Sanmina (SANM) Q4 2026 earnings review
Sanmina raises its 2027 sales target, but margins step down
Sanmina's AI server business is scaling ahead of schedule, though its next phase trades profit margin for volume. Fourth-quarter sales reached $3.86 billion and operating margin excluding one-offs hit 9%, lifting profit well above what the company's own plan pointed to. Chief executive Jure Sola then set a fiscal 2027 revenue outlook of $17.5 billion to $19.5 billion, clearing the old $16 billion goal by $2.5 billion at the middle of the range.
| Fourth-quarter revenue | $3.86B +84% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $4.43 +165% from a year ago |
| Operating margin, excluding one-offs | 9.0% above the 7.5–8.0% outlook |
| FY27 revenue outlook | $17.5–19.5B middle of the range: +27% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the fiscal 2027 outlook removes the doubt over whether new AI server programmes would start on time, while a $386 million jump in customer deposits eased the working-capital strain. The bad news: management plans for operating margin excluding one-offs to drop back to about 7% in the first quarter and stay there all year, while heavy factory spending cut fourth-quarter free cash flow by 39%.
The question now is whether the margin reset to 7% is just normal accounting for pass-through chip costs as full server racks ship, or whether new factory capacity is pricing at thinner returns. If it is chip pass-through, dollar profit can still beat the plan as sales climb; if it is factory pricing, heavy capital spending will hold down cash returns. The revenue split and commercial-model details on the call and in the annual report will tell.
🐂 Bull Case
New Outlook Clears the $16 Billion Target by $2.5 Billion
Sanmina builds electronics and data-centre servers for technology brands, and last year it bought ZT Systems, a maker of server racks for artificial intelligence (AI). For a year management told investors to expect more than $16 billion of revenue in fiscal 2027. Chief executive Jure Sola said: "As we look to fiscal 2027, we expect demand to remain strong." The company then set its first full-year outlook at $17.5 billion to $19.5 billion.
- Fourth-quarter revenue: $3.86 billion, up 84% from a year ago and $258 million above the top of the outlook
- First-quarter revenue outlook: $3.8 billion to $4.1 billion, up 10.3% a week from the fourth quarter by our math
- Full-year 2027 revenue outlook: $18.5 billion at the middle of the range, or $2.5 billion above the old $16 billion floor
The weekly comparison matters because the fourth quarter had 14 weeks while the first quarter has the usual 13. Adjusting for that extra week shows shipments accelerating right into the new year. Furthermore, by our math, the full-year plan leaves 28.4% growth for the last three quarters of fiscal 2027, even after the ZT Systems purchase enters the year-ago comparison.
What to watch: the revenue split between ZT Systems and the original Sanmina business in the annual filing. A growing ZT figure would confirm the new AI server programmes have started shipping in volume.
Customers Are Funding the Inventory Build Again
When Sanmina buys expensive chips and parts to build AI server racks, its customers often pay cash up front. The company records those deposits on the balance sheet as deferred revenue and customer advances. For two straight quarters that balance shrank while inventory grew, which meant Sanmina was paying for more of the parts itself.
In the fourth quarter that trend reversed, as customer advances and deferred revenue jumped by $386 million, or 33.6%, to $1.54 billion. Total inventory rose $457 million to $3.61 billion over the same three months, so customer cash covered most of the new stock added for next year's server shipments. Those deposits now fund 42.6% of total inventory, up from 36.5% three months ago by our math.
What to watch: the footnote breakdown in the annual filing between raw-material customer advances and deferred service revenue. Another rise in raw-material deposits would show customers are paying up front for the fiscal 2027 server ramp.
Scale Lifted Operating Margin to 9%, Well Above the Plan
Three months ago Sanmina's outlook for fourth-quarter revenue and margins pointed to $259 million to $276 million of operating profit excluding one-offs, by our math. That meant profit would stay roughly flat from the third quarter despite an extra week of factory shipments.
Instead, operating profit excluding one-offs reached $348.1 million, and the operating margin hit 9.0% against a 7.5% to 8.0% outlook. Both factory costs and office overhead shrank as a share of sales compared with a year ago: the cost of making products fell 2.2 percentage points of revenue, and selling and administrative expenses excluding stock pay fell 0.7 percentage points by our math. Beating the implied profit range shows the third-quarter plan was cautious, though the new outlook does not keep margins at 9%.
What to watch: gross margin for Components, Products and Services (CPS, the higher-margin parts division) in the annual filing. A second sequential increase above the third quarter's 12.8% would prove the new rack and circuit-board factories are filling up.
Positives this quarter didn't test
Sola said Sanmina "grew our core Sanmina business by double digits year-over-year" in fiscal 2026, which beats the high-single-digit goal set at the start of the year. However, the earnings release does not include the division tables from the conference call and annual report, leaving three drivers without a fourth-quarter number.
- Core communications and cloud growth: hit 33% in the third quarter excluding ZT Systems; the conference call will show whether it stayed above 25%.
- New AI server customer wins: management previously cited wins beyond its main partner AMD; the annual report will show how much revenue came from other platforms.
- Components, Products and Services (CPS) margin: rose to 12.8% in the third quarter; the segment footnote will show whether new factory lines added further margin in the fourth quarter.
🐻 Bear Case
The Outlook Resets Margin Down Almost Two Points
In the third and fourth quarters Sanmina earned an 8.0% and 9.0% operating margin excluding one-offs, helped by early engineering work on new AI server designs that carried high profit and little revenue. Management has warned that this engineering boost would fade once factories shift to assembling full server racks.
The fiscal 2027 outlook puts a number on that drop. For both the first quarter and the full year, the electronics maker plans for an operating margin excluding one-offs of 7.0% to 7.5%, down 1.75 percentage points from the fourth quarter at the middle of the range. Because of that margin reset and one fewer week in the calendar, first-quarter profit per share excluding one-offs is set to fall 17% from the fourth quarter to $3.50 to $3.85, even as sales rise.
What to watch: first-quarter operating margin excluding one-offs against the 7.0% to 7.5% target. A reading near 7.0% would confirm that mass assembly of AI racks carries a much thinner margin than the setup work.
Factory Spending and Inventory Cut Fourth-Quarter Cash Flow
Sola said $944 million of full-year operating cash flow funded "strategic investments in new capabilities and capacity" for power, liquid cooling and AI server racks. Building those factories shows confidence in customer demand, but it also ties up cash before the new production lines fill up and leaves the company exposed if customer schedules slip.
In the fourth quarter, capital spending on property and equipment jumped to $159.1 million, or 4.1% of revenue, beating the $135 million plan management gave three months ago. At the same time, working capital absorbed $116.1 million of cash as inventories and unpaid customer bills grew. As a result, fourth-quarter free cash flow fell 39.3% from a year ago to $83.0 million, turning just 2.2% of sales into free cash.
What to watch: first-quarter free cash flow and capital spending guidance on the conference call. Another quarter above $150 million of factory spending while inventory builds would keep cash conversion low during the server ramp.
ZT Earnout Charges Widened the Profit Gap to $2.29 a Share
When Sanmina bought ZT Systems, it agreed to pay the seller up to $450 million in extra cash over three years if ZT hits financial targets. Each quarter ZT beats expectations, Sanmina raises its estimate of that future payout and records the increase as an expense under accounting rules, then removes it from profit excluding one-offs.
In the fourth quarter Sanmina booked a $78 million "fair value adjustment to contingent consideration", bringing the full-year charge to $150 million and the estimated unpaid obligation to $261 million by our math. That charge pushed the gap between profit per share excluding one-offs ($4.43) and standard accounting profit per share ($2.14) to $2.29, almost double the $1.19 gap in the third quarter. The better ZT performs, the more cash Sanmina will eventually owe.
What to watch: the contingent consideration footnote in the annual filing for the timing of cash earnout payments. Cash payouts over the next two years will reduce cash without touching profit excluding one-offs.
Risks this quarter didn't answer
Five standing concerns depend on footnote and call disclosures that are not in the fourth-quarter earnings release.
- Commercial terms for next-generation AI racks: whether Sanmina buys the chips itself (buy-sell) or customers supply them on consignment; the call will clarify how much component pass-through is in the $18.5 billion plan.
- Customer concentration: the top ten customers reached 67% of sales over the first nine months; the annual report will give the full-year share and how many customers topped 10%.
- Chip shortages: memory and custom chip supply limited third-quarter shipments; the call will show if supply still holds back output.
- Receivable sales: Sanmina sold $487 million of customer bills to banks in the first nine months to speed up cash collection; the annual report will show the fourth-quarter balance.
- Legal settlements: the defense unit's $5.9 million False Claims Act settlement and six California labour suits await updates in the legal footnote.
💲 Other KPIs
Net debt — total borrowings minus cash — rose from $327 million in the third quarter to $412 million by our math, but stays well below the $755 million level after the ZT Systems purchase closed in the first quarter. Sanmina paid down $86 million of debt while spending $154 million to buy back 0.8 million shares after pausing buybacks last quarter.
Unpaid customer bills grew 67.2% from a year ago and 17.8% from the third quarter, outpacing the 11.4% sequential rise in fourth-quarter sales. The $354 million quarterly jump in receivables was the largest drag on working capital, holding back operating cash flow even as customer inventory deposits recovered.
🔮 Guidance
Raised. The first formal range puts full-year sales at $18.5 billion at the middle of the range, up 27.4% from fiscal 2026 and $2.5 billion above the prior $16 billion floor. By our math, after the first-quarter outlook, that leaves 28.4% growth for the remaining three quarters against a base that already includes ZT Systems.
New. The middle of the range is $3.95 billion, up 23.8% from a year ago and 2.4% above the fourth quarter. Because the fourth quarter had 14 weeks and the first quarter has 13, weekly sales are set to rise 10.3% from last quarter by our math. Sanmina has beat its quarterly midpoint four times in a row by an average of 10.8%; if the pattern holds, sales would reach $4.38 billion.
New. The plan calls for a 7.25% operating margin at the middle of the range, down slightly from 7.4% in full-year 2026 and down from 9.0% in the fourth quarter. By our math, because the first-quarter margin outlook is also 7.0% to 7.5%, the plan assumes margins stay flat at 7.25% across the remaining three quarters of the year.
New. Management expects the first-quarter margin to step down 1.75 percentage points from the fourth quarter's 9.0% at the middle of the range. That brings profitability back toward the company's long-term target as high-margin pre-production engineering work gives way to full-scale hardware assembly.
New. At the middle of the range ($16.50), full-year profit per share grows 24.2% from fiscal 2026's $13.28, trailing the 27.4% planned rise in sales because of the lower full-year margin target. By our math, subtracting the first-quarter plan leaves $12.83 per share for the rest of the year, up 17.7% from the same three quarters of fiscal 2026.
New. The middle of the range ($3.68) is up 54.4% from a year ago, when ZT Systems was only included for two months, but down 17.0% from the fourth quarter's $4.43. The sequential drop comes from the planned 1.75-point margin reset and the return to a standard 13-week calendar.
❓ Key Questions
Is the fiscal 2027 AI server plan buy-sell or consignment?
If Sanmina buys the processors and bills the full rack value, revenue is much higher and percentage margins are lower than under consignment. Which commercial model is built into the $17.5 billion to $19.5 billion revenue and 7.0% to 7.5% margin outlook?
How much did ZT Systems and core communications grow?
The earnings release did not split fourth-quarter revenue between ZT Systems and the original Sanmina business, or give the core communications and cloud growth rate that hit 33% last quarter. What were those two figures in the fourth quarter and in the first-quarter outlook?
Why does operating margin drop 1.75 points next quarter?
Operating margin excluding one-offs hit 9.0% in the fourth quarter, a full point above the top of the plan, yet the first-quarter outlook drops to 7.0% to 7.5%. How much of that drop is lower engineering fees versus higher pass-through chip costs on new AI racks?
When will the $261 million ZT earnout require cash?
Another $78 million charge in the fourth quarter lifted the estimated contingent payout for ZT Systems to about $261 million by our math. What performance milestones triggered that jump, and how much cash will Sanmina pay out in fiscal 2027?