertainty. The company's strategic plans and optimistic guidance, combined with a substantial market cap, suggest a positive stock price movement of 2% to 8% over the next two weeks.
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SANM Slides
Sanmina Q2 FY2026 slides: revenue doubles on AI infrastructure surge2026-04-27
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SANM Report
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