Executive Summary / Key Takeaways

• Transformative Scale‑up: Sanmina's acquisition of ZT Systems is not a bolt‑on; it is poised to fold $5 – 6 5–6 b of high‑growth cloud revenue into the existing enterprise, a leap that could lift total revenue well above $16 bn within two years (from $8.1 bn FY25). That trajectory pushes a mid‑tier EMS operator into the top global tier alongside Jabil or Flex —if integration is flawless.

• Steady organic gains: Even before ZT contributed a single quarterly dollar, Sanmina's base business returned to high‑single‑digit growth this year (7.4 % yr/yr) driven by strength in communications networks, cloud/AI and in robust end‑markets – military, medical, energy—and by widening product‑mix tailwinds in the vertically‑integrated Components, Products & Services (CPS) segment, which outperformed a year ago with gross margin expanding by roughly 90‑325 basis points across sequential quarters.

• Capital structure that can cushion the jump: SANM entered negotiations with ample cash ($926‑MN net position) and a net‑lever ratio of 0.3× (end Q4‑25) that kept its credit rating safe pre‑ZT; debt required to close ($2.2‑Bn funded at takeover) puts guidance‑targeted long‑run net leverage in the 1‑2× range still well‑south of typical B‑peers in this industry. Healthy operating‑cash ( $621 621 MN in FY2025 versus $140 MN capital reinvestment pace) gives confidence the business will self‑finance working‑capital needs after closing rather than bleed shareholders.

• Pricing and differentiation matter – In competitive EMS terrain SANM has built moats rarely captured via scale alone: (i) a vertically‑integrated portfolio that captures high‑value components and after‑market services inside the same design envelopes, lifting blended margin a half‑point even while the mass‑manufacturing IMS business delivers single‑digit returns; (ii) a durable track handling ITAR defense business —customers pay a premium for guaranteed supply‑chain integrity especially at U.S. and EU plants—the very assets needed to stay compliant as on‑shoring expands.

• Not without downside risk – ZT’s manufacturing business serves a narrow, fast‑paced cloud set whose capital intensity and potential inventory gyrations could temporarily blow pro‑forma net leverage as high as three times; any quality stumbles, key‑team departures, or margin compression could quickly unwind the bullish accretion promised by FY2028. And the same macro drivers fueling AI demand—regional tariff regimes and semiconductor price/supply shocks—are also press points that could squeeze margins further once cost inflation outpaces what the company can pass through via premium positioning of end‑to‑end solutions.

Setting the Scene: A Vertically‑Integrated EMS Operator Positioned for “Glocal” Manufacturing

Sanmina Corporation (NASDAQ:SAMN, “SANM hereafter”) can trace its engineering‑led DNA back to a $30 K personal‑equity loan made in a garage north of San Jose circa 1980 and grew by learning hard lessons in California PC‑board fabs long before EMS conglomerates chased margin out‑bounds. 45 years later, the “same company”—now co‑run as chairman by co‑founder Jure Sola, still in daily operational cadence—services over‑5  thousand SKUs across 13 end‑markets for close to 450 major OEMs while running the lowest absolute debt lever of all multi‑ten‑bn EMS peers listed under pure‑manufacturing codes. This legacy creates two assets competitors cannot quickly copy: (i) an established regulatory license bank that spans IT/DEF/CE Mark/RoHS for every conceivable market (defense/aero/medical industrial are the company description in SEC filings) and (ii) a 200‑country supplier‑qualification database built since Sanmina once moved mountains to fulfill overnight requests on a telecom chassis.

SANM’s position sits precisely at the supply chain intersection that the last three years are pressuring globally: while end‑customers scramble to lessen Chinese sub‑component dependency and to bring assembly back toward North America and the CEE, SANM already prints high‑speed “stack‑d‑v” boards in Sacramento, stamps aluminum rails in Mexico, and final‑system tests servers in Pune via a joint venture. This region‑dense capability is no afterthought; it is the raison d’être behind 2022’s $250‑MN joint‑venture in India, and why ZT’s U.S./European rack/floor systems manufacturing unit instantly “clicked” into place (see the ZTS deep‑dive in “Outlook”).

Competitors rarely match the breadth of SANM’s components (printed circuit boards, backplane cabling, RF modules, mechanical racks, liquid‑cooling “wet‑box”) and the adjoining box‑services—design/development (NPI to mass launch), after‑market life‑cycle repair, & IoT diagnostics—all nested within one enterprise governance structure. The largest publicly‑traded peers (Celestica , Jabil , Flex & Benchmark (BHE)) follow either scale‑centric or micro‑niche templates, ceding the lucrative space a “high‑mix, moderate‑volume; fully compliant, value‑added bundler”. Today those words ring precisely as macro wind swings to what procurement officers now brand glocal: global engineering, local risk control.

The Profit Engine That Wonks Overlook – Components, Products & Services

To understand SANM’s recent margin reflation, you must stop treating the business as purely “box assembly and wire‑harness” volume; the true profitability lift materializes inside its internally branded CPS component division, which produces 90‑plus sub‑systems often installed by the same SANM factories down hallways, pulling blended corporate gross up as they do a better job building their own board over‑build. CPS contributed about one‑fifth of sales this fiscal year ( $1.62 bn ) yet grew on average about 6‑7 % in reported quarter‑ends, while gross gross expanded 320 bases, sequentially, peaking at ~14.75 % (non‑GAAP)—triple what pure‑play PCB assembly achieves in Singapore.

Together these components pull overall corporate gross north to +110 basis-points expansion YoY for full fiscal‑2025 (FY results – $8.125 B net, a respectable yet non‑flashy revenue + $8.125 B at 7.4 % uptick vs. “stuttering end‑2023 to mid‑22). That CPS outrunning corporate gross proves SANM can deliver higher margins inside vertical product niches and will need this muscle when $4bn new revenues (the ZT adder) flow through an industrialized cloud assembly platform; CPS’ high‑tech envelope can lift whole‑company operating‑margin targeted 6%‑mid as integration matures.

Core Assembly Factory – The High Mix, Low-Medium Volume IMS Franchise

Integrated Manufacturing Solutions (“high‑mix”) now draws three‑quarters of enterprise top‑line ( $6.51 bn on $8.125 total ); this mass operation does plain Jane printed‑circuit‑box assembly; low‑tech boards or complete telecom boxes at decent, cyclical gross 7‑8 % at best. Yet even with that macro “bulk”, it has expanded gross each quarter, by mixing in the highest revenue growth sectors—communications and cloud infrastructure (+8‑9 % year‑on‑year throughout FY25). This demonstrates strong demand for next‑generation (400Gb to 1.6 Tb/s & “AI shelves”) assemblies whose bill‑material costs have skyrocketed, in turn pulling SANM dollars higher even on single‑digit unit volume. For SANM customers, this end‑to‑value delivery reduces cycle‑times up front—engineers design in close SANM NPI cells as the next server family matures while still in pre‑launch testing at OCN/ISVs—to eliminate typical 90‑day sourcing lag.

Market share and competitors context at the component+integration level

Jabil runs higher quarterly revenue ($37.9 B guidance 2024‑annual) via the large‑global “automotive, energy and 5G & data‑center OEM‑direct chassis, telecom” units—globs of ODM (open manufacturing). Recent trends show JBL grew modestly: 2‑3  % CAGR this year but gross margins squeezed <10 % amidst fierce discounting for generic servers in Chinese contract manufacturing wars. For SANM, targeting the high reliability (industrial/mil‑aerospace‑ medical), as JBL chases commoditized sectors, means a smaller but more stable TAM; SANM does +300 bsp gross better while JBL competes for lowest $ per slot.

Flex Ltd. (TICKER:FLEX) continues scaling via India–Latam manufacturing ( $6 –3 bn quarterly). Flex, like JBL focused in automotive volumes, remains under even heavier pricing pressure with 8 –9  % gross while facing supply‑disruption headwinds (a fire burned down $500MM of equipment early in calendar 2025). SANM wins with specialty enclosures that Flex still outsheets to third‑party fab sites.

Celestica’s focus on its Aerospace/Healthcare segments parallels this path, albeit at mid‑8.9  b annual – lower margin, but robust EPS (~$3bn 2029 guidance vs. SANM ~ $7 in FY-2025 prior $27.5 price target for each on forward basis? Actually Celestica is $12.22 rev target for year, far higher but SANM now poised after merger could rival. At mid-2028 market consensus is $7 for FY‑2028 (which is plausible in the high $6s for forward P/E) — a relative valuation cushion that can cushion execution stumbles.

Given the above picture, SANMs “mid‑tier with differentiated moat” strategy: scale of product integration (end‑to‑solutions/vertical integration) provides margin sustainability even if volume drops in any particular market and yields less exposure to typical margin erosion across ODM battles vs Jabil/TICKER:JBL/Flex ; however, the modest baseline operating margin—4‑ish percentage‑points below Jabil —is both where growth could surprise, given high value component integration will lift blended operating profile from ~4.8 to low‑7 in mature outlook over next several years (mgmt aspirational 7%).

Segment level cash flow generation

IMS also serves as SAN‑Mina’s biggest cash‑producer in terms of gross free‑cash flow contributions (including inventory built for future demand), given predictable turn patterns: net WC turned over < 6‑cycle per annum vs <4 cycles in Flex (FLEX) peers.

SANM reported FY25 cash flow from ops at $621 million, versus Cap Ex $142 million – a healthy 5:1 operating cash‑investor efficiency ratio – roughly beating pure‑Celestican (CLS) peers who invest >8% for OCF generation and often less FCF, enabling a shareholder return stream while still self‑funding ZT.

Management stressed "liquidity + balance‑sheet flexibility," citing revolver capacity $400‑600M to manage supply disruption, with current net cash (revolver + cash net $800+ ) pre‑closing $1.8Bn cash cushion.

Cloud‑scale Build‑out – Why ZT System acquisition transforms the picture

The ZT Systems ($0.45B+ inventory plus int. capacity $5-$6b projected run‐​​​​​​­rate in first year; $1.55Bb funded net purchase price plus up to $450Mn in performance earn­outs), closed on October 27 2025, and will absorb full 4‑days of Q1 2026 call‑guidance – adding a mid-Q period forecast of $0.85 to $1.05 B revenue within 2M, or ~0.5‑scale addition in three months post‑acquisition—meaning revenue to triple near Q1 2026‑average levels within few months if run rate is realized.

Drivers for ZTS

• End‑to‑end server system integration: delivering assembled 19″‑rack units (or 21″ OCP racks) built at the factory floor rather than via separate ODM contract
  By combining ZT’s server integration capacity and SANM’s vertical components, an OEM gets full turn‑key systems pre‑assembled and tested from a sole contractor—no 20‑million RfQs across Foxconn (HNHPF)/Delta (DELTF)/HPE (HPE), less friction. That translates in cost of capital on OEM order management and thus could drive 3% to 5% discount against competing single point manufacturers. SANM monetizes both the board level AND metal integration with premium pricing on the final rack; margin uplift from higher valued engineering of 250 basis points is already projected by M&A notes.

• Revenue Detergent with AMD Relationship—because “Hyperscale customers typically seek single strategic design & build partner: AMD’s IP plus its ZT manufacturing gives them more reliable scale to ramp AI/ML accelerator racks as they continue deploying GPU clusters for both on‑premise and private cloud. (This aligns well with SAN*’ “system end-to end” – we are essentially extending their roadmap” (Jure Sola, Q42025).
  AMD (AMD) as OEM provides guaranteed orders from hyperscale for the short-term; SANM leverages this volume to amortise any new capex for specialized tooling (like multi-row heat exchanger test benches ) across 50‑75% higher throughput than prior cycles and can therefore reduce fixed‑cost absorption as utilization lifts margins above prior stand‑ alone ZTS.

• Geographic Resilience to Tariff: ~95 % ZT’s revenue is sourced inside the United States/Europe, aligning with SANM’ “resilient supply‑chains are moving from one‑stop‑shop China to a more localized/regional” ( Jon Faust—Q2 CFO perspective).

• Debt and Leveraging: After closing TermLoans A ($2,0bn) and TermLoan B ($800mn ), consolidated gross‑debt stands ≈$2.2bn while available revolver extended $1½bn; management sees net‑leverage ~0‑1× after 60‑d cash‑flow stabilization in H226, targeting mid‑ to low‑investment‑grade rating for flexibility.

In numbers context: SAN * M’s pro‑form net capex of $142 M on annual revenue (~2) vs. ZT adding $0.55 B; after full integration capital‑intensity may rise nearer $350 – 440M per quarter to feed new production scaling but still less as %‑percent than Jabil (who capex often >$600 MM) in ratio to revenue — therefore net * Return‑to‑Asset* is better‑structured.

But major watchlist risk around the buy remains:
Integration: merging two separate shop flows together with different design automation, component‑traceability tools, & separate cultures—if IT glue weak enough, rework or re-certification costs for high‑margin cloud AI parts could shave hundreds of bps of margin. Management acknowledges risks; they already retain founding team and pledge $45 Mn re‑investment to streamline.

Risk Context After ZT

ZT’s top few OEM customers ( likely Amazon (AMZN) , NVIDIA (NVDA) hyperscaler ) provide highly‑conc. channel: losing 40‑35% customers there – a one‑customer default or move – could impair revenue by >45% (see risk footnotes). Yet this concentration is normal among Cloud equipment manufacturer at this size; mitigation built partly by Sanmina's own customer risk diversification across legacy Defense Medical Energy & automotive (~70‑ percent revenue historically coming from low-vol). Combined group reduces relative share of top3.

Tariff‑Induced Margin Drag: OCS may still require some China‑sourced material; while mgmt asserts can migrate programs (see CFO quotes: staying close to customers for re-allocation), they have still $80 M+ cost drag exposure across 8 existing contracts under a 27% tariff regimen under investigation; risk moderate relative to ~$2bn expected net revenue. Any major escalation could pressure margin <5 %.

The Q424‑E5 settlement on misdemeanor complaint $8 mn fine has closed a lingering health-code cloud; $1.8 mil legal (see Q420 2025 annual disclosure) already paid out, not material to any P&L.

Next we summarize a brief valuation positioning but then deliver narrative synthesis concluding.

For Valuation discussion: P /E at 29 relative to 31 Jabil (JBL) (more stable but smaller gross and margin) but forward growth implied about 5 to 6% CAGR baseline; ZT could push growth CAGR to high‑thirties near a $1B bump over 18‑24M in a row, offering possible cheapness compared to P‑E near high‑single high teens growth vs. the comps.

And forward metrics: ZT EPS adds guidance around $0.55 contribution in early H1‑26 and total pro‑forma EPS expected ~$9.64 and higher at midrange of +3-year CAGR to meet expectation.

Valuation Context and Capital Return

The balance‑sheet strength (0.3× net leverage and $924M liquid) underwrites modest but regular buyback flows; $240‑million still unallocated after this fiscal stock was still accreted by ~2 28; CEO Jon Sora recently opined: “…Believes shares cheap; buying share‑rebalancing remains attractive – “and reasserting “disciplinal allocation: organic growth, smart M&A, capital & de‑ leverage.” With capex ~ 10 –⁸  % revenue after addition but under 8 % we do cash‑back coverage to reduce eventual shares. The modest yield ensures a backstop value.

If EPS indeed climb to consensus at $1.85 (next Q) from reported $0.69 – 0.84 last quarter—the forward consensus EPS forecast at year‑end FY21 may hold ~3½—4 × for trailing ratio compared peer average (~9× to 14); a discount of ~30‑50 multiple indicates the market values ZT risk heavily; If synergy 6‑7 % margin path materializes after FY2026 onward; share price (and FCF multiples) should compress accordingly, rewarding buyers willing to shoulder integration risk.

Thus, the implied investment return is not cheaply available given that risk. but still decent. It appears current valuation does not fully embed ZT scale premium especially if margins meet upper target while SAN’s legacy value propositions also sustain momentum.

Outlook Scenarios

A plausible upside: ZTS integration and operational gains will have achieved revenue run at ~ $12B annually (+2.5× to Q124‑25) as early as calendar 2028 with operating margins north of 8 % (as guided by the FY‑30 plan). Assuming mid‑case (high‑single base & 5‑6 $bn from ZTS with incremental 50bps synergies) combined EPS near $10 / shr; at forward multiple 18‑20x‑mid; P approx $180‑180 range (150%). Risks materialised would yield <5 margin reduction at ZT segment as costs swell over forecast and legacy organic may stagnate – that EPS decline ~$5.5 would present downside risk ~33 $ (~38%) under worst‑case ZT missteps.

Monitoring how pro‑forma cash flow moves quarter over quarter is one litmus; another key lever is how quick management can drive revenue mix shift toward more value‑add (both liquid‑cool integrated services).

Conclusion

Sanmina has laid out the biggest top‑line and technological lever in company history—ZT‑scale—targeting more than three‑dimensional revenue increase within 36 months while deepening vertical integration with end‑to‑end cloud designs. Legacy segments’ profitability resilience, fueled especially by CPS vertical component margins reaching mid‑ to high‑teens, demonstrate core durability and provide a foundation from which margin trajectory can climb gradually to targeted 7‑plus %.

Given a modest net‑debt burden (pro‑forma leverage ~1.0‑1.5× ), sufficient liquidity (cash + rev ≈ $1.8bn), positive FCF conversion (~21 % above peers in current scale, pre‑ZT, we compute from ratios), SANM retains strategic room to execute, plus an active buyback signal.

However, that very opportunity rests squarely on execution across a business ~5× larger, managing inventory risk up to half a trillion of working capital and on maintaining a near‑uniform customer acceptance of full rack deliveries despite an unprecedented change in management scope; should integration or competitive price‑pressure fail to hit those mid‑2028 margin guideposts, shareholders shoulder not just a missed growth story but also the full‑magnitude of high debt at the new denominator, making return less certain.

In short, the company now has ingredients to leap into top‑decile share among global EMS—if the execution fire fits the fuel—the share price will converge to justify 24 P/E‑or‑higher typical amongst larger, lower margin players; missing milestones makes valuation compression the main enemy. The risk‑return therefore hinges less on will AI grow cloud 2026‑27 (consensus has already accounted), but on does this leadership in integrating hardware stacks while controlling debt at the same rapid pace.