Sanmina Corporation (SANM) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Revenue $3.19 billion, up 59% year-over-year. This growth was driven primarily by growth in the communications networks and cloud and AI infrastructure end markets for the core Sanmina business and the addition of the ZT Systems business.
Non-GAAP Operating Margin 6.0%, up 40 basis points year-over-year. This improvement was due to revenue growth, favorable mix, and strong operational discipline.
Non-GAAP Diluted Earnings Per Share $2.38, up 66.1% year-over-year. This increase was attributed to revenue growth and operational efficiencies.
Non-GAAP Gross Profit $298 million or 9.3% of revenue, up 30 basis points year-over-year. This was driven by favorable mix and operational efficiencies.
IMS Revenue $2.79 billion, up 72% year-over-year. Growth was driven by the communications networks and cloud and AI infrastructure end markets and the addition of the ZT Systems business.
IMS Non-GAAP Gross Margin 8.7%, up 80 basis points year-over-year. This was due to favorable mix, including the impact from the addition of ZT Systems revenue and operational efficiencies.
CPS Revenue $434 million, up 4.3% year-over-year. Growth was supported by multiple investments and program transitions.
CPS Non-GAAP Gross Margin 12.9%, up 40 basis points year-over-year. This was impacted by investments to support new programs and program transitions.
Cash Flow from Operations $179 million. This was enabled by disciplined working capital management and operational discipline.
Free Cash Flow $92 million. This was supported by strong working capital management and operational discipline.
Cash and Cash Equivalents $1.42 billion. This reflects a strong balance sheet with no outstanding borrowings on the $1.5 billion revolver.
Inventory $2.2 billion, up 74% year-over-year. This increase was driven by the ZT Systems acquisition.
Non-GAAP Pretax ROIC 32.1%, up from 23.5% year-over-year. This improvement reflects strong cash generation and operational performance.
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Operating Highlights
ZT Systems AI Business: Integration is on track and doing well. The acquisition is immediately accretive to CPS. ZT system margins align with core Sanmina. Growth expected in the second half of the calendar year driven by new projects. Goal to double Sanmina revenue in the next 2 years, with AI opportunities projected to deliver $16+ billion by calendar year 2027.
Energy Business Expansion: New state-of-the-art factory in Houston, Texas, focusing on medium voltage transformers, grid-scale transformers, and battery storage systems. Partnership with Contra for co-designing custom medium voltage transformers. Facility ramping up with full production expected by 2027.
AI and Cloud Infrastructure: Strong demand and growth opportunities in cloud and AI end markets. High-performance network systems (400, 800 gig, and 1.6 terabytes) are being shipped. Strong pipeline of new projects expected to drive growth in the second half of 2026 and beyond.
Industrial and Energy: Solid demand for power products supporting AI data centers and safety/surveillance equipment. Positive trends in electricity demand with new projects in the pipeline to drive future growth.
Operational Efficiencies: Non-GAAP gross profit margin improved by 30 basis points year-over-year to 9.3%, driven by favorable mix and operational efficiencies. Non-GAAP operating margin reached 6%, up 40 basis points year-over-year.
Cash Flow and Investments: Strong cash flow from operations at $179 million. Capital expenditures of $87 million for strategic investments in the U.S., India, and Mexico to support growth and margin expansion.
Market Diversification: Focus on higher-margin opportunities in regulated markets like medical, defense, and aerospace. Strong pipeline of new projects in these sectors.
AI Data Center Expansion: Investments in AI data center capabilities, including vertical integration and full system integration at scale. Planning to expand capacity for fiscal years 2027 and 2028.
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Risk or Challenges
Market Uncertainties: Ongoing market uncertainties stemming from tariffs and the geopolitical landscape could impact revenue and operational stability.
ZT Systems Integration: The integration of ZT Systems, while on track, requires significant management focus and resources, posing risks to operational efficiency and strategic execution.
Inventory Management: Inventory turns have decreased due to the ZT Systems acquisition, indicating potential inefficiencies in inventory management.
Capital Expenditures: Higher-than-expected capital expenditures could strain cash flow and financial flexibility.
Energy Business Expansion: The expansion into the energy business, including the new facility in Houston, involves long-term commitments and significant upfront investments, which may not yield immediate returns.
AI Data Center Investments: Investments in AI data center capabilities require substantial capital and carry risks related to demand fluctuations and technological advancements.
Regulatory and Compliance Risks: Participation in heavily regulated markets like medical, defense, and energy exposes the company to compliance and regulatory risks.
Economic Dependence on Key Markets: Dependence on specific markets like communications networks, cloud, and AI infrastructure for a significant portion of revenue increases vulnerability to market-specific downturns.
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Guidance & Outlook
Revenue Expectations: Sanmina expects revenue for the second quarter of fiscal 2026 to be between $3.1 billion to $3.4 billion, reflecting 62% growth compared to the same period a year ago. The company anticipates high single-digit growth for the core Sanmina business for the fiscal year.
Operating Margin: Non-GAAP operating margin for the second quarter is expected to range between 5.7% to 6.2%, depending on the business mix. Long-term, the company aims to improve operating margins from 6% to over 7%.
Capital Expenditures: Capital expenditures for the second quarter are projected to be around $95 million, with ongoing investments in capacity and technologies across operations in the United States, India, and Mexico to support growth and margin expansion.
AI and Cloud Infrastructure Growth: Sanmina expects strong growth opportunities in the cloud and AI infrastructure markets, with a robust pipeline of new projects anticipated to drive growth in the second half of calendar year 2026 and into 2027. The company aims to double its revenue in the next two years, targeting $16 billion-plus in calendar year 2027.
Energy Business Expansion: Sanmina is expanding its energy business with a new state-of-the-art factory in Houston, Texas, focusing on medium voltage transformers, grid-scale transformers, and battery storage systems. Initial shipments are planned for late 2026, with full production expected in 2027.
Medical Segment Recovery: The medical segment is expected to recover, with growth in medical drug delivery devices projected for fiscal years 2026 and 2027.
Defense and Aerospace: Strong demand is anticipated in the defense and aerospace segment over the next few years, with a solid pipeline of opportunities.
Automotive and Transportation: New programs are expected to drive growth in the automotive and transportation segment in fiscal year 2026.
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Shareholder Return Plan
Share Repurchase Program: During the quarter, we repurchased 516,000 shares for approximately $79 million to offset dilution for the year. At quarter end, we had approximately $160 million remaining on our current share repurchase program.
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Key Q&A
Q:Can you help me parse through the sequential revenue guidance for the March quarter?
A:The business is improving in the second quarter. Sanmina's core business is expected to grow quarter-over-quarter and double digits year-over-year. ZT Systems is also expected to grow quarter-over-quarter. The company is positioning for new products and platforms by the end of the fiscal and calendar year.
Q:Can I ask a conceptual question about ZT? How fast can the transition from NVIDIA to AMD occur this year?
A:The transition is ongoing, and the company is focused on accelerated compute opportunities, which are expected to materialize towards the end of calendar 2026. Investments are being made to support future requirements, and the company is confident in its guidance and margin expansion.
Q:Are you comfortable with the consensus estimate of $14 billion in revenue for 2026?
A:Yes, the company is confident in achieving $14 billion in revenue for 2026 and is excited about the opportunities ahead.
Q:How do you see the communications market recovering, particularly in optical and networking?
A:The communications market is currently strong, with some material shortages in memory and ASICs. The December quarter was strong, and the March quarter is expected to continue this trend. The company is optimistic about the year and the future.
Q:Can you talk about the operating margin and why it was better this quarter?
A:The operating margin improvement is attributed to mix, operational efficiencies, and investments in margin-accretive businesses. The company is positioning for higher-margin, sustainable businesses driven by technology.
Q:Can you provide more details on ZT wins for later in the year?
A:ZT's success is attributed to strong execution, customer relationships, and positioning for future technologies. The company is confident in retaining and growing existing customers while adding new ones. Investments are being made for long-term opportunities.
Q:Within industrial, medical, auto, and defense, where was the pocket of weakness?
A:The automotive sector showed weakness but is stabilizing with new programs. Medical is recovering well, defense and aerospace are stable, and industrial is performing strongly with expected growth in the second half of fiscal year 2026.
Q:Do you expect cash cycle days to drop in the second quarter?
A:The cash cycle days are expected to improve slightly in the second quarter. The company is focused on optimizing inventory turns and cash conversion cycles, with more realistic metrics expected once a full quarter of ZT is included.
Q:Review of Unclear Management Responses
A:Management avoided providing specific timelines or detailed breakdowns for the transition from NVIDIA to AMD and the exact impact of ZT wins on revenue. They also used vague language when discussing future opportunities and investments, focusing on general optimism rather than concrete details.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI infrastructure
CEO afternoon
Chairman CEO
Co Founder
Executive Chairman
Founder Executive
Jure Co
Sanmina ZT
Sanmina addition
Systems acquisition
ZT Systems
ZT system
addition ZT
advance period
afternoon Vice
cash generation
cloud AI
communication network
core Sanmina
decision
discipline
expectation
gentleman Sanmina
goal investment
grade rating
harbor statement
infrastructure end
investment grade
liquidity position
market core
month ZT
objective
period ZT
period communication
period investment
sheet liquidity
start
term leverage
transition
SANM Transcript
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Sanmina Corporation (SANM) Q2 2026 Earnings Call Transcript
Unknown4-27
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.
Sanmina Corporation (SANM) Q1 2026 Earnings Call Transcript
Positive1-27
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.
Sanmina Corporation (SANM) Presents at UBS Global Technology and AI Conference 2025 Transcript
Neutral12-3
SANM Slides
Sanmina Q2 FY2026 slides: revenue doubles on AI infrastructure surge2026-04-27
Sanmina Q1 2026 slides: Revenue surges 59% as AI infrastructure drives growth2026-01-26
Sanmina Q4 2025 slides: Revenue hits high end of guidance, margins exceed outlook2025-11-03
Sanmina Q3 2025 slides: Revenue jumps 10.9%, ZT Systems acquisition on track2025-07-28
SANM Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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Why do some answers appear as “Unclear” or “Inaudible”?
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Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
