Sanmina Corporation (SANM) Q3 2025 Earnings Call Transcript

Sanmina Corporation delivered a robust Q3 FY2025, with revenue of $2.04 billion, up 10.9% year-over-year, and non-GAAP EPS of $1.53, a 22.8% increase, both surpassing guidance. This performance was driven by broad-based demand, particularly in communications networks and cloud infrastructure, alongside improved non-GAAP gross and operating margins of 9.1% and 5.7%, respectively. The company reaffirmed a positive outlook for Q4, projecting full-year FY2025 revenue growth of 6-8% and non-GAAP EPS growth of 12.9%. A key strategic focus is the pending acquisition of ZT Systems' manufacturing business, on track for late 2025 closure, which is anticipated to add $5-6 billion in annual revenue, double Sanmina's revenue within three years, and be accretive to non-GAAP EPS, significantly bolstering its position in the rapidly expanding data center and AI infrastructure markets. The firm also emphasized its strong balance sheet and consistent cash flow generation.

Analysis

Sanmina Corporation reported a strong third quarter for fiscal year 2025, with key financial metrics exceeding guidance. Revenue reached $2.04 billion, a 10.9% year-over-year increase, driven by broad-based demand, particularly a 19.1% surge in the Communications Networks and Cloud Infrastructure segment. Profitability also showed significant improvement, with non-GAAP EPS growing 22.8% to $1.53 and non-GAAP operating margin reaching 5.7%, the high end of the company's outlook. A notable driver of this profitability was the Components, Products and Services (CPS) segment, which saw its gross margin expand by an impressive 320 basis points year-over-year to 14.7%, reflecting a favorable product mix and operational efficiencies. The company maintains a robust balance sheet, generating $201 million in cash from operations and improving inventory turns to 6.3x, providing substantial financial flexibility. The central strategic development is the pending acquisition of ZT Systems' manufacturing business from AMD, which is on track to close near the end of calendar year 2025. Management projects this transaction will add $5-6 billion in annual run-rate revenue, effectively doubling Sanmina's total revenue within three years and being accretive to non-GAAP EPS in its first year. This acquisition represents a pivotal move to capitalize on long-term growth trends in the data center and AI infrastructure markets. While Q4 guidance implies a moderation in year-over-year growth, this is attributed to a tougher prior-year comparison rather than a slowdown, with the full-year FY25 forecast remaining solid at 6-8% revenue growth.

Key Decisions for Investors

• Investors should assess Sanmina based on its strategic transformation into a major player in the AI and data center supply chain through the ZT Systems acquisition, which is expected to double revenue and be immediately accretive to earnings.
• The primary risk and opportunity lies in the execution of the ZT acquisition; monitor the transaction's closing timeline, post-merger integration, and management's ability to manage the temporary increase in net leverage above 2x while realizing projected synergies.
• Note the underlying strength and margin expansion in the core business, particularly the CPS segment's 14.7% gross margin, which provides a solid operational and financial foundation to support the transformative acquisition.
• Given management's confidence and the positive demand outlook for fiscal 2026, any share price weakness resulting from the moderated Q4 year-over-year growth guidance could be evaluated against the much larger, long-term growth potential from the ZT integration.