Sanmina Corporation (SANM) Earnings

Management highlights

Overall Company Performance - Delivered Q3 FY26 results that met or exceeded prior guidance, with total revenue of $3.46 billion (up 69.7% year-over-year), non-GAAP operating margin of 8.0% (up 230 basis points year-over-year), and non-GAAP diluted EPS of $3.31 (up 116.0% year-over-year). - Core Sanmina business revenue hit $2.4 billion, growing 17.0% year-over-year with broad-based strength across all end markets, and a book-to-bill ratio above 1.1 indicating strong incoming demand. - Balance sheet remains very strong with $1.84 billion in cash and cash equivalents, total available liquidity of ~$4.0 billion, and a conservative net leverage ratio of 0.29x, well below the long-term target range of 1.0x to 2.0x. ZT Systems Integration & Growth - Executing against a three-phase integration plan: streamlined internal processes, completed capacity investments for next-generation accelerated compute, and began realizing synergies from vertical integration. - Secured additional new customer orders for next-generation accelerated compute in Q3, expanding the customer base; pre-production validation with AMD and joint customers is progressing on schedule, matching management's original timeline. - Won incremental new AI and cloud infrastructure programs in the core Sanmina business, with some new production moving to core Sanmina factories, a trend expected to accelerate. Strategic Investments - Continued strategic capacity and capability investments across both business units to support future growth: core Sanmina is adding metal fabrication capacity for AI racks, high-technology printed circuit board capacity, and medium voltage transformer production; ZT Systems is adding power, liquid cooling, test cell, and automation capacity for next-generation accelerated compute. - Capital expenditures totaled $100.9 million in Q3, in line with expectations. End Market Positioning - Communication networks, cloud, and AI infrastructure is the largest end market, accounting for 62% of total revenue ($2.148 billion) and growing 173.2% year-over-year, driven by broad AI-related demand across accelerated compute, storage, and networking products. - Industrial, medical, aerospace and defense, and automotive end markets account for 38% of total revenue ($1.316 billion), growing 4.8% year-over-year with stable demand and expected acceleration in FY27 across all sub-segments.

Guidance

- Fourth Quarter Fiscal 2026: Management expects total revenue in the range of $3.30 billion to $3.60 billion (midpoint $3.45 billion, up 64.6% year-over-year). Core Sanmina revenue is projected at $2.50 billion to $2.60 billion, and ZT Systems revenue at $0.80 billion to $1.00 billion (the lower ZT range reflects timing shifts in legacy programs, and next-generation accelerated compute revenue is excluded from Q4 guidance, with contributions expected to begin in Q1 FY27). Non-GAAP operating margin is expected between 7.5% and 8.0%, non-GAAP diluted EPS between $3.05 and $3.35, and capital expenditures of $135 million. - Full Fiscal Year 2026: Total revenue guidance is maintained at $14.0 billion to $14.3 billion. Core Sanmina revenue is projected at $9.1 billion to $9.2 billion, with midpoint growth of 12.6% year-over-year, exceeding the original full-year expectation of high single-digit growth. ZT Systems revenue is projected at $4.8 billion to $5.0 billion for the 11 months post-acquisition, which falls within the original $5 billion to $6 billion annualized run rate target. Non-GAAP operating margin is expected between 6.85% and 7.25%, and non-GAAP diluted EPS between $11.90 and $12.20, with midpoint growth of almost 100% year-over-year. - Fiscal Year 2027: Management reaffirmed confidence in achieving total revenue of $16+ billion, with higher revenue growth expected in the second half of FY27, followed by continued growth in FY28. No formal full-year guidance for FY27 will be released until the Q4 FY26 earnings call.

Segment performance

1. Integrated Manufacturing Solutions (IMS): Total revenue of $2.96 billion, up 79.4% year-over-year. Core Sanmina IMS contributed $1.9 billion (64.2% of total IMS revenue), up 14.1% year-over-year. ZT Systems contributed $1.1 billion (37.1% of total IMS revenue). Total IMS non-GAAP gross margin was 10.2%, up 270 basis points year-over-year, driven by favorable product mix from the ZT Systems acquisition and non-recurring engineering services. 2. Global Precision Solutions (GPS): Revenue of $546 million, up 29.2% year-over-year, driven by strong growth in metal fabrication for AI system racks and high-technology printed circuit boards for aerospace and defense products. GPS non-GAAP gross margin was 12.8%, down 190 basis points year-over-year (due to depreciation and expenses from growth-focused investments) but up 120 basis points sequentially, signaling early returns from these investments. GPS accounts for 15.8% of total company revenue.

Risks & headwinds

- Component shortages continue to constrain growth in the core cloud and communication networks business, limiting the segment's ability to meet existing strong demand. - Working capital build to support growing AI-related program ramps will create near-term pressure on operating cash flow and free cash flow. - Final operating model and production scheduling details for new next-generation accelerated compute programs are still being finalized with customers, creating near-term visibility uncertainty. - Legacy ZT Systems product revenue can vary significantly quarter-to-quarter based on customer timing requirements, creating potential quarterly revenue volatility.

Analyst Q&A

• Q: Q3 operating margin beat expectations, and Q4 margin is slightly lower due to reduced ZT revenue mix. How will margins trend as AI-related ZT revenue grows, and what was Q3's margin impact from non-recurring engineering (NRE) services? /

  A: Q3's margin beat came from stronger-than-expected core Sanmina performance, favorable mix, and higher NRE revenue than forecast. NRE for pre-production work has a strong margin profile, and will contribute to Q4 margins before ramping down over time. Long-term, management still expects consolidated operating margins to remain in the 6% to 7% range as AI revenue ramps, with formal updated guidance coming at the end of FY26.

• Q: Beyond the AMD partnership, what new customer wins do you have with other AI chip designers, and how large is this expanded opportunity? /

  A: Management confirmed they are manufacturing for Cerebras, as publicly announced, and that this new platform win aligns with the strategy to expand beyond AMD across multiple AI cloud and infrastructure platforms. Growth from these new programs already contributed to the 33% year-over-year growth in core Sanmina's cloud/network segment in Q3, and will remain a key focus going forward, supported by in-house metal fabrication and printed circuit board capacity.

• Q: What is your expected share of AMD Helios production next year, and how will the ramp progress between H1 and H2 FY27? /

  A: It is difficult to estimate an exact share because AMD continues to add new customers, expanding the total addressable market for Sanmina. Pre-production work is progressing as planned, and Sanmina has already made all required capacity investments to support ramping. Revenue will ramp gradually throughout FY27, with the majority of contribution coming in the second half, putting the business on a strong trajectory for FY28, with full details to be shared in the Q4 FY26 earnings call.

• Q: Is an annual run rate of $3 to $4 billion for ZT's legacy CPU and storage businesses a reasonable assumption for FY27? /

  A: Legacy CPU and storage platforms have historically fallen in the $3 to $4 billion annual range with quarterly volatility, and will remain at that scale in the near term. Longer term, Sanmina is actively pursuing new opportunities in these product categories across both core and ZT facilities, so there is potential for growth beyond this range, with formal guidance to come later.