TTMI Q3 2025: Data Center Sales Jump 44%, AI and Defense Drive 80% of Revenue
TTM Technologies posted a breakout quarter, with AI and defense end markets now comprising nearly four-fifths of total sales. New CEO Edwin Rox signaled continuity on strategic priorities and a sharpened focus on high-complexity electronics, while operational execution delivered both top-line growth and robust cash generation. The company’s expansion initiatives in Penang and Syracuse remain on track, but margin headwinds from new capacity and a softening auto segment warrant close monitoring as the business leans into secular tailwinds.
Summary
- AI and Defense Now Core Revenue Engines: 80% of sales tied to sectors with structural growth tailwinds.
- Penang Ramp Still Pressuring Margins: New Malaysia facility drives costs, but management expects improvement.
- Strategic Review Underway: CEO signals growth focus and R&D investment for next phase.
Performance Analysis
TTMI delivered a standout quarter with sales up 22% year over year, driven by surging demand in both data center and aerospace and defense (A&D) markets. Data center computing grew 44% YoY, now representing 23% of total sales, as generative AI adoption accelerates infrastructure upgrades. A&D, at 45% of sales, hit a record high as defense budgets and program alignment provided visibility and backlog stability. Medical, industrial, and instrumentation (MII) also posted 22% YoY growth, supported by robotics and test equipment demand.
Gross margin dipped slightly to 21.5% (non-GAAP), reflecting ongoing ramp-up costs at the Penang, Malaysia plant, which is central to TTMI’s China plus one diversification strategy. Cash flow from operations was robust at $141.8 million (18.8% of sales), supporting both ongoing capital investment and balance sheet strength. Automotive, at 11% of sales, continued to contract due to inventory corrections and weak demand, while networking saw 35% growth, reinforcing the AI-driven product cycle.
- AI Demand Shift: Data center and networking segments are capturing secular AI infrastructure spend, with management expecting further acceleration into Q4.
- Margin Headwinds: Penang ramp cost TTMI 195 basis points in Q3, but this is expected to ease to 160 basis points in Q4 as yields improve.
- Backlog and Visibility: A&D backlog remains stable at $1.46 billion, with a 90-day commercial backlog of $610 million supporting near-term revenue confidence.
TTMI’s mix shift toward AI and defense is structurally improving its growth profile, but the margin impact from new facilities and a shrinking auto segment will shape near-term results.
Executive Commentary
"At TTM Technologies, we believe the future of electronics lies in speed, reliability, and integration... We continue to move up the value chain into highly complex modules and subsystems that combine sensors, actuators, RF, and photonics for markets where reliability and performance matter most."
Edwin Rox, President & Chief Executive Officer
"Gross margin in third quarter was 21.5% compared to 22% in the third quarter of 2024. The year-over-year decrease was primarily due to ramp-up costs in connection with our fabrication plant in Penang, Malaysia."
Dan Bailey, Chief Financial Officer
Strategic Positioning
1. AI and Defense as Growth Anchors
TTMI now derives approximately 80% of its sales from end markets with strong secular tailwinds: AI infrastructure and aerospace/defense. The company’s focus on complex, high-layer printed circuit boards (PCBs, core enabling substrates for electronics) and integrated electronics aligns with the technical requirements of both sectors. Management expects these trends to persist, with further upside as AI workloads drive new product cycles.
2. Penang and Syracuse Facility Expansion
Penang, Malaysia is central to TTMI’s supply chain diversification and capacity growth—part of its China plus one strategy, which reduces geopolitical risk and supports customer demand for non-China sourcing. While ramp costs have pressured margins, management is prioritizing yield improvement and customer qualification, with five customers in process. Syracuse, New York’s ultra-HDi PCB plant remains on schedule, with volume production expected in 2026, targeting advanced U.S. defense and data center requirements.
3. R&D and Product Complexity Leadership
CEO Rox emphasized a renewed commitment to R&D, aiming for leadership in high-density, multi-layer board technology (with demonstrations up to 87 layers), advanced micro-via processes, and heterogeneous integration. These investments are designed to keep TTMI at the forefront of next-generation electronics packaging, which is increasingly critical as chip complexity and integration demands rise.
4. Balanced Global Capacity and Customer Mix
Management highlighted a well-balanced manufacturing footprint between North America and Asia Pacific, with leading share in U.S. PCB manufacturing and a top-three position in global data center PCBs. This geographic balance supports both commercial and defense customer requirements and enables TTMI to flexibly serve evolving demand patterns.
Key Considerations
TTMI’s Q3 performance underscores both the opportunity and complexity of scaling into high-growth, high-complexity end markets. The company is executing on its expansion roadmap, but investors must weigh margin trade-offs and the durability of secular demand.
Key Considerations:
- AI Infrastructure Pull-Through: Data center and networking growth is directly tied to generative AI investment cycles, which can be lumpy but are currently in a strong uptrend.
- Defense Backlog Stability: A&D backlog and long-cycle program bookings provide multi-quarter revenue visibility, partially insulating TTMI from macro shocks.
- Penang Ramp Execution: Margin headwinds from new Malaysia capacity are expected to moderate, but sustained improvement depends on yield and customer qualification progress.
- Auto Weakness Offsets Growth: Automotive segment softness is expected to persist, with inventory adjustments and demand weakness reducing its share of sales.
- R&D as Differentiator: Increased R&D investment is positioned as a lever for long-term margin expansion and product leadership in advanced PCB and subsystem markets.
Risks
Key risks center on the pace and profitability of capacity expansion, particularly in Penang, where yield and customer ramp remain variable. Auto end market softness may persist, and macroeconomic or geopolitical shocks could disrupt demand in commercial and defense sectors. Execution on R&D and new product ramps will determine whether TTMI maintains its technical edge as complexity increases.
Forward Outlook
For Q4 2025, TTMI guided to:
- Net sales of $730 to $770 million
- Non-GAAP EPS of $0.64 to $0.70 (includes Penang ramp costs)
For full-year 2025, management maintained a growth and margin focus, reiterating:
- Continued investment in Penang and Syracuse expansions
- R&D spend at approximately 1% of sales
Management highlighted strong customer interest in Penang, ongoing backlog strength in defense, and an expectation that AI-driven demand will remain robust into 2026.
- Yield improvements in Penang are a top operational priority
- Visibility in data center extends 6-9 months, supporting near-term confidence
Takeaways
TTMI’s mix shift toward AI and defense is driving both growth and improved revenue quality, but the company must navigate margin headwinds from new capacity and a shrinking auto segment. Execution on Penang ramp and R&D-driven product leadership will be critical for sustaining its competitive advantage into 2026.
- Secular Demand Tailwinds: AI and defense now anchor the business, providing backlog and visibility but requiring continuous innovation.
- Margin Watchpoint: Penang ramp costs are moderating, but investors should monitor yield and customer qualification progress closely.
- Future Focus: Track R&D output and advanced product wins as indicators of TTMI’s ability to maintain leadership in high-complexity electronics markets.
Conclusion
TTMI’s Q3 marked a decisive pivot toward high-growth, high-complexity markets, with execution and R&D investment positioned as the keys to long-term margin and revenue expansion. The company’s backlog and cash generation provide a solid foundation, but near-term results will hinge on Penang ramp progress and the durability of AI and defense demand.
Industry Read-Through
TTMI’s results reinforce the broader electronics industry shift toward AI-driven infrastructure and the ongoing re-shoring and diversification of supply chains. PCB and electronics manufacturers with advanced technology capabilities and exposure to defense and AI markets are best positioned for growth, while those reliant on automotive or low-complexity commercial markets may face persistent headwinds. TTMI’s China plus one strategy and U.S. manufacturing expansion signal a long-term trend toward geographic risk mitigation, which is likely to be echoed across the electronics supply chain as customers demand flexibility and resilience. R&D-driven differentiation is becoming a prerequisite for margin expansion in a market increasingly defined by complexity and integration.