Sanmina (SANM) Q4 2025: ZT Systems Acquisition Drives Projected 52% Revenue Surge
Sanmina’s early ZT Systems acquisition positions the company for a step-change in scale and cloud-AI exposure, with first quarter guidance implying 52% revenue growth and a clear pivot to higher-margin, next-generation infrastructure. Management is targeting accelerated integration, margin expansion, and a path to $16 billion revenue within two years, while maintaining disciplined capital allocation and strong cash generation. Investors should watch execution on integration and the buildout of AI and cloud capabilities as the company enters a new phase of growth.
Summary
- ZT Systems Integration Accelerates Cloud-AI Ambitions: Acquisition unlocks full-stack data center solutions and expands addressable market.
- Margin Expansion Remains a Core Priority: Favorable mix and operational discipline drive higher profitability, with further upside targeted.
- Outsized Revenue Growth in 2026: Management signals a path to $16 billion revenue by fiscal 2027, compressing the timeline for scale.
Performance Analysis
Sanmina closed fiscal 2025 with revenue of $8.13 billion, up 7.4% year-over-year, and delivered its fourth quarter at the high end of expectations. The company’s non-GAAP operating margin expanded 30 basis points for the year, and gross margin rose 70 basis points in the final quarter, reflecting a combination of favorable product mix and operational efficiency. Cash flow from operations was robust at $621 million for the year, enabling continued investment and shareholder returns.
Segment performance was led by Communication Networks and Cloud-AI Infrastructure, which grew 17% year-over-year and now comprises 38% of annual revenue. The IMS (Integrated Manufacturing Solutions) segment generated $1.68 billion in Q4 revenue, up 3.3%, while DPS (Diversified Products and Services) grew 7.3%. Notably, gross margin in the higher-value CPS (Component Product Solutions) segment reached 14.5%, up 90 basis points, highlighting progress in margin accretive areas. Inventory management also improved, with inventory turns rising to 6.7 times.
- Cloud-AI and Communications Outperformance: These markets now represent 41% of Q4 revenue, with strong demand for high-performance switches and storage.
- Improved Cash Generation: Free cash flow for the year was $478 million, underpinned by working capital discipline and improved inventory turns.
- Shareholder Returns Continue: Sanmina repurchased $113.7 million in stock, maintaining $239 million authorized for future buybacks.
The company’s balance sheet remains a strategic asset, with $926 million in cash and a net cash position prior to the ZT Systems closing, providing flexibility for integration and further investment.
Executive Commentary
"Most importantly is that we positioned our company for a better and stronger future. In summary, our consistent execution is driving financial performance."
Yuri Sola, Chairman and Chief Executive Officer
"We expect ZT. We guided on a combined basis but said that ZT's in line with Sanmina. So, yes...we expect both sides of the business to be within that 5.6 to 6.1 range."
John Faust, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. ZT Systems Acquisition: Transformative Scale and Capability
Sanmina’s $2.05 billion acquisition of ZT Systems, data center infrastructure specialist, marks a strategic pivot toward cloud and AI infrastructure. The deal brings a $5–6 billion annual revenue run rate, aligns with Sanmina’s margin profile, and unlocks end-to-end system integration capabilities, from design to full-stack deployment. Management emphasized the retention of ZT’s founder and team, ensuring continuity and deepening engineering talent for accelerated compute and AI solutions.
2. Margin Expansion and Mix Shift
Margin improvement is being driven by operational discipline, product mix, and a shift into higher-value segments such as CPS and cloud-AI infrastructure. The company targets further margin gains, with a long-term operating margin goal of 6–7% (up from the current 5.7%), leveraging scale and technology investments. Integration of ZT’s advanced engineering and Sanmina’s manufacturing footprint is expected to create additional cost and efficiency opportunities.
3. Diversified End Market Exposure
Sanmina’s revenue base remains well diversified, with no single customer over 10% and the top 10 accounting for just over half of sales. Industrial, energy, medical, defense, and automotive segments collectively contribute 62% of annual revenue, providing resilience against sector-specific volatility. Management flagged new program wins in automotive and medical, and a robust pipeline in industrial and energy, supporting high single-digit legacy growth targets.
4. Balance Sheet and Capital Allocation
The company’s strong balance sheet enabled attractive financing for the ZT deal, with a new $2.8 billion term loan package and an upsized $1.5 billion revolver. Sanmina remains committed to investment-grade leverage (targeting net leverage of 1–2x), ongoing share repurchases, and disciplined capital investment (CapEx guided at 1–2% of revenue).
5. AI and Cloud Opportunity Pipeline
Management highlighted a multi-year growth runway in cloud and AI, with new programs set to ramp in the second half of fiscal 2026 and beyond. The integration of ZT with Sanmina’s Viking Enterprise Group and expanded engineering resources positions the company to compete for next-generation data center architectures, including liquid cooling, custom memory, and optical modules.
Key Considerations
Sanmina’s strategic context has shifted considerably with the ZT Systems acquisition, compressing its timeline for scale and increasing exposure to secular growth markets. The integration and execution risks are now front and center, with management’s ability to deliver on both growth and margin expansion under heightened scrutiny.
Key Considerations:
- ZT Integration Pace: Smooth assimilation of ZT’s team, systems, and customer relationships will be critical to realizing the projected revenue and margin benefits.
- Legacy Business Growth: High single-digit growth targets for legacy Sanmina rely on continued strength in industrial, medical, and defense, as well as recovery in automotive.
- Cloud-AI Pipeline Visibility: Management sees a strong backlog and new program ramps in calendar 2026–27, but execution on design wins and delivery will determine realized upside.
- Capital Allocation Discipline: Maintaining investment-grade leverage and balanced capital returns is key as debt levels rise post-acquisition.
Risks
Integration risk is elevated, given the scale and complexity of the ZT Systems deal, with potential for operational or cultural missteps to impact performance. Macro headwinds, including tariffs and geopolitical factors, could disrupt supply chains or demand in key end markets. The company’s exposure to cyclical sectors like automotive and technology adds volatility, while aggressive growth targets increase the risk of execution shortfalls or working capital strain.
Forward Outlook
For Q1 2026, Sanmina guided to:
- Revenue of $2.9–3.2 billion (implying 52% YoY growth at the midpoint, including ZT Systems)
- Non-GAAP operating margin of 5.6–6.1%
- Non-GAAP EPS of $1.95–2.25 (midpoint up 46% YoY)
- CapEx of $85 million and depreciation of $45 million
For full-year 2026, management signaled:
- Legacy Sanmina targeting high single-digit revenue growth
- Combined company on pace for $14.5–14.6 billion implied revenue, with a path to $16 billion by fiscal 2027
Management highlighted:
- Strong AI and cloud program pipeline, especially for the second half of fiscal 2026 and into 2027
- Continued focus on margin expansion and capital discipline
Takeaways
Sanmina’s strategic pivot to cloud and AI infrastructure, catalyzed by the ZT Systems acquisition, marks a new era of scale and ambition.
- ZT Systems is the Growth Engine: The acquisition brings immediate scale, deeper cloud-AI capabilities, and a multi-year growth runway, but will test management’s integration and execution prowess.
- Legacy Segments Remain Foundational: Ongoing growth in industrial, defense, and medical provides balance and resilience, supporting the company’s diversified model.
- Execution on Integration and AI Ramps is Critical: Investors should monitor management’s ability to deliver on margin targets, program wins, and capital returns as the company enters its next phase.
Conclusion
Sanmina’s Q4 capped a transformative year, with the ZT Systems acquisition setting the stage for outsized growth and margin expansion in fiscal 2026 and beyond. The company’s execution on integration, AI and cloud program delivery, and capital discipline will determine whether it can fulfill its ambition to double in size by fiscal 2027.
Industry Read-Through
Sanmina’s accelerated scale-up in cloud and AI infrastructure signals intensifying competition—and opportunity—across the electronics manufacturing and data center supply chain. The company’s end-to-end integration model, from design to full-stack deployment, raises the bar for peers and highlights the growing importance of engineering and system-level expertise. As hyperscale demand and AI workloads proliferate, contract manufacturers and component suppliers with advanced integration and global reach are likely to see increased demand and pricing power. The move also underscores the need for balance sheet strength and disciplined capital allocation as scale and complexity rise across the sector.