Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sanmina Corp (SANM, Financial) reported third-quarter revenue of $1.84 billion, in line with their outlook.
- The communications networks and cloud infrastructure end market grew 8.3% sequentially.
- Non-GAAP earnings per share came in at $1.25, meeting expectations.
- Sanmina Corp (SANM) has a strong balance sheet with $658 million in cash and no outstanding borrowings on their $800 million revolver.
- The company has a book-to-bill ratio of 1.1 to 1 over the last two quarters, indicating strong bookings driven by new programs.
Negative Points
- Non-GAAP gross margin was 8.5%, slightly below the midpoint of their outlook and down 40 basis points sequentially.
- Non-GAAP operating margin was at the low end of their outlook at 5.3%, down 10 basis points sequentially.
- The industrial and automotive end markets experienced declines, partially offsetting growth in other areas.
- Two programs in the CPS segment faced short-term delays, impacting revenue and margins.
- Inventory levels remain high, with a slower-than-expected reduction, affecting cash flow and operational efficiency.
Q & A Highlights
Q: Can you give us more details on the communications end market, specifically within optical, wireless, and networking? What did you see in the third quarter, and what are your expectations for the fourth quarter?
A: Communications and cloud infrastructure grew approximately 8% quarter-over-quarter. We expect this market to continue to move in the right direction, driven by high-performance network cloud, IP routers, switches, and optical packaging systems. Some of these are new programs, and we are starting to see a pickup from existing customers as they work through their inventory.
Q: What caused the push-out of the two programs in CPS, and what was the dollar impact? Which end markets were those programs in?
A: The push-out was due to issues with components and product group coordination, which have since been resolved. If not for this, we would have been slightly above the midpoint of our revenue guide and EPS. The programs were in the CPS products group, and we expect them to ship in Q4.
Q: Was the sequential decline in CPS margins entirely due to the two programs, or were there other impacts?
A: The majority of the impact was due to the two programs, which accounted for about a point to the margin decline. Without these issues, CPS margins would have been down slightly overall.
Q: What are your expectations for the different end markets within the IMDA segment for the fourth quarter?
A: We expect continued softness in automotive and industrial markets. Medical is expected to be flat to down, mainly due to lingering effects from COVID-19. Defense and aerospace demand remains strong, and we are expanding our high-technology military boards and system assembly capabilities. Overall, we expect the IMDA segment to be flat or slightly up.
Q: Can you provide more details on your inventory management and how much better you can do?
A: We are currently at 4.9 turns, or about 75 days. We aim to get back to the mid-60s in days and around six turns. This improvement will come from both internal efficiencies and better demand recovery from customers.
Q: Can you elaborate on the book-to-bill ratio of 1.1 for the last two quarters? What is driving it, and how much of the bookings are longer-term versus near-term revenue?
A: The 1.1 book-to-bill ratio is driven mainly by new programs. We only count bookings that are released to build within two to four quarters. Existing customers developing new programs and new wins are contributing to this positive trend.
Q: Given the current inventory headwinds and push-outs, what should we expect for top-line growth in fiscal year 2025?
A: We expect positive growth in FY25 based on key customer forecasts and market trends. While we are not ready to provide specific percentages, we are optimistic about the opportunities ahead and expect to provide more detailed guidance in the first quarter of FY25.
Q: Can you clarify the impact of the two programs on your Q3 results and your expectations for Q4?
A: The two programs impacted our Q3 results by about 1% sequentially. For Q4, we are guiding revenue between $1.9 billion to $2 billion, which represents a 6% sequential increase. We expect to see continued improvement in customer inventory levels and demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
