Sanmina (SANM) Q1 2026: IMS Revenue Surges 72% on ZT Systems Integration, Margin Expansion in Focus
Sanmina delivered a transformative first quarter, propelled by the ZT Systems acquisition, driving a 72% surge in IMS revenue and solidifying its position in cloud, AI, and communications infrastructure. The company’s focus on operational discipline, strategic capital deployment, and vertical integration is setting the stage for margin expansion and long-term growth. Management’s confidence in achieving $14 billion revenue this year and targeting $16 billion by 2027 underscores a pivotal shift toward higher-value, technology-driven markets.
Summary
- ZT Systems Integration Accelerates Top-Line: IMS revenue contribution and AI infrastructure growth reshape Sanmina’s business mix.
- Margin Expansion Remains a Core Priority: Operational leverage and disciplined investment target sustainable higher-margin business.
- Outlook Anchored in AI and Power Markets: Management eyes new platforms, vertical integration, and high-profile partnerships for future upside.
Performance Analysis
Sanmina’s first quarter marked a structural inflection, with total revenue reaching $3.19 billion, driven by the full integration of ZT Systems, a provider of hyperscale data center hardware. The IMS (Integrated Manufacturing Solutions) segment, now the company’s dominant engine, contributed $2.79 billion, up 72% year-over-year, reflecting both organic growth in communications, cloud, and AI infrastructure, and the impact of the ZT acquisition. This segment now makes up roughly 87% of total revenue, fundamentally altering the business’s exposure to secular growth markets.
Margin performance was robust, with non-GAAP operating margin holding at 6% for the second consecutive quarter, supported by favorable product mix and operational efficiencies. Gross margin in IMS rose 80 basis points to 8.7%, while CPS (Component Product Solutions) margins, though still elevated at 12.9%, moderated due to upfront investments in new program ramps. Working capital discipline was evident, with $179 million in operating cash flow and a net leverage ratio of 0.8 times, providing ample firepower for future investments and shareholder returns.
- ZT Systems Drives Scale: Immediate accretion to earnings and alignment with AI and cloud demand cycles.
- Operational Efficiency Gains: Cost structure optimization and automation underpin margin resilience despite business mix shifts.
- Disciplined Capital Allocation: Share repurchases, targeted capex, and balance sheet strength enable both growth and flexibility.
Sanmina’s financial trajectory now hinges on the successful ramp of AI, cloud, and power infrastructure programs, with management signaling confidence in both near-term execution and multi-year secular tailwinds.
Executive Commentary
"The goal is to double Sanmina revenue in the next two years. And what we see today, the AI opportunities are on track to deliver a $16-plus billion in our calendar year 27. We’re also pursuing vertical integration opportunities for AI."
Yuri Sola, Chairman and Chief Executive Officer
"Our revenue of $3.19 billion and our non-GAAP operating margin of 6.0% each came in towards the high end of our outlook. These results represent a great start to fiscal 2026 and set us on the right path towards achieving our growth and margin expansion objectives for the year."
John, Chief Financial Officer
Strategic Positioning
1. ZT Systems Integration: Scaling for AI and Cloud
The ZT Systems acquisition is a transformative move, positioning Sanmina as a critical supplier in the hyperscale data center value chain. The deal immediately expanded the company’s addressable market, with ZT’s revenue run rate now annualizing near $5.7 billion and management targeting $16 billion in total company revenue by 2027. Integration is tracking to plan, with ZT’s management and technical team viewed as a strategic asset, and new platform ramps expected to drive further upside in the second half of 2026 and beyond.
2. Margin Expansion via Mix and Operational Discipline
Margin improvement is anchored in business mix optimization and operational discipline. Sanmina is investing in higher-margin programs within CPS and leveraging automation and vertical integration, particularly in AI and power infrastructure. Management expects operating margins to move from the current 6% to a longer-term 6-7%+ range, as new programs mature and investments yield returns.
3. Diversification Across Regulated and Secular Growth Markets
Sanmina maintains a diversified end-market portfolio, with 62% of revenue from communications, cloud, and AI infrastructure, and 38% from industrial, energy, medical, defense, and automotive. While automotive and transportation showed short-term softness, other segments like medical and industrial are stabilizing and expected to contribute to growth in the second half. The company’s Houston energy facility and European transformer partnership exemplify its push into high-growth power markets.
4. Capital Allocation and Balance Sheet Flexibility
Capital deployment remains disciplined, with priorities on organic investment, strategic M&A, and shareholder returns. The company’s $1.42 billion cash position and low leverage enable continued investment in capacity, technology, and vertical integration, while maintaining a goal of achieving investment-grade ratings.
5. Technology Leadership and Customer Depth
Sanmina’s strategy is to deepen customer partnerships, particularly with market leaders requiring complex, high-performance systems. Its technology stack now spans from advanced optical packaging to full system integration for AI data centers, supporting both design and manufacturing at scale. The company is also expanding its customer base, with strong pipelines in both existing and new markets.
Key Considerations
Sanmina’s Q1 performance underscores a strategic pivot toward high-growth, high-value markets, but the execution path is complex and dependent on successful program ramps and continued operational discipline.
Key Considerations:
- AI and Cloud Exposure: The company’s future growth is increasingly tied to hyperscale and AI infrastructure cycles, introducing both secular tailwinds and potential volatility.
- Vertical Integration: Investments in design-to-system integration and power infrastructure are intended to drive margin uplift, but require sustained capital and execution.
- End-Market Stability: Regulated segments like medical, defense, and energy provide stability, offsetting cyclical swings in automotive and communications.
- Customer Concentration Risk: Success with a handful of large hyperscale clients could expose the business to swings in demand or platform transitions.
Risks
Sanmina’s reliance on large-scale AI and cloud infrastructure projects increases exposure to customer concentration, platform transition, and technology risk. Tariff and geopolitical uncertainties, especially in supply chain-sensitive segments, could impact both costs and demand visibility. Upfront investments in new programs may pressure margins if execution lags or if customer ramps are delayed, particularly in automotive and CPS.
Forward Outlook
For Q2 2026, Sanmina guided to:
- Revenue between $3.1 billion and $3.4 billion (midpoint up 62% YoY)
- Non-GAAP operating margin of 5.7% to 6.2%
- Non-GAAP diluted EPS of $2.25 to $2.55 (midpoint up 66.7% YoY)
- Capex around $95 million, focused on capacity and technology
For full-year 2026, management expressed confidence in achieving consensus revenue of $14 billion, with upside tied to AI, cloud, and power infrastructure ramps.
- Core Sanmina expected to grow high single digits
- ZT Systems to grow sequentially and drive platform transitions
Takeaways
Sanmina’s Q1 results validate its strategic pivot toward hyperscale, AI, and regulated infrastructure markets, with the ZT Systems acquisition serving as the primary catalyst for scale and margin expansion.
- ZT Systems Integration: Immediate scale and access to AI and cloud demand cycles, with program ramps pivotal for achieving $16 billion revenue target by 2027.
- Margin and Mix: Operational discipline and business mix optimization are sustaining margins, but future gains depend on successful execution of new high-value programs.
- Execution Watchpoint: Investors should monitor progress on vertical integration, customer diversification, and the timing of AI and power infrastructure program ramps for sustained upside.
Conclusion
Sanmina’s first quarter marks a decisive inflection, with the business now levered to secular growth in AI, cloud, and power infrastructure. The company’s disciplined execution, balance sheet strength, and technology leadership position it for continued growth, but the path forward will require sustained operational rigor and successful program execution.
Industry Read-Through
Sanmina’s results highlight the accelerating demand for hyperscale data center and AI infrastructure, reinforcing secular tailwinds for the broader electronics manufacturing services (EMS) and technology supply chain. Competitors with exposure to AI, power, and regulated markets should expect increased competition for talent, capacity, and large-scale platform wins. The company’s focus on vertical integration and end-to-end system capabilities signals a shift toward higher-margin, technology-driven EMS models, with implications for both peers and upstream component suppliers. The ongoing trend of customer consolidation and hyperscaler-driven demand cycles will remain a defining force for the sector.