Sanmina Q2 Earnings Call Highlights

Key Points

• Sanmina topped Q2 outlook with revenue of $4.01 billion, non‑GAAP EPS of $3.16 and a 6.4% non‑GAAP operating margin, driven largely by a pull‑in of accelerated compute orders from the recently acquired ZT Systems (AMD‑based shipments).
• IMS growth fueled by cloud/AI and ZT: IMS revenue jumped to $3.58 billion (up 123.5% YoY) as cloud and AI demand and ZT contributions accelerated next‑generation platform work, while CPS margins were pressured by investments and component timing that management expects will be margin‑accretive over time.
• Strong balance sheet and capital returns: Sanmina held $1.58 billion in cash, roughly $3.7 billion of total liquidity, generated $342 million FCF, repurchased ~$160 million of shares this quarter and authorized an additional $600 million buyback, while maintaining FY2026 guidance of $13.7B–$14.3B and expressing confidence in >$16B revenue in 2027.

Sanmina NASDAQ: SANM reported what management described as a strong second quarter of fiscal 2026, driven by better-than-expected results from its recently acquired ZT Systems business and continued growth across much of its Core Sanmina end markets. The company said it exceeded its outlook “across the board,” supported by operating leverage, disciplined cost management, and robust cash generation.

Second-quarter results topped outlook on ZT Systems pull-in

Chairman and CEO Jure Sola said he was “very pleased” with the quarter, citing revenue of $4.01 billion, non-GAAP operating margin of 6.4%, and non-GAAP diluted EPS of $3.16. Cash flow from operations was $399 million, which Sola also called out as “strong.”

Executive Vice President and CFO Jon Faust said revenue of $4.0 billion came in “well above” the company’s outlook range, attributing the outperformance primarily to “strong execution and customer demand for the ZT Systems business,” which led to accelerated compute shipments being pulled into the second quarter from the second half of the year. Faust also said Core Sanmina delivered growth across the “majority of our end markets.”

On a non-GAAP basis, Faust reported gross profit of $360 million, or 9.0% of revenue, down 10 basis points year-over-year due to mix. Operating expenses were $103 million, or 2.6% of revenue, resulting in operating profit of $257 million, or 6.4% of revenue, up 80 basis points from the year-ago period. Faust noted this was the company’s third straight quarter with non-GAAP operating margin at 6% or higher.

Faust said non-GAAP diluted EPS of $3.16 was based on roughly 55 million shares outstanding and represented a 125% increase versus the same period a year ago.

Segment performance: IMS fueled by cloud and AI; CPS margin pressured by investments

Faust said IMS revenue was $3.58 billion, up 123.5% year-over-year, “driven primarily by growth in the cloud and AI infrastructure end market,” including the addition of ZT Systems. Core Sanmina IMS revenue was $1.70 billion, up 6.0% year-over-year, while ZT revenue was $1.88 billion.

Total IMS non-GAAP gross margin was 8.5%, up 80 basis points year-over-year, which Faust said was driven by favorable mix, including the impact from ZT Systems.

CPS revenue was $461 million, up 12.2% year-over-year. CPS non-GAAP gross margin was 11.6%, down 230 basis points. Faust said the decline was primarily due to depreciation and other expenses tied to investments supporting new programs, which the company expects will be “margin-accretive” in future quarters. He also cited component shortages that affected the timing of revenue and profitability in one product business, which management believes will be resolved in the second half of the fiscal year.

ZT Systems integration and demand: AMD-based shipments and next-gen preparation

Faust outlined a three-phase ZT Systems integration plan, saying the first phase—immediate post-transaction actions—was “largely complete.” He added that Sanmina has made “most of the necessary capital investments in incremental power, liquid cooling, and test cell capacity” to be ready for the next generation of accelerated compute.

In the second phase, Faust said the company has “won and shipped new accelerated compute business” and has secured next-generation accelerated compute business with both hyperscale and OEM customers, with production schedules still being finalized. The third phase is aimed at driving growth via synergies, vertical integration, and expanding engineering capabilities beyond full systems integration.

During the Q&A, Bank of America’s Ruplu Bhattacharya asked what drove ZT’s outperformance and whether it related to AMD’s MI300 series or NVIDIA GPU business. Sola said the quarter benefited from a customer pulling in product originally scheduled for the third and fourth quarters. He also said the company “did not ship any accelerated compute of NVIDIA product,” adding that shipments were “all based on AMD technology.”

Faust emphasized that the quarter’s accelerated compute activity was “new platform business, not the old legacy products that ZT had,” and said the team’s ability to obtain components and execute quickly enabled the pull-in.

JP Morgan’s Samik Chatterjee asked about next-generation timing and pre-production activity. Faust said the next-generation product is “scheduled to be out in September” and that Sanmina’s work to become production-ready is on track, though the amount of revenue in September “remains to be seen.” He added that the bigger opportunity is “more of an FY 2027 play,” and noted that revenue is recognized when customers receive the products.

Balance sheet, cash flow, and capital returns

Faust highlighted what he called a “very strong balance sheet,” reporting cash and cash equivalents of $1.58 billion and no outstanding borrowings on the company’s $1.5 billion revolver. He said this left approximately $3.7 billion of liquidity to support growth.

Inventory was $2.1 billion, net of customer advances, up 75% year-over-year due to the ZT Systems acquisition. Inventory turns, net of customer advances, improved to 6.9 times from 5.9 times a year ago. Faust also cited non-GAAP pre-tax ROIC of 34.7% and a net leverage ratio of 0.56 times, while reiterating the company’s long-term net leverage target range of 1.0x to 2.0x as it invests in working capital to support growth.

Free cash flow for the quarter was $342 million, with capital expenditures of $57 million, which Faust said was below outlook due to timing. The company repurchased approximately 1.1 million shares for about $160 million during the quarter.

Faust also announced that Sanmina’s board authorized an additional $600 million in share repurchases with no expiration date, stating the company intends to repurchase shares opportunistically within its broader capital allocation priorities.

Guidance: Q3 step-down after pull-in; full-year outlook maintained

For the third quarter, Faust guided revenue of $3.2 billion to $3.5 billion, including Core Sanmina revenue of $2.2 billion to $2.3 billion and ZT Systems revenue of $1.0 billion to $1.2 billion. He said ZT revenue would be lower sequentially due to the accelerated compute orders that shifted into the second quarter.

Sanmina expects third-quarter non-GAAP operating margin of 6.4% to 6.9%, other income and expense to be a net expense of about $30 million, and a non-GAAP effective tax rate of 21% to 23%. The company also expects a roughly $5 million non-cash reduction to net income for its India joint venture partner’s equity interest. Non-GAAP diluted EPS is expected to be $2.55 to $2.85, based on about 55 million fully diluted shares outstanding.

For the full fiscal year 2026, Faust reiterated revenue guidance of $13.7 billion to $14.3 billion, with Core Sanmina expected to grow in the “high single digits” and ZT Systems expected to be “well within” the $5 billion to $6 billion annualized range discussed when the acquisition was announced. Full-year non-GAAP operating margin is expected to be 6.3% to 6.6%, and non-GAAP diluted EPS is projected at $10.75 to $11.35.

Looking beyond fiscal 2026, Faust said management is “increasingly confident” in its ability to achieve “revenue of $16 billion plus in 2027,” while noting that timing and customer schedules will remain important variables as next-generation platforms ramp.

On supply chain conditions, analyst Anja Soderstrom of Sidoti asked whether Sanmina is seeing disruptions or input cost challenges. Sola said there are “material shortages around the memory, custom ASICs, and things like that,” and expects those constraints to continue through the rest of the year and potentially into 2027. Faust added that current constraints and customer forecasts have been factored into the company’s guidance.

About Sanmina NASDAQ: SANM

Sanmina Corporation is a leading global electronics manufacturing services (EMS) provider specializing in the design, production and end-to-end supply chain solutions for complex electronic products. Founded in 1980, the company has built a reputation for delivering high-reliability manufacturing across a wide range of industries, including communications, computing, aerospace and defense, medical, automotive and industrial sectors.

Sanmina's core offerings encompass product design and engineering support, precision PCB fabrication and assembly, system integration, testing, and final system deployment.

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