Sanmina at Bank of America Conference: Strategic Expansion Insights

On Wednesday, 04 June 2025, Sanmina Corporation (NASDAQ:SANM) participated in the Bank of America Global Technology Conference 2025. During the conference, CFO John Faust outlined the company’s strategic direction, highlighting both growth opportunities and challenges. Sanmina is capitalizing on favorable outsourcing trends and expanding its market reach through strategic acquisitions, while maintaining a strong financial position.

Key Takeaways

• Sanmina is focusing on strategic acquisitions, such as ZT Systems, to drive growth in cloud infrastructure.
• The company projects high single-digit revenue growth for fiscal year 2025, with EPS growth outpacing revenue.
• Sanmina is leveraging its US footprint to navigate tariff challenges and expand capacity.
• The company is seeing growth in communication networks and cloud infrastructure, which now represent 37% of its business.
• Sanmina’s diverse portfolio includes significant contributions from the industrial, medical, defense, aerospace, and automotive sectors.

Financial Results

• Revenue and EPS Growth: Sanmina forecasts high single-digit revenue growth for fiscal year 2025, with EPS growth expected to exceed revenue growth, indicating margin expansion.
• Operating Leverage: The company aims to improve operating leverage through revenue growth and cost management, focusing on vertical integration and fixed cost absorption.
• Capital Allocation: Sanmina is shifting from share repurchases to strategic acquisitions, emphasizing ROI-based cash generation and maintaining a zero net debt position.

Operational Updates

• Outsourcing Trends: Favorable trends towards increased outsourcing are benefiting Sanmina, especially in communication networks and cloud infrastructure, which grew approximately 20% in Q2.
• Cloud Infrastructure: The acquisition of ZT Systems is expected to enhance Sanmina’s presence in the cloud infrastructure market, with a projected 30% CAGR over the next five years.
• IMDA Segment: The industrial, medical, defense, aerospace, and automotive sectors represent 63% of Sanmina’s business, with growth in police handsets and automotive components, particularly in the EV market.

Future Outlook

• Strategic Acquisitions: The acquisition of ZT Systems aligns with Sanmina’s core strategy, expanding its market in accelerated compute and rack building.
• Expansion Plans: Sanmina is expanding its US footprint, with increased capacity and facilities in New Jersey, Texas, and the Netherlands, bolstered by the ZT Systems acquisition.
• Growth Potential: The company sees significant growth potential in the data center business and aims to capitalize on its strengths in regulated and complex markets.

Q&A Highlights

• Tariffs and US Footprint: Sanmina is proactively managing tariff impacts by engaging with customers and leveraging its US capacity, which has been increased to support a $10 billion revenue potential.
• SCI Business: The defense and aerospace segment, particularly the SCI business, is described as having long-term stability due to its focus on Department of Defense and commercial projects.

Sanmina’s participation in the Bank of America Global Technology Conference 2025 highlighted its strategic initiatives and growth prospects. For a detailed review, readers are encouraged to refer to the full transcript below.

Full transcript - Bank of America Global Technology Conference 2025:

Ruplu Bhattacharya, Analyst, Bank of America: So thanks everyone for attending the second day of our Global Technology Conference. My name is Ruplu Bhattacharya. And at Bank of America, I cover electronics manufacturing services companies as part of our IT hardware coverage. So today we have the team from Sanmina and I’m honored to welcome John Faust, who’s the CFO of Sanmina. John joined Sanmina about a year and a half ago.

John Faust, CFO, Sanmina: That’s right.

Ruplu Bhattacharya, Analyst, Bank of America: But he’s got twenty years of experience and he was at another company we cover HP and different branches of HP, Aruba, HP Inc, HP Enterprise. So he’s got lots of industry experience, and so we hope to have a great discussion today.

John Faust, CFO, Sanmina: Yeah. Thank you for having me. Alright. Happy to be here. So maybe just to start off, just wanna make sure to refer everybody to our safe harbor statement, our risk factors, which are available on our website.

Ruplu Bhattacharya, Analyst, Bank of America: Alright, John. So I’m going to you have to cover a lot of different things today. So let’s start with an overview of the markets like, you know, how are outsourcing trends? What are what’s strong? Which verticals are strong?

Which end markets are weak?

John Faust, CFO, Sanmina: Yeah. I I mean, I think in terms of outsourcing trends, both for us right now are favorable. Whether you think about different industries that are outsourcing more or less, I think the trends are going more towards towards it. And I think just the the nature of the economy right now is favorable towards outsourcing as well. Because if you think back during the pandemic, everybody was working with anybody that had supply, had components and could build product for them.

But last year in calendar year ’24, when end market demand started to constrict and there was inventory absorption to work through anybody that was outsourcing or had any sort of internal capabilities to manufacture, they took that in house. So they were lessening the players that they were working with. But now we’re starting to see growth in a lot of the end markets. Even if you look at our results for the last two quarters, we’ve been growing well in line with our guide for the fiscal year. So we’re starting to see more activity, more demand and the trends overall towards outsourcing being favorable.

Ruplu Bhattacharya, Analyst, Bank of America: Got it. I know Sanmina manufacturers for different end markets. So let’s start with communications. So can you talk about like what is Sanmina’s competitive advantage in that space? And what are the trends happening there with say networking or optical or wireless?

Like how are things trending?

John Faust, CFO, Sanmina: Yeah, so I mean, networking or communication networks, which is what we call it or the traditional telecom segment has been kind of a stronghold of Sanmina for many years. So we were founded about forty years ago and started off as a PCB company, but grew mostly in the telecom segment. And over the last four or five years, diversified the end markets that we play in, but all of our capabilities, a lot of our vertical integration capabilities that we’ve built over time came in the telecom sector. So when you think about that, you know, whether it’s any type of product, any sort of customer, like we’re able to do that. Now we focus on highly complex, like highly regulated markets and we’re focused on the programs that more drive towards that end of the spectrum.

But we have all the capabilities in place to compete with any company out there. And when you think about the telecom segment and traditional telecom or communication networking players, yeah, they’re starting to see growth come back as well. So maybe not huge double digit growth that you see in like the data center space or end market, but definitely seeing growth. But with optical specifically, they’re starting to expand into adjacencies too, like back into the data center space. So we were seeing a lot of programs and having a lot of success with transceivers, with modules, whether it be 800 gig, 1.6, you know, that are starting to be developed, but, you know, they’re trying to broaden their scope of where they play.

And we’re looking to help them do that as we think we all have the capabilities to do it.

Ruplu Bhattacharya, Analyst, Bank of America: In the networking space, the whole industry has been going through an inventory correction for the last year and a half. So where are we? What innings are we in and how are Sanmina’s revenues growing in that space?

John Faust, CFO, Sanmina: Yeah, it’s certainly gotten better. So last year for our fiscal year twenty four is a transition year for us and that applied to the majority of our end markets and communication networks being one of them. But in our last two quarters, you’ve seen our inventory turns, you know, get a lot better. We’re in the mid fours, you know, we’re back up to six and this is Sanmina in aggregate, you know, but we’re starting to see things trending better. I think the more telltale sign for communication networks is just the growth that we’re seeing in revenue.

So in our Q2 results, we combine communication networks and cloud infrastructure together, but grew about 20% and both sides. And it’s about 37% of our total business, so almost 40% of total revenue. And that’s split roughly equally between the two, so call it like 15 to 20%, you know, on any given quarter because different programs shift, but, and both sides are seeing that growth as well of around 20%. So from an inventory turns perspective, at least for programs, you know, that we’re involved with and the customers, you know, we’ve started to turn that turn the corner. I wouldn’t say that we’re completely out of the woods for all programs, all customers yet, but we’re definitely seeing the green shoots and already seeing some good improvements and it shows in our in our results.

Ruplu Bhattacharya, Analyst, Bank of America: Okay. Maybe talk to us about your JV in India. What is that about? What are you building for them? And how does that structure work?

John Faust, CFO, Sanmina: Yeah. So it was two and a half years ago that we entered into a joint venture with Reliance. So pretty unique transaction where they actually purchased 50.1%. So they were the majority owners, but we still control the business and consolidate the results. So it is an Indian company.

So when you need to manufacture locally for all the rules and regulations there, you know, that does qualify. So that was part of what was very interesting to us. But again, we still manage and control the entire business. Now they work across all the end markets as well. There was a lot of communication networks business there, but there’s also a lot of medical, know, and a couple other end markets.

The one that’s growing there is really on the data center side or the cloud infrastructure side of the business, but it’s been doing very well. Now we don’t guide or talk about the specific like revenue or profit amounts, but I do guide specifically like the adjustment, the non controlling interest adjustment that we do to earnings per share, and that’s beat for the last couple of quarters. So we are seeing growth there. We’re very positive just about the market in general and what India can be and is looking to become in the future. And so much so, you know, we talked recently in our last earnings call about how we’re expanding our footprint there.

We’ve got a large campus with two, you know, large buildings, but we’ve been building the third, which will be finished, you know, towards the end of this this fiscal year, maybe the beginning of of q one.

Ruplu Bhattacharya, Analyst, Bank of America: Maybe in this space, we haven’t talked about five gs and wireless. I mean, do you think that that market remains weak or is that showing any signs?

John Faust, CFO, Sanmina: Yes. It’s definitely showing signs of growth. I mean, we look at it more as like wireless infrastructure more broadly. So think about all the elements, just, you know, cellular specific, but we do that, but we do satellite as well and other elements. But, yeah, we’re starting to see growth in that part of the business too.

And that’s part of that, you know, the 37% of our revenue growing at 20% that we were talking about before. So we’re seeing growth and expansion in that space. And then it really comes down to even the first question that you mentioned around, you know, outsourcing trends and so forth. Like we’ve been winning business and good programs that are accretive to us. So we’re very excited about that space.

Ruplu Bhattacharya, Analyst, Bank of America: Okay, great. All right. Well, let’s transition into the cloud business because this has been a focus for investors as well. So talk to us about like, how large is your cloud business and what are you building in that space?

John Faust, CFO, Sanmina: Yeah, so cloud infrastructure for us is part of that same segment that we were just talking about. So 37% of the business in Q2, and you can call it roughly about half. Historically, we’ve been focused on data center networking because for those that don’t know Sanmina as well, and our strategy is focused on highly regulated markets, very complex products. So we weren’t interested in any products or builds that were more commoditized. So data center networking, so you think like the Aristas, the Juniper’s of the world, you know, those are the types of businesses that we’re interested in.

But just a couple of weeks ago, you know, we announced an acquisition of ZT systems from AMD that specifically focused on RAC cloud infrastructure. So we’re very excited about that. You know, we expect to close it by the end of the calendar year, but, you know, it’s a new TAM. We’re unlocking a new TAM for us. I mean, again, we played in the cloud infrastructure space and we’d show a lot in our earnings calls, a picture of a rack and all the various different things that we could do from the metal bending, the rack fabrication, the cables, the PCBAs.

The one thing that we weren’t doing, at least not at scale was the full system assembly for racks specifically. And that’s exactly what CT systems manufacturing does. So it was very attractive to us in that regard. So we’re very excited about that as well as the strategic partnership that we put in place with AMD to be their preferred NPI manufacturing partner. So should drive a lot of growth for us in the future.

Right now, we’re just focused on getting the transaction closed. But when you think about cloud infrastructure overall in that segment of the business that we have today was growing about 20%, you know, q two the same in q one. But even as we were showing when we announced the transaction, you know, we expect the whole data center cloud infrastructure end market to be growing at least at a 30% CAGR over the next five years. That’s the intelligence that we’ve had. So very attractive end market, Yuri and I are both very much focused on driving growth, strategic growth that’s accretive to our current profile.

And that’s what we believe ZT Systems and this acquisition is going to help us do.

Ruplu Bhattacharya, Analyst, Bank of America: So when we think about the cloud business overall, you said the market is growing 30%. How should we think about Sanmina’s revenue growth and margin profile in the cloud business overall? Yeah. So, you know, when we close the transaction, we’ll provide a lot more specifics. But the

John Faust, CFO, Sanmina: one thing just about the the announcement specifically that that we said a couple of weeks back on May 19 is that, you know, the current run rate of that business is 5 to 6,000,000,000 in revenue, you know, but, you know, we said that we expect within three years to to double the size of the of the company Sanmina, which would imply about 8,000,000,000. So call it, you know, a healthy growth in the 20% or so range. Now the CAGR is more broadly, hopefully we do better than that, but it’s still early. So we’ll come out with a lot more specifics when we post the transaction in terms of the mix of the business, the future growth profile, the gross or the margin profile and EPS accretion as well.

Ruplu Bhattacharya, Analyst, Bank of America: In cloud, you also had new which is a storage, I think it’s your ODM storage business. How is that business trending and what’s the long term plan for that business?

John Faust, CFO, Sanmina: Yeah. So new ISIS was the name of the business back when we acquired it. We rebranded that to be Viking Enterprise Solutions. It’s exactly what you say. So white box offering for storage and even server capabilities as well.

And that was something that we had acquired years back as part of one of our customers requests where they were looking us to expand. And if you think back to like how CMM has evolved over time, we have a very customer centric culture. So generally we got into new services, you know, starting from PCBs and backplanes into other things that we do today based on customer needs. And then Viking enterprise solutions, you know, what used to be called new ISIS was part of that strategy, but it very much fits in well with our current strategy for the data center market because we believe that can be a good offering to go along with ZT systems. And they’ve got, we’ve also got internally great engineering capabilities.

Now people have talked a lot about the design engineers that AMD is going to extract from ZT systems as a part of that overall transaction, which is great. It’s a new part of the business for them to get into, but we’ve got design engineers as well. So having that team in place that came from Viking Enterprise Solutions, helps to give us that foundation to be able to make that broader business be even more successful. So we’re very bullish on Viking Enterprise Solutions, both from a standalone basis, but then just fitting into that portfolio of cloud infrastructure.

Ruplu Bhattacharya, Analyst, Bank of America: Okay, great. So let’s move on to the other segment, which is, I call it IMDA, but there are a couple of more end markets in there. So let’s talk about each of the end markets. So let’s start with industrial. Can you talk about what are the trends you’re seeing there and some of the main things that you provide in that segment?

Sure.

John Faust, CFO, Sanmina: So that segment for everybody’s benefits about 63% of our business, we talk communication networks and cloud infrastructure, but but this part of the business is industrial, medical, defense and aerospace, automotive. So, yeah, just to talk about it and it’s it’s growing low single digits. So this last quarter was 2% and it’s because in that part of the business, you still have some of that inventory absorption that needs to be worked through. So I’ll give you an example. In industrial, you know, we do different things from like call the police handsets for firemen, policemen, things of that nature.

You know, that part of the business is doing very well, you know, and growing. I would call it high single digits, you know, in that type of range. But we also do large semi cap equipment, for example. So you think the applied materials, the ASMLs of the world and that part of the business, you know, we still have, from a long term perspective, I think that’s a great business to be in and it fits in very well with our strategy and our set of vertical integration capabilities, but, you know, it’s still working through some of that inventory absorption. So that’s why you see that there’s a that’s a little bit mixed.

And I would say for that category more broadly Ruplu, like you see similar types of trends, some medical similar, like large hospital based equipment, much still under pressure as the hospital network is going through consolidation and just working through how to manage those assets. But we also do things like the equipment for local doctor offices, think blood testing, machines, glucose testing all the way down to like wearables, disposables, things of that nature, which is a little bit on the lower end. Now those areas are growing well, but the high end hospital equipment, still a little bit constrained. So similar type of dynamics across that part of the business.

Ruplu Bhattacharya, Analyst, Bank of America: Okay. I know there’s a defense business that you have, Sanmina SCI. So can you talk about, like, what type of projects that works on and how is that business trending?

John Faust, CFO, Sanmina: Yeah. So that’s that’s the part of the business that’s focused on aerospace and defense. And we’ve got two plants, through that SCI acquisition, which was a little over twenty years ago in the early two thousand timeframe. You know, that is based out of Huntsville, Alabama, and we’ve got two plants there. So part of the business focuses on the Department of Defense.

So, you know, think about those types of programs for military equipment and, you know, those types of capabilities, and then also the commercial side of the business. So we we do both, you know, that also is in, like, say, like the 15% range of my total total company revenue. And it’s it’s been doing quite well. I mean, in that business, you know, the DOD side of it specifically is almost kinda like an annuity. Right?

When they put a program in place, you know, you think about large military equipment like Apache helicopter, like that’s been around for twenty five, thirty years. Right? So once you went in on those programs and you’re building components, which is what we do that go into those types of products, yeah, you’ll have that for for a long time. It’s been

Ruplu Bhattacharya, Analyst, Bank of America: a good business for us, still very attractive to us, and we look to continue to invest there. So does the SCI business have higher margins than the segment overall? And would it be instructive for investors to kind of do a sum of the parts and value that business as a separate business? Is this something you could potentially spin off later on at some point?

John Faust, CFO, Sanmina: So we’re a lot of what we do in SCI rolls up under the CPS segment. And as you know, the margin profile that’s a little bit different. So we’ve got our two external segments when we report financials and file our financial statements. So IMS is in that and talking gross margins, you know, seven to 8% range, but we think that there’s more upside potential there. And we’re focused on winning the programs that do that.

You know, CPS has been more in that 13 to 14% range, and we’ve done a great job even last year in the down revenue year, maintaining that margin profile. So, we are looking to grow the overall mix. So to kind of answer your question around SCI, for us, when you think about just the margin profile in general, we’re looking to grow CPS and driver vertical integration to be a bigger part of the Sanmina whole. It’s about 20% today, but if we’re successful with that, successful with growing parts of the business like SCI, it’ll become a higher percentage. So I think that’s the right way to look at it from a financial perspective.

Ruplu Bhattacharya, Analyst, Bank of America: I think we may have missed automotive in that segment. Talk to us about like what are some of the products you build and what’s happening there?

John Faust, CFO, Sanmina: Yeah. So automotive, we’re very much indexed to the EV side of the house as, you know, that we’re focused on the traditional automakers as well, but like more of our legacy came through through EVs. And we started off in the infotainment, you know, part of that market, but we’ve been gradually expanding into more components. And, you know, automotive is attracted to us from a long term perspective too, because more and more electronics are going into these vehicles. I’d say think drivetrain components and otherwise, but, you know, but we’ve been focused a lot on The US like EV market in particular and it’s done well, you know, it continues to grow for us.

I know EVs, aren’t what they were say a year and a half, like two years ago when there was a lot of optimism, but for us, you know, there’s still share gain opportunity and the fact that we’re expanding like into different aspects of the portfolio. So beyond just infotainment is what makes it attractive to us as well. Okay.

Ruplu Bhattacharya, Analyst, Bank of America: It’s strange we haven’t talked about tariffs and every meeting we’ve been going to is like, that’s a topic of discussion. So I’ll give you the same question. Like, have you seen any customer demand impact? Have you seen any pull ins and what have people asked for moving their manufacturing footprint?

John Faust, CFO, Sanmina: Yeah, I would think, you know, as far as pull ins or shifting programs, like nothing material as of late, I can tell you ever since, you know, the new US administration came in place and tariffs became a hot topic, You know, there’s been a lot of dialogue with our customers. And so I would say, you know, our job and what we look to do is to proactively engage with them to talk about options, help them do ROI analysis because it’s not easy. I mean, there’s some programs, especially if you’re manufacturing multiple locations already very easy to say, hey, I wanna do one more volume out of one place versus the other. But if they’re primarily manufacturing in one location, you know, it takes time to be able to move that program, you know, especially if there’s specialized equipment. But, you know, our job in that regard is to help our customers understand the economics to say, would it take?

How long would it take? You know, does it make sense for them to do? Because we’re always happy to do that. So, you know, and then also part of our job, you know, with our international trade compliance team is just staying on top of the ever changing, you know, landscape out there to make sure that we’re experts because we’re a key supply chain partner. You know, if you’re going to be manufacturing, and there’s tariffs on manufacturing providers or just on, you know, the business overall, not the providers specifically, then like, you may need to be experts in that space.

So we proactively reach out to our customers, but at this point, know, nothing’s moved materially, I would say, and I think that’s because of the on again, off again nature that that we’ve seen. Now that that may change. But as far as, like, the economics, like, our business is very much resilient to that because we’re not accountable or responsible for the tariffs ultimately. If we’re the importer of record, like we might do the cash outlay, but then we go back to our customers to recover that immediately, like within the eight days that it’s required to to be paid. So that’s, you know, so we’re we’ve got good, I guess, resilience of it, like I was saying before to to the impact of the tariffs ultimately now that they stay in place and there’s an end market demand impact, like that would be right?

That I think would impact everybody. But right now it’s really just understanding the landscape, staying on top of it and providing optionality. The only other thing I would add for us, that’s a competitive advantage or two things. And we’ve got a large global footprint. I think that’s well known, but we’ve also got a single ERP system, a single shop floor system or MES system.

So if you want to move programs, the part numbers are the same, like there’s no sort of translation that needs to take place. So that type of friction that can be put in place, like we don’t have that challenge at Sanmina. So we make sure that that’s known to our customers as well.

Ruplu Bhattacharya, Analyst, Bank of America: Yeah. Another thing I think that differentiates Sanmina is your US footprint. I mean, you have a decent sized footprint here. I mean, talk to us about utilization rates. If people wanted to move into The US, do you have capacity to support that?

John Faust, CFO, Sanmina: Yes. We do have capacity. I mean, the way I would answer that, if you look back to our revenues in fiscal year twenty three, we were doing about $9,000,000,000 in revenue and we invested pretty heavily in capacity all around the world, but also in The US, in The US, Thailand, Mexico back then. So say that you’ve got capacity up to $10,000,000,000 plus. Last year was a transition year because of the inventory absorption challenges that the broader industry was working through and pretty much all end markets, we’re down to like 7 and a half billion of revenue.

This year, we guided high single digit revenue growth. So if you talk in the 8,000,000,000, low $8,000,000,000 range, you know, we still got good capacity in place, you know, kind of on a global basis, but in The US as well. But then even this year, you know, we’ve been making, you know, more investments, you know, in in The US, other locations to India. I mentioned earlier, we talked about this on our last earnings call, both The US and India being part of our our guide for the q three and q four for for CapEx, you know, as an area of focus. And then the ZT Systems manufacturing acquisition that I mentioned earlier, they also have a large US footprint.

So on the call when we announced that, we talked about the three manufacturing locations that they have, you know, one being in Secaucus, New Jersey, which was their headquarters, a new greenfield facility, like state of the art facility that they built in Georgetown, Texas, which is half an hour north of Boston and then also in The Netherlands. But that specifically for The US adds to our footprint in a very interesting end market with a lot of great capabilities. Okay.

Ruplu Bhattacharya, Analyst, Bank of America: So now let’s talk about some overall financials for Sanmina. So how should investors think about revenue growth and margins for fiscal twenty five and then longer term in for the medium term, how should we think about progression in those two metrics?

John Faust, CFO, Sanmina: Yeah, so at the beginning of the fiscal year, we took a little bit different approach like generally we’ve historically seen me and his guided just one quarter at a time and that philosophy largely isn’t changing, but we did get some feedback from investors and analysts such as yourself that said, you know, it’d be helpful to get kind of a building blocks of a full year guide. So Yuri and I did do that in our Q4 of twenty four earnings call. You know, we laid out a full year guide at a high level and said revenue growth of high single digits and EPS, you know, growing faster than that, which implies the margin expansion. And if you look at our q one and q two results or even our the rest of our guide, you know, we’ve been living up to that. So our revenue growth has has been fantastic, you know, on the high end of that range in q one and q two.

Our gross margin profile beat our guides like above 9% at 9% or above in both quarters. So we feel very good about that. Everything that we’ve, you know, we’re looking to execute on this fiscal year. If you think about our Q3 guide and we’re in the middle of Q3 right now, you know, we’re focused on executing on that. And we even did talk about the full year, you know, still being in that six to 8% revenue growth range.

So we’ve got a great foundation And that’s what made us feel confident about doing this acquisition as well as just not only do we have a good diversified portfolio of business across multiple ad markets, we’re growing high single digits, we’re expanding margins, we’ve been generating a lot of cash. The other thing that we haven’t talked about is our balance sheet, but as you know, and I talked a lot about on our earnings call, you know, we had the best balance sheet in the industry with no net debt, you know, low gross leverage ratio of 0.5 times. So that puts us in a position to do strategic acquisitions like the one of ZT systems and still be able to maintain a healthy balance sheet because that is very important to both Yuri and myself. Right?

Ruplu Bhattacharya, Analyst, Bank of America: So one of our thesis points on Sanmina has always been operating leverage. So talk to us about like, is there still more leverage to be had from the model? Are there things that are there levers that you can pull to drive operating leverage?

John Faust, CFO, Sanmina: Yes, absolutely. But even going back to like fiscal year twenty four, so I talked before about revenue being down about 15% from that 9,000,000,000 in FY twenty three down to about seven and a half, but we actually expanded our gross margins, right? Our operating margins came down a little bit about 20 basis points, but our gross margins expanded 20 basis points. And the only reason the operating margins came down is because we started making some targeted investments to help set up the company for future growth in divisions like Viking enterprise solutions and otherwise. But the fact that we’re able to maintain and even improve our gross margin profile in a down year, I think is a testament to the core business.

Now looking ahead, you know, there’s multiple levers, know, to get operating leverage. One, just growing the business, growing the top line, the high single digits like we’ve been doing, helps with fixed cost absorption. So that’s one. Two, we’ve been making a lot of investments in the CPS part of the portfolio to drive our vertical integration strategy. And as I mentioned, like the gross margin profile there has been historically in the 14% range, but we expect to be able to do better there, especially with the investments and grow that to be a bigger part of the total company mix.

So no longer be 20% of the revenue, be something higher than that. And then when you think about our OpEx and our SG and A profile, we’ve been in the three to three and a half percent range, you know, and that’s more the three and a half more in like a down year. And we’ve made a lot of the investments, more than one time investments, you know, this past year and the last year or so since I’ve been here to set up the company for future growth. So there’s definitely areas where we’re going to want to invest going forward, but not at the same scale of what we think we can do from a revenue growth perspective, organically speaking. So we definitely think that there’s room to grow margins.

Right now we’re just focused on executing on our Q3 guide and closing out the fiscal year. But we expect as we get to FY ’26 or we get to Q4 this year, I’m talking more about full year ’26 for the core business. And around that time, we should be close to closing the ZT Systems transaction. And we’ll talk a lot more in a lot more detail about the mix of business, the revenue, the type of business that they’re doing, customer set, hyperscalers versus OEMs, and then the margin profile too.

Ruplu Bhattacharya, Analyst, Bank of America: Got it. Can you talk about we have about two minutes left. Talk to us about capital allocation, your priorities for cash. And then the last question would be, what is the market missing about Sanmina? Why is now the best time to invest in Sanmina?

John Faust, CFO, Sanmina: Yes. So on the capital allocation point, I talked a lot about this back in Q4, the end of our fiscal year too, but our priorities haven’t changed. And we’re very much focused on cash generation, but it’s very much ROI based. So when you look over the last year or so, we were doing a lot of share repurchases because we had already invested in the CapEx, like to expand our our capacity or to, you know, to build that out. So we didn’t really need to do that.

We typically spend CapEx or, you know, organic investments of that nature between one to 2% of revenue. We had been on the higher that end in ’23, but then we so therefore we’re doing share repurchases because we didn’t see a lot in terms of, you know, strategic partnerships or or m and a. Now that obviously just shifted, you know, when we left and we saw the ZT Systems manufacturing opportunity, we thought that that fit in, you know, perfectly with our core strategy. First of all, it’s a founder led company. So culture wise, it’s very similar to Sanmina.

And I think that’s very important when it comes to the success rate of M and A. Second, it’s not an adjacency by any means. It’s very much core manufacturing businesses just expands our TAM into the accelerated compute and rack building part of the business. So the ROI there, you know, we’re we’re very we think that that’s the best ROI and that’s why our capital allocation, you know, shifted towards that. But our overall strategy has has not changed.

But as far as what’s been missing about Sanmina, I think part of it, you know, since becoming CFO a year and a half ago, I’ve been trying to get out more of the message about how we’re no longer just indexed a company, EMS player index to the telecom market, but we really do have a well diversified base. And I think that, you know, we proved that in fiscal year twenty four, went into down year, we maintain our margin profile and generate generated great cash while, you know, it’s still expanding margins. But now going forward, you think about an acquisition like ZT Systems, we have set the foundation to drive future growth and that’s really what we’re focused on.

Ruplu Bhattacharya, Analyst, Bank of America: Okay. Well, I think we’ve covered a lot of ground. So thanks John for being here. We also have Paige Melching in the audience who’s heading IR. So if you guys have any questions, please look us up.

Please, you can contact her. John, thanks so much for coming today. Really appreciate it. Thank you.

John Faust, CFO, Sanmina: Always good to see you. All right. Thanks for the

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