Sanmina-SCI Earnings Call Signals Transformational Growth

Sanmina-sci ((SANM)) has held its Q2 earnings call. Read on for the main highlights of the call.

Sanmina-SCI’s latest earnings call struck an upbeat tone, underscoring a step‑change in scale and profitability driven by the ZT Systems acquisition and solid organic growth. Management emphasized record revenue, sharply higher earnings and strong cash generation, while acknowledging manageable headwinds from margin pressure, inventory build and ongoing supply constraints.

Record Revenue and Breakout Year-Over-Year Growth

Sanmina reported Q2 FY26 revenue of $4.01 billion, more than doubling from the prior year and setting a new company record. The surge was powered by the first full-quarter contribution from ZT Systems alongside healthy expansion across core Sanmina end markets.

ZT Systems Fuels Scale and Hyperscaler Momentum

ZT Systems contributed $1.88 billion of revenue, including accelerated compute shipments that were pulled into Q2 from future periods. Management highlighted new wins with hyperscalers and OEMs and expects ZT to operate comfortably within a $5 billion to $6 billion annualized run rate.

Core Sanmina Delivers Solid Organic Expansion

Beyond ZT, core Sanmina posted 7.3% year‑over‑year revenue growth, with IMS revenue reaching $1.70 billion, up 6.0%. This performance shows that legacy businesses are growing across multiple end markets, not merely riding the ZT acquisition wave.

Margin Expansion Drives EPS Surge

Non‑GAAP operating margin rose to 6.4%, an 80 basis‑point improvement from a year ago, reflecting better scale and mix. Non‑GAAP diluted EPS jumped 125% to $3.16, demonstrating strong operating leverage as the higher revenue base translated efficiently into earnings.

Robust Cash Generation and Ample Liquidity

The quarter produced $399 million in operating cash flow and $342 million in free cash flow, underscoring the quality of earnings. With $1.58 billion of cash and no borrowings on a $1.5 billion revolver, Sanmina now commands roughly $3.7 billion of available liquidity.

Improved ROIC and Balance Sheet Efficiency

Non‑GAAP pretax ROIC climbed to 34.7% from 23.0% a year earlier, reflecting better profitability and asset utilization. Inventory turns net of customer advances increased to 6.9x from 5.9x, while net leverage of 0.56x sits below the long‑term target, leaving room to fund growth.

Share Repurchases Underscore Capital Return Focus

Sanmina repurchased about 1.1 million shares for roughly $160 million during the quarter, signaling confidence in its valuation. The Board also approved an additional $600 million share repurchase authorization with no expiration, giving management flexibility to continue buybacks.

CPS Margin Compression Weighs on Segment Profitability

Within the CPS segment, non‑GAAP gross margin slipped to 11.6%, down 230 basis points year‑over‑year. The decline stems from higher depreciation and upfront investments to support new programs, which management frames as necessary groundwork for future earnings power.

Mix Effects Nudge Gross Margin Lower

On a consolidated basis, non‑GAAP gross profit was $360 million, or 9.0% of revenue, down 10 basis points from a year ago despite the revenue surge. The small margin dip reflects less favorable business mix, even as absolute gross profit dollars rose meaningfully.

Inventory Build and Working Capital Needs

Inventory net of customer advances climbed to $2.1 billion, up 75% from last year, largely tied to the ZT Systems acquisition and growth ramp. Management expects net leverage to rise into the 1.0x to 2.0x range over time as working capital builds to support higher volumes.

Persistent Supply Chain and Component Constraints

The company continues to face shortages in memory, custom ASICs and other components, restricting potential shipments and skewing revenue timing. These supply constraints are expected to persist through year‑end and require daily, hands‑on management to limit disruption.

Shipment Pull-Forwards Add Timing Volatility

Some compute shipments were accelerated into Q2, bolstering that quarter but dampening expectations for Q3, particularly for ZT Systems. Management cautioned that such pull‑forwards and hyperscaler scheduling changes can introduce variability into near‑term revenue cadence.

Integration and One-Off Costs Temper Near-Term Margins

Non‑GAAP operating income and expense included a net $25.9 million expense that reflects integration and other one‑time items. Additional temporary costs, including a roughly $5 million noncash JV equity adjustment, may modestly weigh on reported margins as integration progresses.

Execution Risks Around Ambitious Growth Targets

Management’s higher confidence in reaching at least $16 billion of revenue in FY27 is balanced by clear execution dependencies. Outcomes hinge on customer schedules, finalizing consignment versus standard terms, and easing supply bottlenecks, any of which could affect near‑term results.

Guidance Points to Sustained High Growth

For Q3, Sanmina guided revenue to $3.2 billion to $3.5 billion, with operating margin of 6.4% to 6.9% and non‑GAAP EPS of $2.55 to $2.85, all implying strong double‑digit gains versus last year. For FY26, the company reaffirmed $13.7 billion to $14.3 billion of revenue and non‑GAAP EPS of $10.75 to $11.35, while reiterating confidence in scaling beyond $16 billion of revenue in FY27.

Sanmina’s earnings call painted a picture of a company in the middle of a transformational growth phase, powered by ZT Systems and solid core expansion. While margin pressure, inventory build and supply constraints present real but manageable risks, the overarching story is one of stronger scale, cash generation and rising confidence in the multiyear growth trajectory.