Sanmina (SANM) Q4 2025 earnings review
Sanmina Closes Transformative ZT Acquisition, Guiding for 50%+ Revenue Surge
Sanmina reported solid Q4 results, beating guidance with non-GAAP EPS of $1.67 and achieving a multi-year high non-GAAP operating margin of 6.0%. However, the quarter's results are overshadowed by the transformative acquisition of ZT Systems' AI data center business, which closed last week. This deal immediately repositions Sanmina as a scaled, end-to-end provider in the high-growth AI infrastructure market. The company's Q1 FY26 guidance reflects this new reality, projecting a ~52% YoY revenue increase and a ~46% jump in non-GAAP EPS, signaling a dramatic acceleration in growth and scale.
🐂 Bull Case
The ZT Systems acquisition adds a ~$5.7 billion annualized revenue run-rate, immediately establishing Sanmina as a major player in the AI server and data center infrastructure market. Management now aims to double total company revenue to ~$16 billion within two years, a year ahead of prior plans.
The legacy Sanmina business continues to demonstrate strong profitability, with non-GAAP operating margin expanding for the fifth consecutive quarter to a high of 6.0%. This provides a stable and efficient foundation to support the integration of ZT.
🐻 Bear Case
Integrating a business of ZT's scale presents substantial execution risk, including aligning operations, retaining key customers and talent, and managing a much larger and more complex supply chain.
The acquisition was financed with significant debt, moving the company from a net cash position to a pro-forma funded debt of $2.2 billion. This introduces financial risk and reduces flexibility compared to its historical balance sheet strength.
⚖️ Verdict: 🟢
Bullish. The strategic leap into the AI infrastructure market via the ZT acquisition is a bold and necessary move that dramatically accelerates Sanmina's growth profile. While integration and leverage risks are significant, the potential to capture share in one of tech's largest secular growth markets outweighs the near-term challenges, especially given the strong operational performance of the core business.
Key Themes
ZT Systems Acquisition Reshapes the Company
The completed acquisition of ZT Systems from AMD is the single most important development, transforming Sanmina into an end-to-end solutions provider for the cloud and AI infrastructure market. The deal adds critical scale and capabilities in full system integration for data centers. Management expects ZT to operate at corporate average margins and is aggressively investing in engineering to capture growth, aiming to double the combined company's revenue in the next two years.
Core Profitability Continues to Improve
The legacy Sanmina business demonstrated excellent operational discipline, with non-GAAP operating margin reaching 6.0% in Q4, an improvement of 70 basis points year-over-year and the fifth consecutive quarter of stable or rising margins. This consistent execution provides a strong financial foundation for the company as it undertakes the large-scale integration of ZT Systems.
Introduction of Significant Financial Leverage
To fund the ZT acquisition, Sanmina has taken on $2.8 billion in new term loans, resulting in $2.2 billion of funded debt at closing. This marks a major shift from its long-standing net cash position. While management is targeting a net leverage ratio of 1.0x-2.0x over time, the increased debt service and financial covenants introduce new risks to the investment thesis.
Sluggish Growth in Core Industrial & Medical Segment
Contrasting the positive narrative, the data shows that the core Industrial, Energy, Medical, Defense, and Automotive segment grew only 2.2% for the full fiscal year 2025. This segment represents 62% of legacy revenue and its slow growth acts as a drag on the overall legacy business, which relies heavily on the Communications & Cloud segment (+17% YoY) for growth.
Navigating Geopolitical and Tariff Uncertainty
Management continues to cite ongoing market uncertainties from tariffs and the geopolitical landscape as a key variable. While the company's global footprint allows it to work with customers on regionalization strategies, the macro environment remains a potential headwind for customer demand and supply chain stability.
Other KPIs
The legacy business demonstrated excellent cash generation, converting strong earnings and disciplined working capital management into $478M of free cash flow for the full year. Inventory turns improved to 6.7x from 5.7x a year ago, reflecting efficient operations. This financial strength is crucial as the company now focuses cash on supporting ZT's growth and managing its new debt load.
The CPS segment was a standout performer, with revenue growing 7.3% YoY and non-GAAP gross margin reaching an impressive 14.5% (up 90 bps YoY). This reflects a favorable mix of higher-value products like advanced PCBs, optical modules, and mechanical systems for data centers, which are key components for the new AI-focused strategy.
Guidance
Accelerating. The midpoint of $3.05 billion implies a massive 52% YoY growth compared to Q1 FY25, driven entirely by the inclusion of two months of revenue from the newly acquired ZT Systems business. This guidance officially marks the company's transformation into a significantly larger entity.
Accelerating. The midpoint of $2.10 represents a 46% increase from the $1.44 reported in Q1 FY25. This indicates management expects the ZT Systems acquisition to be immediately and significantly accretive to earnings per share, even after accounting for higher interest expense.
Slightly accelerating. The midpoint of $2.1 billion implies 4.7% YoY growth for the core business. This is a modest acceleration from the 3.9% YoY growth seen in Q4 and aligns with management's expectation for high single-digit growth for the legacy business in fiscal 2026.