SANM - NASDAQ

Good afternoon, ladies and gentlemen, and welcome to Sanmina's First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, January 26, 2026. I would now like to turn the conference over to Paige Melching, SVP of Investor Communications. Please go ahead.

Thanks, [indiscernible]. Good afternoon, ladies and gentlemen, and welcome to Sanmina's First Quarter Fiscal 2026 Earnings Call. A copy of our press release and slides for today's discussion are available on our website at sanmina.com in the Investor Relations section. Joining me on today's call is Jure Sola, Chairman and Chief Executive Officer.

Good afternoon.

And Jon Faust, Executive Vice President and Chief Financial Officer. Good afternoon. Before I turn the call over to Jure, let me remind everyone that today's call is being webcasted and recorded and will be available on our website. You can follow along with our prepared remarks in the slides provided on our website. Please turn to Slide 3 of our presentation and take note of our safe harbor statement. During this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution you that such statements are just projections. The company's actual results could differ materially from those projected in these statements as a result of factors set forth in the safe harbor statement. The company is under no obligation to and expressly disclaims any obligation to update or alter any of the forward-looking statements made in this earnings release the earnings presentation, the conference call or in the Investor Relations section of our website, whether as a result of new information, future events or otherwise, unless otherwise required by law. Included in our press release and slides issued today, we have provided you with statements of operations for the first quarter ended December 27, 2025, on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on our website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, noncash stock-based compensation expense, amortization expense and other unusual or infrequent items. Any comments we make on this call as it relates to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, operating income, operating margin, tax, net income and earnings per share, we are referring to our non-GAAP information. I'd now like to turn the call over to Jure.

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today, and Happy New Year and all the best to all of you. First, I would like to take this opportunity to recognize our employees and Sanmina leadership team for doing a great job. So to you, Samina team thank you for your dedication hard work and delivering excellent service to our customers. Please turn to Slide #4. Ladies and gentlemen, I can tell you that I'm very pleased with our performance for the first quarter. Overall, we are executing according to our plan. Revenue came in at $3.19 billion non-GAAP operating margin at 6% and non-GAAP diluted earnings per share of $2.38, and we delivered strong cash flow from operation of $179 million. Again, I'm excited about the future opportunities that we have in front of us. So now let's go to our agenda for today's call. We have John, our CFO, to review details of our results for you. I will follow up with additional comments about the results and future goals. Then Jon and I will open for question and answers. And now I'd like to turn this call over to Jon. Jon?

Great. Thank you, Jure, and good afternoon, ladies and gentlemen, and thank you for joining today's earnings call. Before I review our financial results for the quarter, I want to acknowledge the entire Sanmina team for their focused execution and thank them for delivering a solid start to the new fiscal year. Now please turn to Slide 6, where I'll speak to the financial highlights. We're very pleased with our first quarter results, which as you can see, either met or exceeded all of our outlook commitments. Our revenue of $3.19 billion and our non-GAAP operating margin of 6.0% each came in towards the high end of our outlook. In regards to revenue, both the core Sanmina business and the

Thank you, John. Ladies and gentlemen, let me add a few more comments about our results for the first quarter. and the rest of the fiscal year '26 and beyond. So please turn to Slide 14. As you heard from John, we delivered strong results for the first quarter. We delivered revenue and non-GAAP operating margin at the high end of our outlook, and non-GAAP diluted earnings per share exceeded our outlook. Most important, fiscal year '26 is on tracking to our expectation, the way I would say it, great start to fiscal year 2026. As you can see, our consistent execution is driving our financial performance. Also, I can tell you this is exciting time to be in Sanmina. Please turn to Slide 15. Let's look at the revenue by end market for the first quarter 2026 for communication networks, cloud and AI infrastructure, that came in around 62% in total. Sanmina core business in this segment grew year-over-year approximately 20%.

[Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya from Bank of America.

Can you help me parse through the sequential revenue guidance for the March quarter? Looks like revenues at the midpoint are guided up $60 million. If I think about it,

Okay. First of all, actually, our business is improving in the second quarter. So let me explain that. Yes, you're right. We only had 2 months I don't think it's -- you cannot take 2 months divided by 2 multiple by 3 because the transition of our business, this business is mainly all businesses being transitioned, and we're now strictly focus what we call base business that's going to stay with us. and the future business. So if you really look at it today from our perspective, we're only guiding 1 quarter at a time. But if -- but overall, if you look at the Street expectation, we feel comfortable with that. We're just guiding 1 quarter. For the first quarter, we should be more than a 3% expectation by approximately $100-plus million. So as we're guiding to $3.1 million to $3.4 million, Sanmina business itself, the core business will grow quarter-over-quarter and will grow double digits year-over-year, okay? And we expect

I mean I think you covered it well, Jure, I mean First and foremost, just talking about the Q1 results, Ruplu, both parts of the business. Core Sanmina and

As you can add to that up, I think we have a lot of interest from existing customers and future customers what's going on. And as I said in my prepared statement, the most importantly, I think the more learn about site's management. I'm very comfortable, very excited with the team, what they can do. It's -- they're basically self-sufficient going forward. So we're excited, a great acquisition for Sanmina, and this will transform Sanmina. I mean there's no way we could get to in '27 without a potential that we have and the new platforms coming out.

Okay. I appreciate the details there. Can I ask a conceptual question about as I see the business, there are really 3 parts to the business, right? There's the non-accelerated part, which would be just non-GPU servers or racks. Then there's the accelerated part and there's some legacy NVIDIA business you would have. And then obviously, you're going to be ramping with AMD in the second half of the year, as you said. As we think about this total revenue, I think last quarter, we were talking about high $5 billion to $6 billion and the guidance implied something like $5.7 billion, does that $5.7 billion kind of factor in some decline in the NVIDIA part of the business whereas as you ramp AMD, you're going to be focused more on that, and so that will ramp. So any thoughts on how fast that transition can occur this year? Like do you think that you will % AMD in time for any offset to the NVIDIA business that might decline?

Yes. Good question, [indiscernible], this is Jon. So just to verify and a reminder for everyone, the -- back in May '19, we said when we closed the transaction, we'd expect the revenue run rate to be between $5 billion to $6 billion. right? So that was implying that we had a point of view on how that transition was going to occur with the accelerated compute component of the portfolio and they pretty much landed right in our expectations, right? You annualize our Q1 guide to 2 months and you get to $5.7 billion. But we're still going through that transition right now. And a lot of the old platforms at this point now have rolled off. So we're really just focused about the future. But that's why we wanted to be clear at the time we were just guiding the Q1 number that we did, and now we're guiding Q2. But the opportunity, like Jure was saying for accelerated compute specifically is is huge. And that's what we're focused on right now and doing our part of that to be able to execute on that demand and on that opportunity. And that really comes towards the end of our calendar -- at the end of calendar 2026.

Yes. If I can add to that, we really -- opportunities utilizing AMD partnership is huge for us and all the investments being made to be able to support future required. So Ruplu, I would just say is, you know us, we like to guide 1 quarter at a time. We feel very comfortable about our guidance. As you can see, we are increasing our earnings per share. This is the second quarter that we delivered 6%. I think we can expand margins, both on Sanmina side and

Can I -- can I ask a clarification Jure, I know you're not guiding for the full year, but one thing you said in your prepared remarks is that when you look at consensus estimates, you're comfortable with that. If I look at incentives for 2026, right now, it's about $14 billion of revenue. And I think your last guidance for

The message is -- if you look at the first call, we believe we have a very good chance of hitting $14 billion.

$14 billion okay. I understand. And then can I ask...

As much as I hate to tell you on a yearly basis, let me just put -- I'm personally more excited about some front of what opportunities we have today than in May when we did a deal and even a lot stronger than 90 days ago, a lot of work in front of us, but we're not afraid of work.

Right. If I can sneak one last one in. Jure, let's move beyond data center. If you look at the communications market, right, I mean from an optical and networking, how are you -- that market has been going through many years of inventory correction -- how do you see that recovering? What is happening? Can you give us what happened in the December quarter and how you see the March quarter in terms of the overall communications market, whether it's optical or networking or whatever the part you play in.

Yes, very strong. I mean, very strong today. I mean we have some material shortages out there around memory and some of the special ASIC customer ASIC but very strong demand, and we expect -- first of all, it was very strong in the December quarter. It will continue to be strong in March quarter. I think it will be very strong for the rest of the year. But Ruplu, 1 quarter at a time, but we're excited about the year and the future.

Your next question comes from the line of Steven Fox from Fox Advisors.

I guess just off of all that, maybe you can tie that into the operating margin. It looks like the operating margin was a little bit better in the quarter. It looks like it could even be flattish this quarter. Can you talk about some of the things going on, puts and takes and why you're able to hang on to that like 6 handle maybe not only this quarter, but next quarter? And then I have a follow-up question.

Yes. Steve, this is Jon. So very pleased with the operating margin for the quarter. As I was saying in my prepared remarks, pretty consistent with where we exited last year in Q4. And it's largely dependent on mix. That was a big factor in our business. But it's also the same levers that we're always focused on, that we're talking about. So just to be clear and to reiterate that, but we're always looking to drive operational efficiencies within both of our businesses or within both of our segments, both IMS and CPS. Clearly, the addition of

[indiscernible], I can add to that. And investments that we are making, especially as you look at in the '26, '27 a year, it's a lot of it in the businesses that can deliver the higher margin. for us. So the key for us, that's why we feel -- of course, you've got to take one day at a time, one quarter at a time, but we are positioning company to really push for the higher-margin business, something that is sustainable, not just for 1 quarter, but is sustainable for many quarters. As you can see, our business is becoming more technology driven. It requires a higher return on investment to be able to make investments for the future.

And just to be clear, when we're talking about mix here, John, are we talking about mix of components, products and services or mix across served markets.

[indiscernible], I was referring more to across components, products and services, Steve. I think at the end of the day, I think the key important thing to remember here is that even with the acquisition of

Got it. And then just as a follow-up, can you just help us a little bit more on the

I think number one, why we're winning is execution. This is a great team. They are known to execute. They have a very strong relationship with existing customers. And the way we are structuring for the future and the technologies that are coming out, these are very difficult systems. And I believe that we are positioned our customers believe that we're positioned to win. We still have to work on it and deliver opportunities [indiscernible] are there. I mean, opportunity is not an issue. I think it's all about timing and making sure that we do what we said we're going to do as we're making commitments to our customers. Anything else, Jon?

The only thing I would add to that, Steve and Ruplu talked about it earlier, but there's multiple components to the

And I think what I would just to set, we don't talk too much about it, but I think we're able to there was a lot of talk. We're not going to be able to retain all customers. I think our team is doing a great job, and we have a high confidence that those customers will grow in the future, and we're going to be adding new customers to that. So from an opportunities point of view, that's not an issue. I think the demand for at least what we see today, what we hear from our customers, like I said, there's a lot of opportunity. We are investing for the future. As you just heard from John earlier, we spent, what, over $85 million last quarter $87 million, and we're going to be spending around 90 plus. And that's all for future. That's -- 90% of that is really for '27 or '28.

[Operator Instructions] Your next question comes from the line of Anja Soderstrom from Sidoti.

So within Industrial Medical, our understands where -- what was the pocket of weakness there to [indiscernible]

Well, I think as I said in my prepared statements, I think we had some weakness in the last couple of quarters in automotive, transportation, part of the way we measure it. They're starting to stabilize, and it's mainly driven with some of the new programs that are coming that we won. And so I would say that business is going to be a short-term stable, but the longer term, I think, will start recovering. Medical is starting to recover pretty nicely. We're pretty well diversified there. Defense and Aerospace, it's pretty stable. It's all about these are long-term programs and just that sometimes they don't move as fast, but the demand for those are solid Industrial, I just talked about earlier, that's a very good market for us. We talked about expansion down in Houston, Texas. We do have orders and the books already for what we call medium voltage transformers that we codesign with the Croatian European company. We're very excited about that. Actually, customer wants the product today. So overall, that segment, we expect it to grow more growth in the second half of our fiscal year, calendar year.

Okay. And did you say you expected that to grow sequentially in the second quarter?

Yes, we're going to see some growth in the second quarter, but we'll see more growth in the second half of of our fiscal year '26.

And then in terms of the cash cycle days, you said there were some things going on in this quarter that drove that up. Do you think we'll see a drop in the second quarter? Or is that going to be taking some time to get that down?

Yes. What I was referring to there, Anja, is that whether it's our -- I was talking primarily in my prepared remarks about inventory turns. And in that calculation, you've got the full amount of inventory that came over from but only 2 months of the cost of goods sold. So it somewhat distorts the calculation. Same thing applies for the cash conversion cycle, but that also applies to revenue as well. So I think we'll be a little bit better. But all in all, we're pleased with performance of the business on that front. And it's per our expectations. As I mentioned for core Sanmina, we drove improvement on inventory turns, and that's been the big area that we've been focused on for the last couple of years. So we continue to do well on that front, but more work to be done. In

There are no further questions at this time. I would like to turn the call back to Jure Sola for closing comments. Sir, please go ahead.

Well, ladies and gentlemen, again, thank you for your time you spent with us today. Hopefully, we answered most of your questions. If not, please contact us and looking forward to talking to you, if not in the near term, 90 days from now. Thanks a lot. Bye-bye.