Executive Summary / Key Takeaways

• Transformative AI/Data Center Focus: Sanmina is strategically pivoting to capitalize on the burgeoning AI and data center infrastructure market, highlighted by the pending acquisition of ZT Systems, which is expected to double the company's net revenue within three years and significantly expand its end-to-end solution capabilities.
• Robust Financial Performance & Margin Expansion: The company delivered strong Q3 FY25 results, with revenue up 10.9% year-over-year and non-GAAP EPS increasing 22.8%. Notably, the higher-margin Components, Products and Services (CPS) segment achieved a gross margin of 14.7%, reflecting operational efficiencies and favorable mix.
• Strong Balance Sheet & Cash Generation: Sanmina maintains a formidable financial position with $798 million in cash, no outstanding revolver borrowings, and a low gross leverage ratio of 0.38x, enabling disciplined investments in growth and shareholder returns.
• Positive Outlook & Strategic Investments: Management projects 6-8% revenue growth for full fiscal year 2025, driven by new program wins and an anticipated end to customer inventory corrections. Long-term operating margins are targeted at 6%+, supported by strategic CapEx in key geographies and advanced technologies.
• Differentiated Competitive Stance: Sanmina distinguishes itself through deep vertical integration, a global manufacturing footprint, and a customer-centric approach, providing complex, high-reliability solutions that foster strong partnerships in regulated and high-tech markets.

Sanmina's Strategic Evolution: A Foundation for Future Growth

Sanmina Corporation, established in 1980, has evolved into a leading global provider of integrated manufacturing solutions, serving a diverse array of original equipment manufacturers (OEMs) across critical industries. The company's core business encompasses end-to-end manufacturing services, from product design and engineering to assembly, test, direct order fulfillment, and after-market support. This comprehensive offering is underpinned by a robust supply chain management expertise, which management views as a key differentiator in the competitive electronics manufacturing services (EMS) industry.

Sanmina's strategic journey has consistently focused on diversifying into mission-critical, higher-technology markets with longer product life cycles. A significant milestone in this journey was the joint venture with Reliance Strategic Business Ventures Limited in India, initiated in fiscal 2023. This partnership aims to establish a world-class electronic manufacturing hub, positioning Sanmina to capitalize on India's domestic market growth and its potential as a major exporter of high-technology products. The India facility, a 100-acre campus with substantial manufacturing space, is actively expanding, particularly to meet anticipated data center demand.

The company operates primarily through two business segments: Integrated Manufacturing Solutions (IMS) and Components, Products and Services (CPS). IMS, representing approximately 80% of total revenue, focuses on printed circuit board assembly, high-level assembly, and direct fulfillment. CPS, while smaller, is strategically vital, encompassing advanced components like printed circuit boards, backplanes, cable assemblies, precision machined parts, and proprietary products such as optical, RF, and microelectronic solutions, memory solutions, and high-performance storage platforms through its Viking Technology and Viking Enterprise Solutions divisions. This segment generally yields higher margins, making its growth a key driver for overall profitability.

Technological Leadership in the AI Era

Sanmina's competitive edge is increasingly defined by its differentiated technology and strategic investments in high-growth areas, particularly within the burgeoning AI and data center infrastructure market. The company is not merely an assembler; it provides a vertically integrated, end-to-end solution that spans the entire product lifecycle. This includes fabricating high-technology printed circuit boards in the U.S. and Singapore, assembling these complex boards and subsystems, and manufacturing mechanical racks and enclosures.

A critical area of innovation is Sanmina's expansion into liquid cooling rack systems and cooling manifolds, essential for the high-density, high-performance computing required by AI. The company also produces bus bars for power distribution within these racks and offers custom optical modules and memory solutions. Through its Viking Enterprise Solutions division, Sanmina designs and builds complete server and storage systems, either through joint development or as an original design manufacturer (ODM). This comprehensive capability allows for full system integration and test, enabling build-to-order and configure-to-order solutions for hyperscale and enterprise customers.

The pending acquisition of ZT Systems from AMD Design, LLC, announced on May 18, 2025, is a transformative step that significantly enhances Sanmina's technological capabilities and market position in AI and general purpose computer infrastructure. ZT Systems brings industry-leading manufacturing capabilities and capacity in the U.S. and Europe, reinforcing Sanmina's existing footprint. This acquisition is expected to add $5 billion to $6 billion of annual net revenue on a run rate basis, potentially doubling Sanmina's net revenue within the next three years. Management is highly optimistic about ZT Systems' advanced capabilities and people, anticipating that the combined entity will expand relationships with hyperscalers and OEM customers across all platforms and technologies. This strategic move is designed to be accretive to non-GAAP diluted earnings per share in the first year after closing, with further accretion from growth and synergies over time.

Financial Performance: Building Momentum

Sanmina has demonstrated solid financial performance, reflecting its strategic focus and operational discipline. For the third quarter ended June 28, 2025, the company reported net sales of $2.04 billion, an impressive 10.9% increase year-over-year. For the nine months ended June 28, 2025, net sales reached $6.03 billion, up 8.7% compared to the prior year. This growth was primarily driven by new program wins and ramp-ups in the communications networks, cloud infrastructure, and medical end markets.

Profitability metrics also showed positive trends. Non-GAAP gross margin improved to 9.1% in Q3 2025 from 8.3% in Q3 2024, a 60 basis point improvement attributed to favorable product mix and ongoing operational efficiencies. The CPS segment, a key focus for margin expansion, saw its gross margin significantly increase to 14.7% in Q3 2025 from 11.5% in Q3 2024. This substantial 320 basis point improvement was driven by higher revenue, favorable mix, and operational efficiencies, with management confirming no one-time items contributed to this gain. Non-GAAP operating margin reached 5.7% in Q3 2025, a 40 basis point improvement year-over-year, consistently remaining within the company's short-term target range of 5% to 6%. Non-GAAP diluted earnings per share for Q3 2025 was $1.53, representing a 22.8% increase year-over-year.

The company's balance sheet remains robust, providing ample liquidity for strategic initiatives. As of June 28, 2025, Sanmina held $798 million in cash and cash equivalents and had no outstanding borrowings on its $800 million revolving credit facility, leaving $791 million available. Its non-GAAP pre-tax Return on Invested Capital (ROIC) was a strong 24.8% for Q3 2025, well above its weighted average cost of capital. Sanmina operates in a net cash position with a low gross leverage ratio of 0.38x. Cash flow from operations was robust, totaling $422 million for the nine months ended June 28, 2025, driven by earnings and increased deferred revenue. Inventory management has also improved, with inventory turns (net of customer advances) rising to 6.3x in Q3 2025 from 5.1x in Q3 2024.

Outlook and Strategic Trajectory

Sanmina's management projects continued growth and profitability. For the fourth quarter of fiscal 2025, the company expects revenue between $2.0 billion and $2.1 billion, with non-GAAP gross margin between 8.7% and 9.2%, non-GAAP operating margin between 5.5% and 6.0%, and non-GAAP diluted EPS in the range of $1.52 to $1.62. For the full fiscal year 2025, Sanmina anticipates revenue growth of 6% to 8%, with non-GAAP EPS expected to grow at a faster rate than revenue. Capital expenditures are projected to be around 1.8% of revenue for the full year, reflecting ongoing strategic investments in capacity and technology across the U.S., India, and Mexico.

Management's long-term operating margin target is greater than 6%, a goal they believe is achievable as revenue approaches a $9 billion run rate. The company is actively investing in its core business and expanding its capabilities, particularly in high-growth areas like data centers and AI. Early indications for fiscal year 2026 are positive, with management expecting the core business to grow at a similar or faster rate, barring unforeseen external disruptions.

Competitive Landscape and Strategic Positioning

The EMS industry is intensely competitive, with major global players like Flex (FLEX), Jabil Inc. (JBL), Celestica (CLS), and Plexus (PLXS) vying for market share. Sanmina differentiates itself through its deep vertical integration, end-to-end solution capabilities, and a strong focus on complex, high-reliability products for regulated markets. While competitors like Flex emphasize broader supply chain optimization and Jabil focuses on advanced manufacturing at scale, Sanmina's strength lies in its ability to provide customized, high-precision solutions, particularly in defense, aerospace, and now, the rapidly evolving AI/data center space.

Sanmina's competitive advantages include its global manufacturing footprint, which allows for regionalized production to mitigate tariff impacts and meet diverse customer needs. As Jure Sola stated, "I think the model is that we are going more in this geopolitical world in the future, we're going more to a regional type of manufacturing." This flexibility, combined with its single IT system, enables agile responses to customer requirements. The company competes on technology, quality, flexibility, and speed to market, aiming to be a dependable partner that offers "security of supply."

Financially, Sanmina's gross profit margin of 8.65% (TTM) is competitive within the industry, though some peers like Jabil (9%) and Celestica (11%) show higher TTM gross margins, potentially due to scale or specific product mixes. However, Sanmina's strong ROIC of 24.8% in Q3 2025 underscores its efficient use of capital. The company's customer-centric strategy and long-standing relationships with market leaders, with no single customer representing more than 10% of net sales, provide a degree of stability against customer concentration risks.

Risks and Mitigation

Despite its strong position, Sanmina faces several risks. Macroeconomic headwinds, including inflation, high interest rates, and geopolitical tensions, continue to create uncertainty. While the company generally passes tariff costs to customers, the timing of recovery can impact cash flow. Management acknowledges that "supply chain on a broad basis, is becoming more regionalized," and Sanmina's global footprint is a key mitigation strategy.

Operational risks include the integration of the ZT Systems acquisition, which involves a significant working capital target (primarily inventory) and is expected to temporarily push the net leverage ratio above 2x post-closing. However, the company is committed to preserving its credit rating and aims for investment grade over time. Internal control weaknesses, previously identified in fiscal 2023 and 2024, have led to remediation efforts, including personnel changes, enhanced training, and improved review processes, to strengthen financial reporting. The ongoing IRS audit and the implications of the OECD Pillar Two global minimum tax also present potential financial liabilities, which the company is actively contesting or assessing.

Conclusion

Sanmina Corporation stands at a pivotal juncture, strategically positioned to capitalize on the explosive growth in AI and data center infrastructure. Its pending acquisition of ZT Systems is a bold, transformative move that promises to significantly expand its revenue base and deepen its technological capabilities in this critical market. This strategic pivot, combined with a robust financial foundation, disciplined operational execution, and a diversified customer base, underpins a compelling investment thesis.

The company's consistent profitability, strong cash generation, and commitment to shareholder value, evidenced by ongoing share repurchases, highlight its financial resilience. While macroeconomic uncertainties and competitive pressures persist, Sanmina's differentiated end-to-end solutions, advanced technological offerings, and proactive approach to supply chain regionalization provide a strong competitive moat. Investors looking for exposure to the high-growth AI and data center ecosystem,backed by a financially sound and strategically focused EMS leader, will find Sanmina's trajectory highly compelling. The company's journey from a "transition year" in fiscal 2024 to an anticipated growth year in fiscal 2025 and beyond signals a clear path to enhanced profitability and market leadership.