Executive Summary / Key Takeaways

• Sanmina is strategically pivoting towards higher-growth, higher-margin markets like Cloud/AI Infrastructure, Defense, and Medical, leveraging its end-to-end manufacturing solutions and specialized technological capabilities.
• The company delivered solid financial performance in Q2 FY25 and the first half, exceeding outlooks with revenue growth driven by Communications/Cloud and improved gross margins reflecting favorable mix and operational efficiencies.
• Management forecasts 6.0% to 8.0% revenue growth for the full fiscal year 2025, fueled by new program ramps and improving customer inventory levels, with EPS expected to grow at a faster rate.
• Sanmina maintains a robust balance sheet with significant liquidity, enabling strategic investments in capacity and technology (CapEx ~2% of revenue in FY25) and opportunistic share repurchases ($253M remaining authorization).
• Key risks include ongoing supply chain constraints, geopolitical uncertainties (tariffs, U.S.-China tensions), execution risks on new program ramps, and intense competition from larger and more specialized EMS providers.

Setting the Scene: A Global Manufacturing Powerhouse in Transition

Sanmina Corporation stands as a significant global provider of integrated manufacturing solutions, components, products, and vital after-market services. Operating primarily through two segments – Integrated Manufacturing Solutions (IMS) and Components, Products, and Services (CPS) – the company serves a diverse array of Original Equipment Manufacturers (OEMs) across critical sectors including industrial, medical, defense and aerospace, automotive, communications networks, and cloud infrastructure. This broad market exposure positions Sanmina at the intersection of several evolving technological and economic trends.

The company's overarching strategy is centered on diversifying its business mix towards mission-critical markets that offer higher growth potential and better margin profiles. This involves moving beyond traditional high-volume assembly towards more complex, higher-technology products with longer product life cycles. Sanmina aims to be an end-to-end solutions provider, offering services from design and component manufacturing through high-level assembly, testing, logistics, and repair. This strategic evolution is a response to the dynamic and intensely competitive landscape of the Electronics Manufacturing Services (EMS) industry.

Sanmina faces formidable competition from major global players like Flex Ltd. (FLEX), Jabil Inc. (JBL), Celestica Inc. (CLS), and Plexus Corp. (PLXS), as well as smaller, niche-focused firms and even OEMs who retain in-house manufacturing capabilities. Competition hinges on factors such as price, quality, technological capability, global footprint, and supply chain management. While larger competitors like Flex and Jabil often possess advantages in scale and overall cost efficiency, Sanmina strategically positions itself by emphasizing its technological leadership, specialized expertise in highly regulated markets (like defense and medical), and the ability to provide complex, integrated solutions. For instance, while Flex may achieve lower operating costs per unit due to scale, Sanmina aims to differentiate through superior reliability in mission-critical components, potentially offering lower failure rates in demanding applications like aerospace. Similarly, against competitors like Celestica in cloud/communications or Plexus in medical/industrial, Sanmina leverages its broader service portfolio and integrated logistics capabilities to offer greater operational efficiency and faster fulfillment times. The company acknowledges the industry has seen increased discipline, recognizing the strategic value EMS providers bring, but competitive pressures remain a constant factor influencing pricing and market share.

Technological Edge and Strategic Investments

A cornerstone of Sanmina's strategy and a key competitive differentiator lies in its technological capabilities and ongoing investments in innovation. The company provides high-technology printed circuit boards, including advanced fabrication capabilities, particularly important for high-performance computing and defense applications. Its expertise extends to complex mechanical systems, including racks, enclosures, and liquid cooling solutions critical for modern data centers. Sanmina is also a player in advanced optical modules, with developments targeting next-generation speeds like 1.6 terabytes, essential for high-bandwidth communication networks and cloud infrastructure.

Through divisions like Viking Technology and Viking Enterprise Solutions, Sanmina offers custom memory solutions and designs server and storage systems, moving up the value chain beyond simple assembly. The 42Q division provides cloud-based smart manufacturing execution software, enhancing operational efficiency. These capabilities allow Sanmina to offer quantifiable benefits to customers, such as potentially faster prototyping cycles, higher assembly precision, and enhanced product durability in demanding environments. Specific quantitative metrics for all technologies are not typically detailed, but the company's focus on areas like advanced optical packaging (400G, 800G, 1.6T) and liquid cooling systems underscores its commitment to supporting the increasing performance demands driven by trends like AI.

Sanmina is actively investing in R&D and expanding its technological footprint. This includes expanding capacity for high-technology PCB fabrication and precision mechanical systems, particularly in North America and Mexico, to support defense and data center markets. Significant investments are also being made in India through the joint venture, with a new facility expected to be ready in late 2025, focusing on data center demand and supporting both domestic and export opportunities. These investments are aimed at strengthening the company's position in key markets, enhancing its competitive moat, and are expected to contribute to achieving its long-term margin targets by enabling participation in higher-value opportunities.

Financial Performance and Operational Resilience

Sanmina's financial performance in the most recent periods reflects a business emerging from a "transition year" in fiscal 2024, which was characterized by customer inventory adjustments. For the second quarter of fiscal 2025, the company reported revenue of $1.98 billion, an 8.1% increase compared to the same period a year prior, primarily driven by growth in the Communications Networks and Cloud Infrastructure end markets. This contributed to a first-half fiscal 2025 revenue of $3.99 billion, up 7.6% year-over-year.

Profitability showed positive trends. Non-GAAP gross profit for Q2 FY25 was $181.3 million, resulting in a gross margin of 9.1%, an improvement of 20 basis points year-over-year, attributed to favorable mix and operational efficiencies, particularly within the CPS segment (gross margin of 13.9% in Q2 FY25 vs. 12.9% in Q2 FY24). Non-GAAP operating income was $110.6 million, yielding an operating margin of 5.6%, also up 20 basis points year-over-year, aligning with the company's short-term target range of 5% to 6%. Non-GAAP diluted EPS for Q2 FY25 was $1.41, up 7.8% year-over-year.

The company maintains a strong balance sheet, a key competitive advantage. As of March 29, 2025, cash and cash equivalents stood at $647.1 million. Sanmina has no outstanding borrowings on its $800 million revolving credit facility, providing substantial liquidity of approximately $1.5 billion (including foreign facilities). Working capital management remains a focus, with inventory levels increasing slightly in the first half of FY25 to meet anticipated customer orders, though inventory turns (5.9x in Q2 FY25) and cash conversion cycle metrics are areas management seeks to further optimize.

Cash flow from operations was solid at $221 million for the first half of FY25, providing flexibility for strategic investments and shareholder returns. Capital expenditures were $48 million in the first half, with a full-year expectation of around 2% of revenue, supporting targeted capacity and technology expansions. The company also actively returned capital, repurchasing $100 million of common stock in the first half, with $253 million remaining under authorization, reflecting management's view that the stock is undervalued.

Outlook and Key Risks

Looking ahead, Sanmina's management is optimistic about fiscal year 2025, forecasting revenue growth between 6.0% and 8.0% on a full-year basis. This outlook is based on improving customer forecasts, the ramp-up of new and existing programs, and the expectation that customer inventory levels will continue to normalize. Growth is anticipated across multiple end markets, with particular strength expected in Communication Networks and Cloud Infrastructure, driven by AI-related demand and network upgrades. Management expects EPS to grow at a faster rate than revenue, supported by operational efficiencies, favorable mix from higher-margin opportunities, and operating expense leverage as revenue increases. The long-term operating margin target is set at 6% plus, which the company believes is achievable through its strategic focus and investments.

Despite the positive outlook, several risks could impact performance. Geopolitical uncertainty, particularly regarding tariffs and U.S.-China tensions, remains a concern. While costs are generally passed through, changes could impact customer demand or require costly manufacturing transfers. Supply chain constraints, especially for certain components, continue to pose a risk to manufacturing output and inventory management. The company's reliance on a concentrated customer base (top 10 account for ~50% of sales) means significant changes in demand or financial health from these customers could materially impact results. Operational risks include the successful execution and ramp-up of new programs and the ability to maintain manufacturing efficiencies across a global footprint. Regulatory and litigation risks, including ongoing labor lawsuits and the False Claims Act suit related to the SCI subsidiary, could result in significant expenses or operational restrictions. Furthermore, while liquidity is strong, a substantial portion of cash is held in foreign jurisdictions, potentially incurring tax obligations upon repatriation, and the India JV's cash is restricted. Compliance with debt covenants is essential to maintain financial flexibility.

Conclusion

Sanmina Corporation is executing a clear strategy to transform its business mix, focusing on higher-growth, higher-margin opportunities in critical end markets like Cloud/AI Infrastructure, Defense, and Medical. The company's differentiated technological capabilities, spanning advanced components, integrated systems, and specialized services, provide a competitive edge in these complex sectors. Recent financial performance indicates positive momentum, with revenue growth returning and margins showing improvement, supported by operational discipline and strategic investments.

The outlook for fiscal year 2025 is positive, with management anticipating solid revenue and faster EPS growth driven by new programs and improving market conditions. Sanmina's strong balance sheet and cash flow generation provide the financial flexibility to fund these growth initiatives and return value to shareholders. While macroeconomic uncertainties, supply chain challenges, and competitive pressures persist, Sanmina's strategic focus, technological investments, and operational resilience position it to capitalize on the opportunities presented by evolving market demands, particularly in the burgeoning Cloud and AI infrastructure space. The successful execution of its strategy and navigation of these risks will be key determinants of its ability to achieve its long-term financial targets and enhance shareholder value.