$SANM EXECUTIVE CALL SUMMARY: SANMINA CORP (01/26/26)
Q1 FY26 results were characterized by a material step-up in scale following the ZT Systems addition and continued strength in communications networks and cloud/AI infrastructure demand. Non-GAAP revenue was $3.19 billion, non-GAAP operating margin was 6.0%, non-GAAP diluted EPS was $2.38, and cash flow from operations was $179 million. Management stated results “either met or exceeded all of our outlook commitments,” with revenue and operating margin “towards the high-end” of the outlook and EPS exceeding the outlook. Q2 FY26 guidance embedded modest sequential growth at the midpoint despite the inclusion of a full quarter of ZT Systems, implying near-term lumpiness from platform transitions and shipment timing rather than a linear ramp. Q2 guidance was revenue of $3.1 billion to $3.4 billion, non-GAAP operating margin of 5.7% to 6.2%, and non-GAAP diluted EPS of $2.25 to $2.55. The call raised long-dated ambition materially through explicit multi-year targets, including “the goal is to double Sanmina revenue in next 2 years” and that “the AI opportunities are on-track to deliver a $16 billion plus in our calendar year ’27,” while maintaining a near-term posture of guiding “1 quarter at a time.” The net investment takeaway was a higher perceived upside optionality to the AI infrastructure cycle (and to vertical integration content gains), partially offset by limited near-term transparency into the ZT revenue composition, a transition-driven cadence, higher interest expense from the new debt structure, and expected working-capital intensity as ZT scales.
QUARTER PERFORMANCE AND QUALITY OF DELIVERY
Non-GAAP revenue of $3.19 billion was up 59% year-over-year, driven primarily by communications networks and cloud/AI infrastructure growth and the addition of ZT Systems. The year-over-year change implied prior-year quarterly revenue of approximately $2.01 billion based on the stated growth rate, highlighting that the majority of the growth was acquisition-driven with additional organic lift in the comm/cloud portion of the legacy portfolio. Non-GAAP gross profit was $298 million and gross margin was 9.3%, up 30 bp year-over-year. Non-GAAP operating expenses were $106 million (3.3% of revenue), down 10 bp year-over-year on a ratio basis, indicating operating leverage and disciplined SG&A scaling despite “targeted investments to drive future growth.” Non-GAAP operating profit was $192 million (6.0% margin), up 40 bp year-over-year and described as “at the 6% level for the 2nd quarter in a row,” implying a sustained step-up versus historical mid-5% levels rather than a 1-time quarter.
Non-GAAP other income/expense was a net expense of $19.1 million and was $3.9 million favorable to guidance, attributed to strong cash generation. This line item became a key swing factor for forward modeling because Q2 guidance implied a step-up to approximately $26 million of net expense as the quarter “now includes a full quarter of our new debt structure.” Non-GAAP diluted EPS of $2.38 was up 66.1% year-over-year, implying prior-year EPS of approximately $1.43 based on the stated growth rate. The EPS growth exceeded revenue growth, consistent with operating margin expansion and disciplined opex, partially offset by non-operating and tax effects.
The delivery against guidance supported near-term management credibility. However, the earnings quality discussion was constrained by the call’s reliance on non-GAAP metrics and the absence of a detailed bridge between GAAP and non-GAAP for the quarter within the transcript. The operational narrative relied heavily on mix and efficiency improvements, and less on structural pricing or long-term contractual resets, which matters because the incremental gross margin improvement was only 30 bp year-over-year despite the large scale change.
SEGMENT PERFORMANCE AND MIX IMPLICATIONS
The business remained dominated by the IMS segment, with IMS revenue of $2.79 billion (approximately 87% of total revenue) and CPS revenue of $434 million (approximately 14% of total revenue). IMS revenue was up 72% year-over-year, driven by communications networks and cloud/AI demand plus ZT Systems. IMS non-GAAP gross margin was 8.7%, up 80 bp year-over-year, with management attributing this to “favorable mix, including the impact from the addition of ZT Systems revenue and operational efficiencies in both the core Sanmina and ZT Systems businesses.” The magnitude of IMS margin expansion was notable because data-center system integration businesses can be margin-dilutive in some EMS models; the statement that “ZT system margins is in-line with our core Sanmina” and that the acquisition is “immediately accretive to our EPS” positioned ZT as neutral-to-positive to the consolidated margin profile, at least in the near term.
CPS revenue grew 4.3% year-over-year and CPS non-GAAP gross margin was 12.9%, up 40 bp year-over-year but explicitly “lower than our recent performance,” driven by “multiple investments that came online to support new programs… as well as a few program transitions.” This created a near-term paradox: CPS is structurally higher margin than IMS, yet near-term CPS margin was depressed by ramp investments, limiting the immediate benefit of any CPS mix shift to consolidated margins. The call indicated these CPS investments are expected to “deliver margin-accretive growth in the near-future,” implying a potential margin tailwind when programs mature and utilization improves.
Consolidated margin durability depended primarily on 3 variables: IMS mix within communications networks vs cloud/AI and within ZT’s portfolio (accelerated vs non-accelerated), the speed at which CPS investment programs convert to revenue at mature margins, and the pace of vertical integration capture in AI data-center content. Management emphasized that Q2 operating margin would be “dependent on the mix of the business,” reinforcing that quarterly margin volatility is likely even if the medium-term trajectory is upward.
END-MARKET AND DEMAND SIGNALS
Management described the revenue mix by end market as approximately 62% communications networks plus cloud/AI infrastructure and 38% industrial, energy, medical, defense/aerospace, and automotive/transportation. The call implied that communications networks plus cloud/AI infrastructure revenue was approximately $1.964 billion and the industrial/regulated complex was approximately $1.226 billion, with the latter described as “slightly down” approximately 3% year-over-year and “very consistent and stable” due to heavy regulation and mission-critical product focus.
Communications networks and cloud/AI infrastructure were characterized as strong with improving demand visibility. Management stated “very strong today” regarding communications, noting some “material shortages… around memory and some of the special ASICs customer ASICs,” which pointed to supply constraints as a limiting factor rather than end-demand weakness. Product-cycle commentary included growth in high-performance network systems at “400 gig, 800 gig” and beginning shipments of “1.6” (stated as “1.6 terabytes” in the transcript, likely referring to 1.6T networking speeds), plus expansion in “optical advanced packaging products.” This mix suggests exposure to the high-bandwidth switching and optics upgrade cycle, historically driven by hyperscale capex and enterprise refresh cadence, and likely correlated with AI cluster buildouts.
Industrial and energy were positioned as a structural growth vector driven by power demand from AI data centers. Management highlighted a new “state-of-art factory in Houston, Texas” aimed at medium voltage transformers (distribution), grid-scale transformers (transmission), and battery storage systems (storage). A partnership with KONCAR (Croatia) was disclosed to “co-design custom medium voltage transformers,” with “long-term commitments” from a “large industry-leading strategic customer.” Timing guidance for this initiative was explicit: “planning to ship few units in late 2026 and be ready for full production in calendar year 2027.” This created a medium-term optionality layer that is less correlated with server build cycles and more tied to grid modernization and electrification capex, but with long lead times and execution risk typical of heavy equipment ramps.
Medical was described as entering a recovery, with management expecting “medical drug delivery devices to grow in fiscal year ’26 and ’27.” Defense and aerospace was described as having “strong demand for next few years,” consistent with long-duration programs. Automotive/transportation was described as previously weak but “starting to become more stable,” with growth expected from “new programs.”
Bookings commentary was directionally supportive but not quantified precisely; management stated “Bookings continues to be solid, over 1,” implying book-to-bill above 1.0 and a supportive backlog trajectory. The absence of explicit backlog numbers or bookings by end market limited the ability to triangulate the durability of the claimed 2H CY26 and CY27 growth pipeline.
ZT SYSTEMS INTEGRATION AND AI DATA CENTER STRATEGY
ZT Systems was the central strategic driver of the call. Integration was described as “on-track,” with the acquisition framed as “immediately accretive to our EPS.” Management emphasized organizational strength: “we do have strong management and technical team in-place” and stated ZT’s team is “self-sufficient going forward,” suggesting low operational disruption and limited integration friction on execution.
The near-term ZT narrative was defined by transition dynamics. Management repeatedly referenced a shift away from legacy platforms toward a “base business that’s going to stay with us and the future business.” This transition was used to explain why 2 months of reported revenue should not be extrapolated mechanically into a full quarter. In Q&A, it was stated that many “old platforms… have rolled-off,” and the focus was “really just… the future.” The framing suggested that ZT’s near-term revenue cadence may be less a function of steady-state run-rate and more dependent on platform qualification timing, hyperscaler deployment schedules, and the pace of component availability for accelerated compute configurations.
A key anchor point was the historical statement from “May 19th,” when management indicated the post-close revenue run-rate for ZT would be $5 billion to $6 billion. The CFO stated that annualizing the Q1 contribution was consistent with “$5.7 billion,” and further asserted that “everything we’ve said and committed about the business has been happening the way that we expected.” This served as a partial validation of the acquisition thesis, while still leaving uncertainty around the mix between non-accelerated systems, accelerated racks, and specific GPU ecosystem exposure.
The call explicitly referenced competitive ecosystem dynamics, with Q&A discussing Nvidia legacy business and an AMD ramp in 2H CY26. Management did not provide explicit revenue splits or margin differentials by platform, but the qualitative stance was that accelerated compute is “certainly the part… that has the most growth potential,” and that AMD partnership opportunities are “huge.” The CFO stated that the accelerated compute opportunity “really comes towards the end of… calendar 2026,” establishing a time-phasing expectation that aligns with back-half platform ramps rather than immediate quarter-to-quarter acceleration.
Longer-term ambition was elevated materially. Management stated: “the goal is to double Sanmina revenue in next 2 years,” and “the AI opportunities are on-track to deliver a $16 billion plus in our calendar year ’27.” These statements were not framed as formal guidance and were not accompanied by order backlog, customer concentration, or committed capacity detail in the transcript. As such, they functioned as directional targets signaling management’s confidence in hyperscaler AI infrastructure demand and Sanmina’s competitive position in full-system integration. The strategic pathway to higher margin was tied to vertical integration: “we’re also pursuing vertical integration opportunities for AI” including “components and liquid cooling racks to full system integration at-scale,” with a stated expectation that “in a year from now… vertical integration around the AI data center will improve.”
The principal analytical implication was that the investment case increasingly resembles a levered play on accelerated compute platform cycles with meaningful operating leverage potential if execution is strong, but with non-trivial volatility risk due to platform transitions, concentrated customer purchasing behavior, and supply chain constraints for high-value components (GPUs, memory, custom ASICs). The call provided confidence signals but limited quantification of the path from the implied FY26 revenue base to the stated CY27 AI opportunity size.
GUIDANCE, FORWARD COMMITMENTS, AND COMPARISON TO PRIOR STATEMENTS
Q2 guidance was the most concrete forward data point. Management guided revenue of $3.1 billion to $3.4 billion (midpoint $3.25 billion), non-GAAP operating margin of 5.7% to 6.2%, and non-GAAP diluted EPS of $2.25 to $2.55 (midpoint $2.40) on approximately 56 million diluted shares. At the midpoint, revenue implied approximately $60 million of sequential growth versus Q1, and operating margin implied roughly flat operating profit dollars versus Q1 (given the slight midpoint margin compression). The guidance included explicit headwinds from non-operating items: other income/expense was expected to be a net expense of approximately $26 million due to a full quarter of the new debt structure, and an “approximate $3 million non-cash reduction to… net income” was expected for India joint-venture partners’ equity interest. The effective tax rate was guided to 21% to 23%.
The guidance narrative was conditioned on “current customer forecasts,” a “full quarter of the ZT Systems business,” and “ongoing market uncertainties stemming from tariffs and the geopolitical landscape.” This implied that guidance quality is sensitive to customer deployment schedules and the policy environment. The sequential guide profile was notable because it did not show a step-function increase despite ZT being included for a full quarter; management directly addressed this by rejecting straight-line annualization of the 2-month Q1 contribution due to transition timing and the active pruning of legacy platforms.
Prior guidance comparison within the transcript was limited, but management emphasized that Q1 was delivered at or above prior outlook. An important consistency check was the reaffirmation of the May 19 ZT run-rate framework ($5 billion to $6 billion), with the CFO stating current results are “pretty much… in our expectations.” This suggested ZT is tracking to the acquisition underwriting case, at least on near-term revenue level, though the call did not provide an updated multi-quarter ZT revenue ramp schedule.
A notable quasi-guidance moment occurred when asked about FY26 consensus revenue of $14 billion. Management stated “we believe we have a very good chance hitting $14 billion.” This comment, while not a formal company guide, implicitly raised management’s confidence in the annual revenue trajectory beyond the strict 1-quarter guidance posture. It also implied that 2H FY26 revenue is expected to step up meaningfully versus the Q1–Q2 run-rate, consistent with repeated references to stronger growth in 2H FY26 and late CY26 accelerated compute ramps.
MARGIN TRAJECTORY, COST STRUCTURE, AND CAPEX INTENSITY
The core margin message was stabilization around 6% operating margin with a stated medium-term path higher. Management stated: “Short-term, we’re forecasting 5.7% to 6% operating margin. And longer-term, we expect to improve those margin from 6% to 7% plus percent.” This was reinforced by Q2 operating margin guidance and commentary that mix is the dominant near-term driver. The CFO attributed Q1 margin performance to “mix… across components, products and services,” operational efficiencies in IMS and CPS, and disciplined SG&A management. The CEO emphasized that investments are being directed toward “higher-margin business… sustainable for many quarters,” implying deliberate mix-shift efforts rather than purely cyclical margin improvement.
Capex intensity was highlighted as rising. Q1 capex was $87 million, “slightly above our outlook,” and Q2 capex was guided to approximately $95 million. Management stated that approximately 90% of this spending is “really for ’27 for ’28,” implying a forward-capacity build and tooling for next-generation programs, particularly AI infrastructure. This capex profile supports the growth narrative but introduces 2 risks: demand normalization risk if AI infrastructure spending decelerates, and execution risk if capacity is built ahead of validated program ramps. The upside case is that proactive capex secures customer wins, supports higher content capture, and increases barriers to entry for competing EMS providers.
BALANCE SHEET, WORKING CAPITAL, AND CAPITAL ALLOCATION
Liquidity and balance sheet strength were positioned as competitive advantages. Cash and equivalents were $1.42 billion, and there were no outstanding borrowings on the $1.5 billion revolver, with management citing total liquidity of approximately $3.6 billion. Net leverage was stated at 0.8x, calculated conservatively by annualizing Q1 EBITDA because pro-forma trailing-12-month ZT EBITDA would not reflect the current run-rate. The long-term net leverage target remained 1.0x to 2.0x, with an explicit expectation that leverage will increase “over-time as we invest in working capital to support the growth of the ZT Systems business.” A stated long-term objective was “to achieve investment-grade ratings over-time,” implying a preference for balance sheet conservatism even during a growth investment cycle.
Working capital intensity increased materially with the ZT addition. Inventory was $2.2 billion (net of customer advances), up 74% year-over-year, and inventory turns were 5.3x versus 5.8x in the prior-year quarter. Management highlighted that the Q1 inventory turns calculation was distorted because it includes the full inventory acquired from ZT but “only includes 2 months of ZT Systems cost-of-goods-sold,” implying the metric should mechanically improve in Q2 as a full quarter of COGS is included. Core Sanmina inventory turns improved sequentially and year-over-year, signaling that legacy operations are managing working capital effectively even as the consolidated profile shifts toward more inventory-intensive AI infrastructure builds.
Cash generation remained solid in the quarter. Cash flow from operations was $179 million and free cash flow was $92 million after $87 million of capex, indicating a free cash flow margin of approximately 2.9% of revenue for Q1. Share repurchases were modest and framed as dilution offset: 516,000 shares were repurchased for approximately $79 million, leaving approximately $160 million on the authorization. The capital allocation hierarchy was reiterated as (1) invest for organic growth and margin expansion, (2) strategic acquisitions/partnerships, (3) manage balance sheet toward leverage and investment-grade objectives, and (4) return capital via repurchases “when appropriate.” This sequencing implied that the near-term priority is funding ZT growth and associated working capital rather than accelerating buybacks.
Q&A THEMES AND DISCLOSURE SIGNALS
The Q&A reinforced 4 key themes:
1.Sequential revenue progression and ZT cadence: Analysts challenged the limited sequential revenue growth implied by Q2 guidance given the transition from 2 months to a full quarter of ZT revenue. Management’s response emphasized transition complexity and rejected straight-line extrapolation, stating “you cannot take 2 months divided by 2, multiply by 3,” and asserted that both core Sanmina and ZT would grow quarter-over-quarter in Q2.
2.Platform transition risk and accelerated compute opportunity timing: Questions explicitly referenced Nvidia legacy business and an AMD ramp. Management avoided quantifying the Nvidia-to-AMD mix shift but reiterated that the $5 billion to $6 billion run-rate framework is tracking and emphasized that large accelerated compute opportunities arrive “towards the end of… calendar 2026.”
3.Margin sustainability around 6%: Questions on how a “6 handle” is sustained elicited responses focused on mix, operational efficiency, and SG&A discipline, plus the expectation that CPS investments become margin accretive as programs ramp.
4.End-market recovery in communications: Management stated communications demand is “very strong today” and expected to remain strong through the year, with noted component shortages in memory and ASICs.
Disclosure quality was mixed. The call provided strong directional statements and explicit multi-year ambitions, but it provided limited quantification of ZT’s internal revenue composition, customer concentration, backlog, or win conversion metrics. The absence of a multi-quarter revenue/EBIT bridge to the CY27 AI ambition increased modeling uncertainty and elevated the importance of monitoring quarterly disclosures for evidence of platform ramp traction.
