Sanmina Earnings Call: AI Growth Fuels Powerful 2026 Start

Sanmina-sci ((SANM)) has held its Q1 earnings call. Read on for the main highlights of the call.

Sanmina Kicks Off Fiscal 2026 With Powerful AI-Driven Momentum

Sanmina opened fiscal 2026 on a notably strong note, pairing rapid top-line expansion with robust earnings growth and solid profitability. Management struck an optimistic tone, emphasizing the benefits of the ZT Systems acquisition and surging demand in cloud and AI infrastructure, while acknowledging near-term headwinds from higher inventories, capital spending, and leverage. Overall, the call conveyed confidence that operational momentum and structural growth drivers outweigh the manageable risks tied to integration, working capital, and a choppy macro backdrop.

Explosive Revenue Growth at the Top of Guidance

Sanmina reported first-quarter fiscal 2026 revenue of $3.19 billion, a 59% year-over-year jump and at the high end of its guidance range. The performance underscores how transformative the ZT Systems acquisition has been, significantly lifting the company’s scale. This surge positions Sanmina as a more prominent player across its key end markets, particularly in cloud and AI-related infrastructure, and sets a high bar for the rest of the fiscal year.

EPS Surges as Profitability Scales With Growth

Earnings power accelerated even faster than revenue, with non-GAAP diluted EPS climbing 66.1% year over year to $2.38, beating the company’s outlook. This improvement highlights operating leverage and disciplined cost execution, even as the company invests in new programs and integration efforts. For investors, the EPS beat confirms that the growth story is not just about volume but also about expanding earnings capacity.

Operating Margins Hold Firm, With More Upside Targeted

Sanmina delivered a non-GAAP operating margin of 6.0% in the quarter, up 40 basis points from a year ago and in line with the prior quarter. The company also guided Q2 operating margin to a still-solid 5.7%–6.2%, depending on business mix. Management reiterated its longer-term ambition to push margins above the current ~6% level into the 6%–7%+ range, signaling confidence that mix improvements, scale advantages, and operational efficiencies can continue to support profitability.

Healthy Cash Generation and a Strong Liquidity Position

Cash generation remained a key strength. Sanmina produced $179 million in cash flow from operations and $92 million in free cash flow during the quarter. The balance sheet is bolstered by $1.42 billion in cash and cash equivalents and total available liquidity of about $3.6 billion. This financial flexibility gives the company room to fund working capital for growth, invest in capacity and technology, and manage debt, even as capital needs rise in the near term.

IMS Segment Shines on AI and Cloud Demand

The Integrated Manufacturing Solutions (IMS) segment delivered standout performance, with revenue soaring 72% year over year to $2.79 billion. IMS non-GAAP gross margin improved to 8.7%, up 80 basis points, helped by favorable product mix and operational efficiencies, including the contribution from ZT Systems. The segment is clearly benefiting from strong demand in communications networks and cloud/AI infrastructure, which together now account for roughly 62% of total company revenue.

ZT Systems: Accretive Deal Driving Data Center Upside

Management emphasized that the ZT Systems acquisition is integrating well and is already accretive to EPS, with margins comparable to Sanmina’s core business. The company expects ZT to grow sequentially, providing substantial upside tied to AI and data center build-outs. As hyperscale and AI-related demand ramps, ZT’s capabilities position Sanmina at the center of large-scale infrastructure deployments, reinforcing the strategic rationale for the deal.

Share Repurchases and Strong Returns on Capital

Sanmina continued to return capital to shareholders, repurchasing 516,000 shares for approximately $79 million in the quarter. The company posted an impressive non-GAAP pretax return on invested capital (ROIC) of 32.1%, up from 23.5% a year ago, reflecting improved profitability and efficient use of assets. Despite upcoming investments and higher leverage over time, Sanmina currently maintains a conservative net leverage ratio of 0.8x, leaving ample room to support its growth and capital return strategies.

Outlook Points to Sustained High Growth and Margin Ambitions

For the second quarter, Sanmina guided revenue to $3.1–$3.4 billion, with a midpoint of $3.25 billion, implying roughly 62% year-over-year growth and representing a full quarter of ZT Systems contribution. Non-GAAP EPS is expected between $2.25 and $2.55, with a midpoint of $2.40, up about 66.7% year over year. Management reiterated that fiscal 2026 is a growth year, with core Sanmina (excluding ZT) projected to grow at a high single-digit rate and longer-term operating margin targets moving toward 6–7%+. The company also articulated strategic goals to double revenue over two years, anchored by what it sees as a multibillion-dollar AI opportunity through the next few years.

Broad Market and Product Tailwinds, Especially in AI

Management highlighted strong demand across communications networks and cloud & AI infrastructure, now forming the majority of revenue. The company sees a robust pipeline for AI data center projects, underscoring the sustainability of current growth trends. Beyond data centers, Sanmina is investing in long-cycle opportunities, such as a new energy-focused factory in Houston expected to begin production in 2027, positioning the company to benefit from increased investment in energy infrastructure and electrification.

Inventory Build and Slower Turns Reflect Growth and Integration

One of the key watch points is inventory. Inventory net of customer advances rose 74% year over year to $2.2 billion, driven largely by the ZT Systems acquisition and the need to support rapid program ramp-ups. Inventory turns, net of advances, slipped to 5.3x from 5.8x a year ago, a metric somewhat distorted because the quarter only included two months of ZT cost of goods sold. Management framed this build as a necessary investment to support growth, but investors will be watching closely to see how efficiently working capital is managed as ZT scales.

CPS Margins Temporarily Pressured by Investments and Transitions

In the Components, Products and Services (CPS) business, revenue grew 4.3% year over year to $434 million, but margins saw some near-term pressure. CPS gross margin of 12.9% was up 40 basis points from last year yet below recent levels, as new investments came online and several programs went through transition phases. Management characterized this as a temporary drag tied to growth initiatives, implying that margins should improve as these new programs mature and utilization increases.

Industrial and Automotive Show Slight Weakness but Signs of Stabilization

The diversified industrial, energy, medical, defense & aerospace, automotive, and transportation cluster accounted for 38% of revenue, or $1.226 billion, and was down about 3% year over year. The softness was more pronounced in automotive and transportation, though management noted that these markets appear to be stabilizing and gradually recovering. While this side of the portfolio is not the current growth engine, it remains strategically important for diversification and could contribute more meaningfully as cyclical headwinds ease.

Rising Working Capital and Leverage to Fund Expansion

Sanmina signaled that working capital needs will increase as it supports ZT Systems’ growth and broader program ramp-ups. As a result, management expects leverage to move up over time into its long-term target range of 1.0x–2.0x net leverage, from 0.8x today. While this implies higher balance-sheet funding pressure in the near term, the company believes the additional leverage is manageable and appropriate given its growth trajectory and its goal of achieving investment-grade credit ratings.

Elevated Capital Spending and Higher Debt-Related Costs

Capital intensity is trending higher as Sanmina invests in capacity and technology to capture AI and other structural opportunities. The company spent $87 million in capex in Q1, slightly above plan, and guided to about $95 million in Q2. This will temporarily increase cash absorption. Additionally, non-GAAP other expense was $19.1 million in Q1 and is expected to rise to about $26 million in Q2, reflecting a full quarter under the new debt structure and higher interest-related costs.

Navigating Tariffs and Geopolitical Uncertainty

Management acknowledged that its outlook already factors in ongoing market and geopolitical uncertainties, including tariffs and other trade-related risks, which may affect customer timing and near-term execution. While these factors introduce volatility, Sanmina stressed its diversified footprint and flexible operations as tools to manage through shifting geopolitical and regulatory landscapes.

Forward Guidance Underscores Confidence in AI-Led Growth

Looking ahead to Q2 and beyond, Sanmina’s guidance underscores a high-confidence growth story centered on AI and cloud infrastructure. The company expects Q2 revenue between $3.1 and $3.4 billion, non-GAAP operating margin of 5.7%–6.2%, and non-GAAP EPS of $2.25–$2.55, alongside capex of roughly $95 million and depreciation of about $45 million. Management reiterated that fiscal 2026 will be a growth year for core Sanmina and that it is targeting long-term operating margins of 6–7%+ and net leverage of 1.0x–2.0x while aiming to secure investment-grade ratings. Strategically, Sanmina is positioning itself to roughly double revenue over the next two years, leaning heavily on a large AI-focused opportunity set that management believes can drive sustained demand in data centers and related infrastructure.

Sanmina’s latest earnings call painted a picture of a company riding powerful structural tailwinds in AI and cloud infrastructure while prudently investing for future growth. Revenue and EPS growth far outpaced expectations, margins remained strong, and returns on capital were impressive, even as inventories, capex, and leverage tick higher to support expansion. For investors, the story is one of strong operational execution, a clearly articulated long-term strategy, and a business model increasingly tied to high-growth technologies—tempered by manageable near-term balance-sheet and macro risks.