Executive Summary / Key Takeaways

• Sanmina's acquisition of ZT Systems' data center infrastructure business from AMD (AMD) is a transformative inflection point that could double revenue to $16 billion within two years, positioning the company as a scaled player in the highest-growth AI and cloud infrastructure market while adding $5-6 billion in annual run-rate revenue at corporate-average margins.

• The company's strategic focus on higher-margin Components, Products and Services (CPS) is bearing fruit, with segment gross margins reaching 14.5% and management targeting above 15%, demonstrating successful execution of moving up the value chain and improving overall profitability.

• Sanmina's end-to-end manufacturing capabilities—from design to full system integration—create a durable competitive moat in mission-critical industries (defense, aerospace, medical) while the ZT acquisition extends this advantage into AI data centers, offering customers speed, quality, and flexibility at scale that pure-play competitors cannot match.

• Despite strong operational performance including 14.4% non-GAAP EPS growth in FY2025 and robust $621 million operating cash flow, the stock trades at attractive valuation multiples (forward P/E of 17.91), suggesting the market has not fully priced the earnings power inflection from the ZT integration and margin expansion trajectory.

• Key risks center on execution of the massive ZT integration, customer concentration in the communications segment, geopolitical tariff impacts on the global supply chain, and the challenge of scaling operations to meet hyperscaler demand while maintaining Sanmina's historical operational discipline.

Setting the Scene

Sanmina Corporation, founded in 1980 and headquartered in San Jose, California, operates as a mid-tier but highly specialized player in the electronics manufacturing services (EMS) industry. Unlike massive competitors like Flex Ltd. (FLEX) and Jabil Inc. (JBL) that chase high-volume consumer electronics, Sanmina has deliberately carved out a niche in complex, mission-critical products for original equipment manufacturers across industrial, medical, defense and aerospace, automotive, and communications networks. This positioning matters because it commands premium pricing and fosters long-term customer partnerships, but it also limits absolute scale—a constraint the company is now aggressively addressing through strategic acquisitions and end-market shifts.

The EMS industry has evolved far beyond simple circuit board assembly. Today, it encompasses full product lifecycle management: design engineering, advanced component manufacturing, high-level assembly and test, direct order fulfillment, logistics, and after-market services. This shift matters for Sanmina because it plays directly to the company's core strength: providing end-to-end solutions that reduce customers' time-to-market while ensuring reliability in harsh environments. The company's two-segment structure reflects this strategy. Integrated Manufacturing Solutions (IMS), representing 80% of FY2025 revenue, handles comprehensive manufacturing services, while Components, Products and Services (CPS), the remaining 20%, targets higher-margin opportunities through vertically integrated components and specialized products like optical systems, RF modules, and defense electronics.

Sanmina's place in the value chain is strategically positioned between commodity assemblers and pure-play component suppliers. This matters because it allows the company to capture margin at multiple stages of production while building switching costs through deep integration with customer design processes. The recent ZT Systems acquisition fundamentally alters this positioning by catapulting Sanmina into the hypergrowth AI data center infrastructure market, where global investments are forecast to exceed $500 billion next year and potentially surpass $1 trillion by 2028. This end-market shift implies Sanmina is no longer just a diversified EMS provider but an emerging scaled player in the most capital-intensive technology buildout in history.

Technology, Products, and Strategic Differentiation

Sanmina's competitive moat rests on three pillars: end-to-end manufacturing expertise, proprietary interconnect and optical technologies, and now, scaled AI infrastructure capabilities through ZT Systems. The end-to-end model matters because it transforms Sanmina from a transactional vendor into a strategic partner. Customers in defense and medical device markets cannot afford supply chain disruptions or quality failures, so they pay premiums for Sanmina's integrated approach that manages everything from initial design to after-market repair. This translates into superior margins in these segments and recurring revenue streams that smooth cyclicality.

The CPS segment houses Sanmina's technological crown jewels: Advanced Microsystems Technologies (optical, RF, microelectronics), Viking Technology (memory solutions, SSDs, CXL-attached memory ), and Viking Enterprise Solutions (high-performance storage platforms). These businesses generated 14.5% gross margins in Q4 FY2025, nearly double the IMS segment's 7.8%. This margin differential matters because it demonstrates the company's ability to command pricing power through technical differentiation rather than scale alone. Management's commentary that they "have not yet reached our full potential" and are targeting above 15% margins implies significant earnings leverage as these higher-value businesses grow faster than the corporate average.

The ZT Systems acquisition, completed in October 2025 for $1.6 billion in cash and stock plus up to $450 million in contingent consideration, represents the most significant strategic shift in Sanmina's history. ZT provides AI and general-purpose compute infrastructure for hyperscale companies, adding capabilities in liquid cooling, mechanical racks, server/storage systems, and full system integration. This matters because it transforms Sanmina from a component and assembly provider into a complete data center solution supplier at precisely the moment when AI requirements are evolving rapidly and hyperscalers are desperate for trusted manufacturing partners with U.S. presence. The fact that AMD chose Sanmina as its manufacturing partner—retaining ZT's management team led by founder Frank Zhang—implies Sanmina's operational reputation and technical capabilities are superior to larger but less agile competitors.

The integration strategy leverages Sanmina's existing Viking Enterprise group and engineering services while preserving ZT's entrepreneurial culture. This approach matters because it minimizes disruption risk while enabling cross-selling opportunities. Management is already "selling Sanmina plus ZT to our critical partners," suggesting revenue synergies are materializing faster than typical acquisitions. The expected $5-6 billion annual run-rate revenue from ZT, combined with legacy business growth, positions Sanmina to reach $16 billion in revenue within two years—accelerating a previously three-year target. This timeline compression implies management sees demand acceleration, not just incremental capacity addition.

Financial Performance & Segment Dynamics

Sanmina's FY2025 results provide compelling evidence that the core strategy is working. Revenue grew 7.4% to $8.13 billion, driven by new program wins and ramp-ups in communications networks, cloud infrastructure, and medical end markets. This growth matters because it occurred despite cyclical headwinds in automotive and the communications networking inventory correction, demonstrating the diversification benefits of Sanmina's end-market mix. More importantly, non-GAAP operating margin expanded 30 basis points to 5.7% while non-GAAP EPS grew 14.4% to $6.04—faster than revenue growth, indicating operational leverage.

The segment dynamics reveal a powerful mix shift story. IMS revenue reached $6.51 billion in FY2025 with non-GAAP gross margins improving to 7.8% in Q4, up 50 basis points year-over-year. This improvement matters because it shows that even the lower-margin assembly business is benefiting from favorable product mix and operational efficiencies as Sanmina moves up the technology curve into higher-performance computing applications. The Communications Networks and Cloud Infrastructure end market grew 17% year-over-year in FY2025, increasing from 35% to 38% of total sales, implying accelerating exposure to secular growth drivers.

CPS is where the margin story becomes most compelling. At $1.62 billion in FY2025 revenue, this segment represents only 20% of sales but contributes disproportionately to profits with 14.5% gross margins in Q4. The 90 basis point year-over-year improvement in Q4, following a 320 basis point jump in Q3, matters because it validates management's strategy of investing in higher-value component businesses. These margin gains are not one-time events but reflect structural improvements from revenue growth, favorable mix, and operational efficiencies. As CPS grows faster than IMS, corporate margins should expand materially, supporting the long-term target of 6-7%+ operating margins.

Cash flow performance underscores the quality of earnings. Sanmina generated $621 million in operating cash flow in FY2025 and ended the year with $926 million in cash and no revolver borrowings, providing $1.8 billion in total liquidity. This matters because it gives the company firepower to fund the ZT integration, invest in capacity expansion, and return capital through share repurchases ($113.7 million in FY2025) without straining the balance sheet. The net cash position with 0.32x gross leverage implies financial flexibility that larger, more indebted competitors lack, particularly important given the $2.2 billion in debt drawn to fund the ZT acquisition.

The balance sheet transformation post-ZT is notable but measured. While the company drew $1.4 billion in term loan A and $800 million in term loan B, management emphasized commitment to preserving credit ratings and becoming investment grade over time. This matters because it signals disciplined capital allocation despite the transformative acquisition. The forward interest rate swaps on $1.2 billion of variable debt provide certainty on interest expense, while the 60% foreign cash balance highlights potential tax efficiency opportunities for future repatriation to service U.S. debt.

Outlook, Management Guidance, and Execution Risk

Management's Q1 FY2026 guidance provides the first concrete glimpse of the new Sanmina. Revenue guidance of $2.9-3.2 billion includes $850 million to $1.05 billion from just two months of ZT operations, implying an annualized ZT run-rate above $5 billion. The legacy business midpoint of $2.1 billion represents 4.7% year-over-year growth, consistent with the high single-digit target for FY2026. This guidance matters because it shows ZT is already operating at scale and that management is not relying on heroic assumptions about the core business to hit growth targets.

The non-GAAP operating margin guidance of 5.6-6.1% for Q1 FY2026 is particularly instructive. Despite absorbing ZT's integration costs and the dilutive impact of acquisition accounting, margins are expected to remain at the high end of Sanmina's historical range. This implies ZT's margins are indeed at corporate average, validating the acquisition economics. Management's long-term target of 6-7%+ operating margins matters because it suggests 100-200 basis points of expansion from current levels, which on a $16 billion revenue base would generate $960 million to $1.12 billion in operating income—nearly double FY2025's $374 million.

The end-market commentary reveals a bifurcated but favorable demand environment. Industrial, Medical, Defense and Aerospace (IMDAA) represents 62% of revenue and grew 2.2% in FY2025, providing stable cash flows. Communications Networks and Cloud Infrastructure (CNCI) grew 17% and is accelerating, with management citing "strong pipeline for second half of calendar '26 and '27" in high-performance switches, enterprise storage, and optical advanced packaging . This matters because it suggests the legacy business is positioned for reacceleration just as ZT adds massive scale in AI infrastructure, creating a potential earnings compounding effect.

Execution risk centers on three factors. First, integrating ZT's $5-6 billion revenue base without disrupting customer relationships or quality standards. Management's decision to retain ZT's leadership and integrate through the Viking Enterprise group matters because it preserves customer trust while enabling technology transfer. Second, scaling operations to meet hyperscaler demand, which may require significant working capital investment. Management acknowledged net leverage could temporarily exceed 2x as working capital builds, but emphasized this is growth-driven and temporary. Third, maintaining operational discipline across a much larger organization while pursuing the 6-7%+ margin target.

Risks and Asymmetries

The most material risk to the investment thesis is integration failure at ZT Systems. While management expresses confidence in a "very smooth integration," the sheer scale of adding $5-6 billion in revenue—more than 60% of Sanmina's current size—creates execution risk around systems integration, quality control, and cultural alignment. This matters because any disruption could alienate hyperscaler customers who have zero tolerance for supply chain failures, potentially leading to contract losses that would derail the revenue doubling story. The contingent consideration structure, with up to $450 million tied to financial metrics, partially aligns incentives but does not eliminate execution risk.

Customer concentration poses a significant vulnerability. The communications and cloud infrastructure segment, which will exceed 50% of pro forma revenue post-ZT, is dominated by a handful of hyperscalers and networking OEMs. If a major customer shifts strategy or insources manufacturing, Sanmina could face sudden revenue gaps. This matters because the company's smaller scale relative to Flex or Jabil means it has less bargaining power and fewer diversified programs to fall back on. The risk is amplified in the AI infrastructure market, where technology transitions are rapid and customer loyalty is tied to performance, not long-term relationships.

Geopolitical and tariff uncertainties create a complex operating environment. Management noted the Q1 guidance "incorporates market uncertainties stemming from tariffs and the geopolitical landscape," and while Jure Sola observed that "temperature is coming down," the risk remains material. This matters because Sanmina's global manufacturing footprint, with 60% of cash held overseas and significant operations in Mexico and Asia, exposes it to supply chain disruptions and cost inflation. The company's ability to move programs between facilities provides flexibility, but cannot fully mitigate the margin pressure from unrecovered tariffs or forced reshoring of high-cost operations.

On the positive side, significant upside asymmetry exists if AI data center demand exceeds already bullish forecasts. With global data center investments potentially surpassing $1 trillion by 2028, Sanmina's expanded capabilities could capture share beyond the $5-6 billion ZT run-rate. This matters because the market may be pricing in only the announced revenue contribution, not the potential for Sanmina to win additional programs by offering end-to-end solutions that competitors cannot match. The integration of ZT's management with Sanmina's engineering depth creates optionality for new product development that could drive revenue well above the $16 billion target.

Another asymmetry lies in margin expansion. If CPS margins exceed 15% and ZT integration delivers synergies faster than expected, operating margins could surpass the 6-7% target. This matters because every 50 basis points of margin on $16 billion revenue equals $80 million in additional operating income, translating to meaningful EPS accretion. The company's track record of 30-90 basis point quarterly margin improvements in both segments suggests this is not just aspirational but achievable through continued mix shift and operational excellence.

Valuation Context

At recent trading levels, Sanmina trades at a forward P/E ratio of 17.91 based on Zacks data from November 2025, with a Price-to-Sales ratio of 0.97 and Price-to-Book of 3.05. These multiples matter because they position Sanmina at a discount to many EMS peers despite superior growth prospects. Celestica (CLS), for example, trades at a P/E of 76.77 with similar AI exposure, while Jabil trades at 31.44 and Flex at 23.35. The valuation gap implies the market has not yet recognized the earnings power of the transformed Sanmina.

The company's capital structure post-ZT acquisition remains conservative relative to peers. With pro forma debt of approximately $2.2 billion against what will be $16 billion in revenue and targeting 6-7% operating margins, leverage ratios will be manageable. This matters because it provides financial flexibility for continued investment and share repurchases while preserving the ability to become investment grade, which would lower borrowing costs and expand the investor base. The absence of a dividend, while all peers similarly return capital through buybacks, reflects management's confidence in reinvesting for higher returns.

Free cash flow per share of $9.33 on a TTM basis, generated from $8.13 billion in revenue, provides a baseline for evaluating the combined entity's cash generation potential. If Sanmina can maintain similar cash conversion on $16 billion in revenue, it would generate approximately $18 per share in free cash flow. This matters because it highlights the potential for significant capital return or deleveraging once the ZT integration is complete and working capital needs normalize.

Conclusion

Sanmina stands at an inflection point where margin expansion meets AI transformation. The ZT Systems acquisition fundamentally redefines the company's scale and market position, creating a path to double revenue to $16 billion within two years while maintaining disciplined profitability targets. This matters because it transforms Sanmina from a solid but mid-tier EMS provider into a scaled player in the highest-growth technology segment, with end-to-end capabilities that create durable competitive advantages.

The investment thesis hinges on two critical variables: successful integration of ZT Systems without operational disruption, and realization of the targeted 6-7%+ operating margins through continued mix shift toward higher-value CPS offerings and AI infrastructure. The company's strong cash generation, conservative balance sheet, and proven execution track record provide confidence, while the attractive valuation multiple offers downside protection. For investors willing to underwrite execution risk, Sanmina presents a compelling story of strategic transformation at a price that has not yet caught up to the new reality of a scaled AI infrastructure provider with expanding margins.