Sanmina Corporation (NASDAQ:SANM) is a leading global provider of integrated manufacturing solutions, components, products, and repair, logistics and after-market services. The company has a diversified customer base spanning the industrial, medical, defense and aerospace, automotive, communications networks and cloud infrastructure industries. With a strong financial profile and a focus on high-growth, high-margin end markets, Sanmina is well-positioned to capitalize on emerging industry trends and deliver long-term value for shareholders.
Business Overview
Sanmina operates two main business segments: Integrated Manufacturing Solutions (IMS) and Components, Products and Services (CPS). The IMS segment provides printed circuit board assembly and test, high-level assembly and test, and direct-order-fulfillment services. The CPS segment includes the manufacture of printed circuit boards, backplanes and backplane assemblies, cable assemblies, fabricated metal parts, precision machined parts, and plastic injected molded parts. It also provides optical, RF and microelectronic design and manufacturing, memory solutions, high-performance storage platforms, defense and aerospace products, and cloud-based smart manufacturing execution software.In fiscal 2023, Sanmina generated annual revenue of $8.94 billion and net income of $309.97 million. The company's diversified customer base and end market exposure have been key drivers of its financial performance, with the communications networks and cloud infrastructure segment accounting for 36% of revenue in the latest quarter, and the industrial, medical, defense and aerospace, and automotive segment making up the remaining 64%.
Financial Performance and Outlook
Sanmina's third quarter of fiscal 2024 results demonstrated the company's ability to navigate a challenging macroeconomic environment. Revenue came in at $1.84 billion, within the company's guidance range, and up 0.4% sequentially. Non-GAAP gross margin was 8.5%, just short of the midpoint of the outlook, while non-GAAP operating margin was 5.3%, at the low end of the guidance range.The company's performance was driven by growth in the communications networks and cloud infrastructure end market, which grew 8.3% sequentially, partially offsetting declines in the industrial and automotive segments. Sanmina's CPS segment experienced some short-term delays in two programs, which impacted its gross margin, but the issues have since been resolved, and the company expects the CPS margin to return to recent levels in the fourth quarter.
Looking ahead, Sanmina provided a positive outlook for the fourth quarter of fiscal 2024, guiding for revenue between $1.9 billion and $2.0 billion, which would represent a 6% sequential increase at the midpoint. The company also expects non-GAAP gross margin to be in the range of 8.3% to 8.8%, and non-GAAP operating margin to be between 5.3% and 5.7%.
While the company did not provide specific guidance for fiscal 2025, management expressed confidence in the company's ability to return to growth, citing stabilizing demand and improving customer forecasts. Sanmina's investments in faster-growing and higher-margin end markets, such as cloud infrastructure, defense and aerospace, medical, and automotive, are expected to drive long-term growth.
Liquidity and Capital Allocation
Sanmina maintains a strong balance sheet, with $658 million in cash and cash equivalents as of the end of the third quarter. The company has no outstanding borrowings on its $800 million revolving credit facility, providing substantial liquidity of approximately $1.5 billion. Sanmina's non-GAAP pre-tax return on invested capital was a robust 21.1% for the quarter, well above its weighted average cost of capital.The company's focus on cash flow generation has been a key strength, with cash flow from operations reaching $288 million for the first nine months of fiscal 2024, a $130 million improvement year-over-year. Free cash flow for the same period was $202 million, up $196 million compared to the prior year. Sanmina has been actively returning capital to shareholders, repurchasing 3 million shares for $162 million during the first nine months of the fiscal year.
Geographic and Segment Performance
Sanmina's revenue is well-diversified across its geographic regions. In the third quarter, the Americas accounted for 52% of revenue, Asia-Pacific 35%, and EMEA 13%. Mexico represented approximately 60% of the Americas region, while the U.S. accounted for around 35%.Looking at the company's business segments, the IMS segment generated $1.48 billion in revenue in the third quarter, up 1.1% sequentially, driven by growth in the communications networks and cloud infrastructure end market. The CPS segment reported revenue of $388 million, down 2.5% sequentially, primarily due to the short-term delays in two programs that have since been resolved.
Risks and Challenges
While Sanmina's diversified business model and focus on high-growth, high-margin end markets provide a solid foundation for long-term success, the company is not without its risks and challenges. The electronics manufacturing services industry is highly competitive, and Sanmina faces intense pricing pressure from both global and regional competitors. The company is also exposed to macroeconomic factors, such as supply chain disruptions, inflation, and currency fluctuations, which can impact its operations and financial performance.Additionally, Sanmina's defense and aerospace business is subject to strict regulatory requirements, and the company must maintain compliance with various government contracting laws and regulations. Any failure to comply could result in fines, penalties, or even debarment from future government contracts.