Sanmina Delivers Blowout Q2 on Accelerated ZT Systems Shipments, Eyes $16 Billion Plus for Fiscal 2027
Q2 Fiscal 2026 Earnings Call, April 27, 2026
Sanmina delivered a standout second quarter that exceeded expectations across the board, driven by stronger-than-anticipated ZT Systems revenue and solid execution in the core business. Revenue came in at $4.01 billion, up 102% year-over-year, with non-GAAP operating margin of 6.4% and diluted EPS of $3.16, representing 125% growth versus the prior year period. The quarter marks a critical validation point for the ZT Systems acquisition as Sanmina shipped its first meaningful volumes of next-generation accelerated compute products.
ZT Systems Pull-In Drives Q2 Upside
The most significant development in the quarter was ZT Systems revenue of $1.88 billion, well above internal expectations due to accelerated customer demand. CEO Jure Sola confirmed that "a customer wanted to pull in some of the product that originally was on a schedule for a third and fourth quarter," adding that the team's ability to execute on short notice demonstrated both operational capability and customer confidence. Critically, CFO Jon Faust clarified that all accelerated compute shipments were based on AMD technology, with no NVIDIA GPU products shipped in the quarter.
Faust emphasized this was "new platform business, not the old legacy products that ZT had," calling it "a good proof point for Sanmina" after winning and shipping next-generation accelerated compute business. The pull-in creates a more challenging comparison for the third quarter, with ZT Systems revenue guided to $1.0 billion to $1.2 billion as previously scheduled second-half shipments moved into Q2.
Integration Progress and New Customer Wins
Management provided an update on the three-phase ZT integration plan, noting that phase one—immediate post-transaction actions—is largely complete. The company has made most necessary capital investments in incremental power, liquid cooling, and test cell capacity to be production ready for next-generation accelerated compute. Phase two, focused on securing customer business, is well underway with multiple hyperscale and OEM wins for next-generation platforms.
Faust revealed that Sanmina has "won several customers now, multiple customers" and is currently finalizing production schedules. The company is shipping preproduction volumes and learning to build these products at scale. While management noted that every hyperscaler represents a target customer, the focus remains on filling existing capacity before considering additional expansion.
The ZT Systems margin profile landed at approximately 6.4% for the quarter, in line with overall company margins. Faust indicated this should remain roughly consistent with core Sanmina going forward, though he cautioned that final customer agreements and consignment arrangements could adjust expectations for fiscal 2027.
Core Sanmina Momentum Accelerates
Core Sanmina revenue grew 7.3% year-over-year to $2.13 billion, with particularly strong performance in Communication Networks and Cloud Infrastructure, which grew 22% to $891 million. Book-to-bill exceeded 1.1x, and management indicated the business could have grown faster absent component shortages around memory and custom ASICs.
The communications segment showed strength across IP switching and routing, optical systems, optical pluggables, and broadband access. Sola confirmed the company is shipping 1.6 terabyte switches in new product introduction volumes and developing 1.6 terabyte optical pluggables. Traditional telecom business is also recovering, representing roughly 2% to 3% of total revenue through 5G wireless infrastructure.
Industrial and Energy remained flat as expected, with semiconductor capital equipment "starting to move in the right direction" and power generation and distribution showing promise. Management highlighted investments in transformer business and energy infrastructure for AI data centers. Defense and Aerospace continues to see strong demand, with satellite market expansion presenting significant opportunities. Medical and Automotive segments remained stable with programs transitioning from new product introduction to full-scale production.
Raised Full-Year Outlook and Fiscal 2027 Confidence
For the third quarter, Sanmina guided revenue between $3.2 billion and $3.5 billion, representing 64% growth year-over-year at the midpoint. Non-GAAP operating margin is expected at 6.4% to 6.9%, with diluted EPS of $2.55 to $2.85 (up 77% at midpoint). The sequential decline from Q2 reflects the ZT Systems pull-in, with core Sanmina expected at $2.2 billion to $2.3 billion and ZT at $1.0 billion to $1.2 billion.
For full fiscal 2026, the company now expects revenue of $13.7 billion to $14.3 billion (midpoint $14 billion, up 73% year-over-year), with core Sanmina growing high single digits and ZT Systems landing "well within the $5 billion to $6 billion annualized range" initially communicated. Non-GAAP operating margin is targeted at 6.3% to 6.6%, with diluted EPS of $10.75 to $11.35.
Most importantly, management stated it is "increasingly confident" in achieving "$16 billion plus" in fiscal 2027 revenue based on current forecasts. If core Sanmina maintains high single-digit growth to approximately $10 billion, this implies ZT Systems contributing $6 billion to $7 billion, representing significant acceleration from the current run rate.
Balance Sheet Strength and Capital Allocation
Sanmina generated $399 million in operating cash flow and $342 million in free cash flow during the quarter, demonstrating strong working capital management despite the ZT integration. The company ended with $1.58 billion in cash and no borrowings on its $1.5 billion revolver, providing approximately $3.7 billion in total liquidity. Net leverage ratio stood at 0.56x, well below the company's long-term target range of 1.0x to 2.0x.
The Board authorized an additional $600 million share repurchase program with no expiration date. During Q2, the company repurchased approximately 1.1 million shares for $160 million to offset dilution. Management emphasized that capital allocation priorities remain investing in organic growth, evaluating strategic acquisitions, maintaining balance sheet strength, and returning capital through opportunistic buybacks.
Next-Generation Platform Timing and Revenue Recognition
When pressed on timing for next-generation accelerated compute platforms, Faust confirmed that silicon is scheduled to be production ready in September, with Sanmina on track from a manufacturing readiness perspective. However, he cautioned that revenue opportunity in fiscal 2026 "isn't really huge" given the time required to build products (approximately two weeks) and ship globally, with revenue recognized upon customer receipt rather than shipment. The real opportunity is positioned as "more of an FY '27 play" toward the end of calendar 2026.
Management's transparency on the transition year dynamics for ZT Systems, combined with demonstrated execution on current-generation products and multiple next-generation wins, provides a clearer roadmap for how the combined company reaches its ambitious fiscal 2027 targets.
Sanmina Corporation Deep Dive
The Architect of the Hardware Ecosystem
Sanmina Corporation operates as a fundamental architectural pillar in the global technology supply chain, functioning as a premier provider of Electronics Manufacturing Services. The company monetizes its expertise by managing the extreme complexity of modern hardware manufacturing on behalf of original equipment manufacturers and hyperscale cloud providers. Rather than focusing on commoditized, high-volume consumer electronics, Sanmina deliberately anchors its business model in highly regulated, mission-critical, and low-to-medium volume markets. These include industrial, medical, defense, aerospace, automotive, and complex cloud infrastructure. The company extracts revenue through a dual-segment structure designed to maximize vertical integration. The Integrated Manufacturing Solutions segment, which historically generates roughly 80 percent of total revenue, handles printed circuit board assembly, high-level system assembly, final test, and direct order fulfillment. The Components, Products and Services segment, accounting for the remaining 20 percent of revenue, provides the high-margin building blocks, including advanced printed circuit boards, custom backplanes, cable assemblies, precision machining, and specialized optical and radio frequency modules. By supplying its own components into its final assemblies, Sanmina captures multiple margin layers across the manufacturing lifecycle.
Market Positioning and the Competitive Arena
The global Electronics Manufacturing Services market is a fragmented behemoth, valued at approximately $648 billion in 2025 and projected to grow steadily as original equipment manufacturers continue to divest physical factory assets to focus on software and silicon design. The competitive arena is highly stratified. The undisputed market leader, Foxconn, alongside tier-one giants Flex and Jabil, collectively control roughly 38 percent of global market revenue. The top ten providers capture approximately 62 percent of the market, leaving the remainder to regional specialists. Sanmina sits firmly in the elite upper tier, successfully differentiating itself from the top three by heavily skewing its mix toward specialized, highly regulated industrial and computing applications. The company relies on a concentrated portfolio of blue-chip original equipment manufacturers and, increasingly, tier-one cloud hyperscalers as its end customers. On the supply side, Sanmina interacts with a vast network of semiconductor foundries and passive component suppliers. The inherent risk in Sanmina's positioning is customer concentration, a structural reality in the top-tier manufacturing services sector where the loss of a single mega-cap technology client or delayed capital expenditure cycles can result in significant revenue volatility.
The Moat: Complexity, Scale, and Vertical Integration
Sanmina's economic moat is constructed upon the high barriers to entry inherent in complex manufacturing and deep vertical integration. In sectors such as medical devices and defense, the regulatory validation and certification processes for manufacturing facilities often take years. Once an original equipment manufacturer integrates Sanmina into its supply chain for a mission-critical product, the switching costs become prohibitively high. Sanmina's global footprint of 39,000 employees spanning 20 countries allows it to offer highly localized, near-shored production in jurisdictions like Mexico and Eastern Europe, balancing labor arbitrage with geographic proximity to end markets. Furthermore, Sanmina deploys proprietary technological advantages, most notably its 42Q cloud-based Manufacturing Execution System. This platform provides real-time supply chain visibility, component traceability, and automated quality control across its global factory network, serving as a critical differentiator when bidding for strict-compliance defense and aerospace contracts. Ultimately, the company's competitive advantage lies in its ability to offer joint design manufacturing combined with internal component sourcing, driving a structural non-GAAP operating margin reliably into the 6.0 to 6.6 percent range, figures that are highly attractive within the traditionally low-margin contract manufacturing industry.
Industry Dynamics: Near-Shoring, ODMs, and the AI Supercycle
The macroeconomic dynamics shaping the electronics manufacturing industry present a blend of generational opportunities and evolving structural threats. The most immediate tailwind is the geographic reconfiguration of global supply chains. Driven by geopolitical friction and the imperative to de-risk reliance on Chinese manufacturing, original equipment manufacturers are aggressively near-shoring production. Sanmina's established facilities in North America, Southeast Asia, and India perfectly position the company to capture these migrating volumes. Concurrently, the industry faces severe competitive threats from the blurring lines between pure-play contract manufacturers and Original Design Manufacturers. Asian Original Design Manufacturers, such as Quanta, Wistron, and Inventec, which historically focused on white-label design, are aggressively moving downstream into final rack integration and fulfillment, directly encroaching on traditional manufacturing services territory. Additionally, new disruptive entrants are emerging in the automotive sector, where Chinese contract assemblers are co-locating directly with electric vehicle battery gigafactories to slash logistics costs and lead times. If Sanmina fails to continually ascend the value chain, it risks being squeezed by these aggressive, vertically integrated regional players.
The ZT Systems Catalyst: Forging an AI Hardware Juggernaut
Sanmina's most potent growth driver is its strategic pivot into the epicenter of the artificial intelligence hardware boom, crystallized by the transformative October 2025 acquisition of the ZT Systems manufacturing division. As hyperscalers deploy hundreds of billions of dollars into generative artificial intelligence infrastructure, the complexity of server racks has skyrocketed, requiring advanced liquid cooling, heavy heterogeneous compute integration, and sophisticated power management. ZT Systems provides Sanmina with unparalleled capabilities in end-to-end cloud and artificial intelligence infrastructure manufacturing at a hyperscale level. This is not a speculative venture into university lab technology, it is an immediate, massive revenue engine. By the second quarter of fiscal 2026, ZT Systems contributed $1.88 billion to Sanmina's top line, pulling forward accelerated compute shipments and driving consolidated quarterly revenue to an astonishing $4.01 billion, a 102 percent year-over-year increase. The integration of advanced packaging technologies, system-in-package modules, and next-generation robotics in the assembly process ensures Sanmina is actively monetizing the physical layer of the global artificial intelligence build-out.
Management Track Record: Sola's Masterstroke
Under the stewardship of co-founder, Chairman, and Chief Executive Officer Jure Sola, Sanmina's management team has executed with clinical precision over the last few years, prioritizing margin expansion, free cash flow generation, and disciplined capital allocation. Sola, who returned to the chief executive role in 2020, has fostered a culture of operational rigor. The fiscal 2026 performance serves as an undeniable validation of this strategy. Management correctly identified the impending bottleneck in artificial intelligence hardware integration and acquired the ZT Systems asset to capture that demand. The immediate post-acquisition integration was flawless, as evidenced by the second quarter of fiscal 2026 results where non-GAAP diluted earnings per share hit $3.16, beating internal guidance and demonstrating massive operating leverage. Furthermore, management maintains a highly shareholder-friendly capital return policy. Backed by $399 million in operating cash flow in a single quarter and a pristine balance sheet boasting $1.58 billion in cash, the board recently authorized a new $600 million open-ended share repurchase program. This track record reflects a management team that not only navigates cyclical hardware downturns adeptly but also aggressively capitalizes on secular supercycles when they emerge.
The Scorecard
Sanmina Corporation has successfully transformed itself from a traditional contract manufacturer into an indispensable infrastructure partner for the world's most advanced technology companies. The October 2025 integration of ZT Systems fundamentally alters the company's growth trajectory, offering direct, scaled exposure to the multi-year artificial intelligence capital expenditure supercycle. Combined with deep competitive moats in regulated industries like defense and medical devices, high switching costs, and robust near-shoring capabilities, Sanmina possesses a highly defensible market position. The company's ability to maintain mid-single-digit operating margins while doubling revenue highlights the power of its vertically integrated model and the operational excellence of its management team.
However, the structural realities of the manufacturing services industry demand analytical sobriety. The company faces persistent threats from customer concentration, where fluctuations in hyperscaler capital expenditures could introduce severe top-line volatility. Furthermore, the aggressive expansion of Original Design Manufacturers into final system integration presents a continuous competitive threat that could pressure margins if technological differentiation wanes. Nevertheless, weighed against a fortress balance sheet, formidable cash generation, and an aggressive share repurchase program, Sanmina stands as a highly disciplined, cash-generative entity uniquely equipped to manufacture the physical foundation of the next technological era.