Morning, everyone. Good afternoon to those listening in Europe. I'm David Vogt. I am the Hardware Networking Analyst here at UBS. Thank you for joining the UBS Tech Conference. We're excited to have Sanmina here. Jure Sola, Chairman of the Board, Chief Executive Officer. In the crowd is Paige from Investor Relations. I f anyone has any follow-up questions, you can reach out to Paige. Jure, thank you for joining us today.
David, it's good to be here.
I think before we get started, I think you have a brief--
Yeah, just for everybody on this call, I'd just like to remind you to please look at our risk filings, latest with SEC, and after that, we can talk about anything you're interested in.
Perfect. I thought it would be helpful, since the business has sort of transformed fairly recently, if we could maybe have some sort of quick historical context of, you know, the traditional Sanmina EMS business.
Yeah.
Where we were, where we are today following the ZT Systems transaction with AMD. Maybe we'll start there and then we'll dig deeper into each of the sort of the individual segments.
Yeah. For those of you that are not familiar with Sanmina, I'm one of the Co-Founders. We started the company 45 years ago. We have approximately 40,000 people now with ZT. Really excited about acquisition. Company always focused on mission-critical type of products. We are known for building a high-technology stuff that has to work for many, many years. It's not a throwaway product. As we looked at the expansion into AI, when ZT became available and AMD decided to find a real partner, it wasn't just a sales job and, you know, to pick it up, but it was, you know, a strategic move on our part, and I personally believe it was strategic for AMD to find the right partner to be able to work with them and get their product to the market, so personally, very, very excited.
Yes, definitely, this will transform the company. We see a lot of upside potential. I think our core business will continue to do well. We had a great 2025. We're excited about 2026. And most importantly, I think we'll have a lot of growth.
Great. So maybe we'll dig into kind of the strategy. So when you looked at your portfolio prior to the availability of ZT Systems, you know, what made ZT Systems attractive to your current portfolio? Right? So it's kind of a new, it's not a new vector per se, but it does deepen your relationship and ties into sort of the data center AI market effectively. So when you looked at ZT Systems specifically, what drew you to that asset and what's the strategic justification for, you know, taking that portfolio into in-house effectively?
Yeah. If you look at our capabilities, they're more focused on a high end, and we've been looking to expansion into the more cloud business. We already, if you look at our cloud telecommunication business in the last few years, about 40% of our total revenue, and very solid customer base in that market, but in the last couple of years, we saw a lot of opportunities for growth in the data center, and we start building this on our own, and our model is really taking our customers all the way from engineering point of view, all the way through subsystem to the full system, so strategically, when ZT became available, it really gave us a step up. Instead of building ourselves, taking it especially when it comes to the power and so on, it takes a couple of years just to get the power alone.
ZT had capacity, not just the capabilities, but they had a capacity. AMD's been investing in a critical technology for the future. A s I said earlier, it really just made a lot of sense for us. W e worked very hard on this one. We convinced AMD we got the best capabilities, which I think we do. And we have a great customer base. And as AMD talked to our customers, they also supported us, basically saying, "Sanmina's the best partner for the future." So strategically fits. We're excited about it. It's in front of us. A lot of work left, though. But besides that, it's fun.
How does, -- obviously now you have more. You had high-end capability. Now you go from subsystem to full system. So when you go out and you speak to potential partners and customers, how does that change sort of the dynamic of Sanmina a year ago or 18 months ago versus today? Like, what do those conversations look like? And how have they changed to the extent that you're driving, you know, potentially deeper, more meaningful relationship with these cloud partners effectively?
Yeah, so let me make sure that we will not forget our other markets too. Because other markets are very critical to us. We wanna be a diversified company from industrial, medical, defense, and then, you know, communication and cloud. Cloud for us, we have a better story today. We have a complete story, which we can take end to end. That's what especially hyperscalers are looking for. With the right partner like AMD, it now exposes us to all those critical projects. In addition to AMD product, we also, as we talking to the hyperscalers especially, they say, "Well, we only wanna use other AI in the future. And what can you?" So Sanmina, ZT Systems, is set up to basically be able to handle all of these things. Our message to them, we're a strong company. We're stronger today.
I think putting Sanmina plus ZT together, it puts us basically as a leader right now in North America, AI manufacturing.
So, given the full solution that you currently have, you know, we get asked although we don't cover the company, but we get asked questions about how you stack up from a capability perspective to some of the other EMS ODM companies in the marketplace, whether it's U.S. domestic, you know, out of Asia. Maybe if you can help Jure compare and contrast, you know, how you see yourself positioned in this new or maybe not new, but expanding opportunity within data center vis-à-vis some of the competitors in the marketplace today.
ZT acquisition puts us in a leadership role in North America, so and also the partnership that we're building that they already had. I mean, you know, to build a company, it's easy to build a building. It's easy to buy equipment, but it takes people. ZT's been in business for well over 10 years. They built this company from bottom up. We're keeping the whole management. We're putting one individual over, from Sanmina's side to, you know, integrate this long term, so we have a great team. We've got great capabilities, and we can do it today, and that is our competitive advantage.
I think having, being a NPI partner for AMD really opens the door for us in these new capabilities that we can bring that right solution for our customer, which is a big competitive advantage for us over our global competitors and also the local competitors.
So you brought up the NPI relationship with AMD. Maybe just for clarity, can you talk to how the relationship with AMD today is structured post the deal closing? Right? So obviously, AMD and ZT was a completely integrated solution. Obviously, that's not the case anymore. H ow does your relationship with AMD evolve? And what does that mean for your ability to work with other partners outside of the AMD ecosystem?
Yeah. So for AMD product, we are fully integrated, you know, because the whole old engineering team of ZT's still with us for AMD under AMD logo. And all the manufacturing is under Sanmina logo. Okay? T ogether, nothing really changed. Their engineering team is operating from the same buildings as we are. So that we're working very close together on their product. In the model that we have, we are allowed to also work with other suppliers, in this case around AI. And Sanmina always had a small team of engineering in the ODM side of the business. And now we are expanding. And we're working very close with ODM and hyperscalers where we need to add more talent. But that's our long-term goal.
Right. So but there's nothing in the agreement that precludes you from working with other partners going forward.
That's right.
It's not exclusive to AMD. I think that's just an important point of clarification.
Yeah. Think about Sanmina is that we are an extension of our customers. That's the way we build a company. Our business is really protect our customers. And our obvious relationship with our customers is well over 20-25 years. Our reputation is we're not perfect, but we're transparent. And we get the job done.
Got it. And so, you know, we get this question all the time. Obviously, it's a fairly big deal. It was a fairly large deal for you.
Yeah.
How do we think about the key outside milestones that we should monitor, whether it's strategic wins with potential customers? Is it financial? I know John's not here, but is it financial metrics that we should look at over the next 12, 24, 36 months? You know, leverage targets coming down, strategic wins. Like, what are you most focused on and what should we monitor to, you know, to highlight that this has been a successful deal and being integrated, you know, well at this point?
We have to deliver results. I'm a firm believer, we can talk all day long. I grew up on a farm till cows come home. How do they say that? You have to have results. For us, number one is understanding, end of the day, what our customers want. And together with AMD and other partners, that is the key focus is there's about 10 key customers that we're going after. And good thing is that we know who they are because we've been doing business with them at the board level, mechanical level, you know, liquid cooling level. And now we're taking it to the next level. I think building that relationship with those key end customers is for us, that's the most important part. Build everything around the customer. And then it's execution.
I think, as investors, we have to deliver what we said. We not gonna go after just a business just for a business sake, just to look good for short term. We're building business for a long term. As you asked the question earlier, this will transform the company. But we got to make sure that's getting repeated every year. You know how the market is. We're just as good as what we ship next month.
That was gonna be my follow-up question. I'm glad you brought that up. When you talk about winning or landing and expanding with existing relationships, you know who these customers are already.
Yeah.
You know, there's a lot of concern in the marketplace, not around Sanmina, but in the general marketplace about profitability, profitable growth. In the infrastructure side of the market. H ow should we think about you just mentioned, I think you just kind of offhand said, "Look, we're not chasing business for the sake of chasing business." Are there sort of critical return thresholds, return on capital thresholds? Like, how are you thinking about, like, "Hey, I have customer A. We've worked with them in the past for 10 years, 15 years. They want me to do this, but this doesn't necessarily sort of equate to what we had envisioned when we took ZT Systems in from a profitability perspective or a margin perspective"?
First of all, what we build is a very, very difficult technology to build. This is not something you build today and you can transfer it to somebody else and they can build it tomorrow. F rom our customer's point of view, they wanna choose the right partner they can depend on for many, many years. I t comes to quality, time to market, and is it repeatable? Okay? So that is the key for the margin. This requires a major investment. As you know, the power alone, when some of these hyperscalers come to us and says, "Jure, in order for us to do business, we need 50 MW of power. We need 100." Some of them say, "We need 150." That costs money.
You have to have a right return. We guided the Street in the last quarter that we see short term, our last year we delivered on the Sanmina legacy business around 5.7%. Fourth quarter, we delivered 6% operating. We guided the first quarter between 5.6% and 6.1%. We feel comfortable with what we guided. And we said longer term, we think we can get operating margin 6%-7%. And we still feel good about that. And our model allowed us to do that, you know, being vertically integrated and be able to supply some of these critical components. Like, for example, we are a major supplier today to a lot of hyperscalers and mechanical enclosures, including liquid cooling and so on. W e know how they operate. And as much as they always beat you on a price, that's just a normal thing.
They also need results. And in order to get results, you got to hire good people. And without good people, you're gonna fail. I think Sanmina has good people. And we think we'll be able to stay. And this industry has to improve the margin. Otherwise, there's no way we can continue to invest in this business.
As you incorporate more ZT Systems and you target more expansion opportunities, and you mentioned margin targets longer term, 6%-7%.
Yeah.
How do we think about what's embedded in your upcoming quarter and next fiscal year margin from the ZT Systems investment? Like, are, are ZT Systems effectively revenue coming in at a lower margin 'cause of the investment cycle to build and ramp that capability for the long term versus the rest of your business? And then how do we think about, you know, over time, our margins by segment, if you will, comparable across, you know, defense, industrial, cloud, data center?
Yeah. Basically, what we said and we basically told investors we're gonna talk a little bit more in January. You know, as we just acquired ZT. So we're talking to our end customers. W e'll know a lot more in the next few months what the world going. But we believe what we see today that Sanmina's ZT operating margin for the existing business will be very similar to Sanmina legacy business, which in that, you know, around 6%. Let's just call it 6%.
That's standalone today when you're talking about.
Yeah, standalone . If you look at the longer term, the more product the more difficult the product there is, more risk in it as you build it, you should be able to make a little bit better margins on that stuff. And as long as we apply our model from engineering to board level to mechanical level, EMS level, integration level, I think we'll be able to generate equal or better margins in the future.
So when you say risk in that equation, does that mean IP or just complexity? Like, you own some of the IP or is it just the complexity of the solution makes it riskier effectively and therefore you can get more value through price for that offering?
It's more complexity.
Okay.
T he more complex product you build, you should be able to make a little bit better margin. Otherwise, you want the consumer. We don't build consumer product. E verything that we build. It has, you know, it has to last for more years. And it's even a data center. These data center guys, they wanna plug and play. Just like when I get a phone and you get a phone, you wanna bring it home, you plug it in and it works. On these multi-million dollar deals, I mean, racks, they wanna do the same thing. T he companies that can deliver the high yields, they typically will let you make a little bit more money. Because they're afraid to change. This is not something you can move with like a consumer product.
And then along those lines, do you see where you sit? I know it's early days. The deal just closed. But do you see yourself as sort of a primary lead supplier in some use cases or a secondary source supplier depending on the customer, the opportunity? You know, in a lot of different environments, there's always sort of the initial partner that you know, EMS, ODM partner that has you know, 60%, 70%, 80% of that particular opportunity set. Like, how do you think about where you fit in given that for all intents and purposes, you're kind of the newish player fairly recently in this space in a full complete solution?
Yeah. First of all, if you look at our legacy business, we're not used to playing second.
That's why I'm asking. Right? It's like a little change--
We are primary supplier to a lot of these critical customers. I can't talk about all of them, but I'm sure your analysts here know my customers for a long time. They've been with us a long time. These are customers, the main, you know, high quality, a lot of flexibility, and trust. Trust in this technology is very important. I think that in the hyperscalers around AI, especially some of these newer technologies, I think there's too much focus on price. I'm telling you, difficulty of that price, the companies who can deliver performance, quality, and flexibility will deliver respectable margin. Trust me, my goal is not to be secondary but primary supplier. I think we will be on some of these technologies 'cause we are playing at a new product. You have to play as an R&D and new product introduction.
Because once you establish yourself and you show to your customer that you can perform, your product is working, and you can now tell them you can deliver thousands of these in next 6 months or 12 months, and you have all the capabilities, they don't wanna take any risk. They're gonna stay with you.
Got it. Okay. So, pricing, you feel it feels like price is not a lever to be used against the EMS partners by the hyperscalers given what should be increasing complexity for solutions over the foreseeable future. Right?
Yeah.
It's things are only gonna get more power consumptive, more technologically challenging, topology challenge. That's where the value add comes in from your perspective.
Yeah. For us, it's to create more value. You know, you have to provide a solution. At the end of the day, they're not gonna pay you extra money because, you know, you are a supplier. They're gonna pay you extra, if you give them a, you know, in better support, better quality, better time to market, all the basic things. This ZT or AI is nothing new to us. We've been doing this for 45 years. Okay? So but it's all about execution. That's what I said at the beginning, how you're gonna judge us. Our customers judge us based on execution. Our investors should do the same thing.
Got it. So when you think about this business, you know, I think industrial has its own sort of GDP-like growth cadence with some multiple or spread upon that. Other markets have their normal, I think, cyclical cadence too. How are you thinking about what this could mean for the longer term growth trajectory of the business? So if we think out, and I'm not gonna put your feet to the fire next year, but obviously the end markets are growing meaningfully faster than your other verticals that you've been really strong in over the last, you know, 30 to 40 years. Is that kind of one of the reasons why this is so attractive to you that it adds sort of a layer of vertical market growth that you just don't see in the core portfolio today on a broad-based basis?
Let me first of all talk about our core legacy business for a second. We said it on our last call, we're gonna grow that high single digits. Let's call that 6%-10%. Okay? We feel very confident about that other business. I think this AI business, you know, I don't know what's gonna happen five years from now, but I can tell you based on what I'm hearing from the key customers.
Right.
In the next two, three years, the numbers are crazy. Okay? I think the key for us is that to make sure we execute to those requirements. So demand, I don't think will be an issue. But back to what it does for Sanmina is basically it give us opportunity, as we said it on a call, when we started working on this deal and we got to know end customers, we felt that, "Hey, we can double the company." You know, think like rule of thumb from 16 to, I'm sorry, from 8 million to 16 million in the next three years. But as we went through the time and we start talking to these customers and so on, on the last call, we said, "I think we can do this in two years." W e feel that we have a better visibility today, what's in front of us. You know, I think if you wanna look at what's gonna happen in 2028, and if we believe in those numbers, then we shouldn't lose any sleep over. It's all about execution.
So can you level set then? So you said, you know, originally the goal was we can grow double this business in three years. Now it sounds like, you know, two years. But can you remind us again post the sale, post the closing of the transaction, what the revenue run rate that you acquired at ZT Systems is today given the moving pieces around the transaction?
Yeah. We basically it's right now we said in, you know, we only have it for 11 months. So it's like a rate for 11 months, 5.5-6. You average it out for 11 months, comes about 5.7. So we think there's more upside and downside to that number right now. And but we're really not focused on that. We're really focused on, you know, end of the 2026, you know, our fourth quarter of fiscal year 2026, first quarter of 2027, and then calendar year 2027. That's where the bigger part.
But that 5.5-6 accounts for the adjustment. Right? When you originally bought the deal, I think there was a discussion of like how much revenue is sticky staying with the business and how much doesn't make sense to stay with what you acquired and is.
Right.
So that's the appropriate thing--
Yeah. That's this is the latest number. Actually, some of the business, when AMD decided to sell ZT, you know, a couple key customers were saying, "Well, who's gonna buy it? We don't know. We feel that after our meetings, when they realize we're buying it, we already had a relationship with this company, that, that relationship is a lot more stable t oday. And we executing well. And, you know, I always believe, you know, as long as I execute, there's no reason for customers to leave.
Okay. Just wanted to level set. Can we talk about supply chain?
Yeah.
The rest of your business. Maybe just pivoting away from infrastructure AI. You know, supply chain has a lot of challenges historically over the last two to three years. It doesn't seem to go away. Maybe kind of talk about how you're thinking about, you know, where your supply chain is today, where it needs to be. Obviously, tariffs were an issue back in April, maybe a little bit less so today. But has that driven the need for more reshoring, onshoring, Mexico, U.S.? You know, how are you thinking about how you're positioned and what your strategy is for the core business?
Yeah. So first of all, Sanmina, when it comes to supply chain structure, we run everything on one IT system. Now, ZT has another system. We'll eventually integrate ZT into Sanmina, one global IT system. So our supply chain is global and regionalized. So the world is going to regional manufacturing. You know, it's already. It doesn't matter who the president is, doesn't matter what happens in North America or what happens in Europe. The world is going to region. World is a lot more political than what it was 10 years ago. W e're going to regional. So what do we do? We have to, you know, we set ourselves to be that global company that can support regional customers and then give them a global solution. So, if you look at what's happened, we learned a lot during the COVID.
I'm telling you, that was as much as that was confusing but also taught us a lot of lessons 'cause all the shortages that we had and so on. We see the lead times are starting to go out right now, so we are working with our customers today. Basically, if you need these numbers, we got to do the planning. In our model, we just can't. We just don't go out there. Our industry doesn't go out and buy a bunch of material that we don't know who's gonna buy. So the material that we buy is always 100% guaranteed by a customer. We don't buy anything on a risk unless it's approved by a customer or they do prepay. So the supply chain for us is very, very, very critical. It's the stuff where we spend a lot of energy on a daily, weekly basis.
But Sanmina has one of the state-of-the-art, you know, best capabilities, in the world. I mean, we can compete with anybody when it comes to the IT.
What's pushing lead times to the right? I know there's a lot of supply chain variability and availability of substrates and memory and other, you know, proverbial golden screws out there. But like what are you seeing in your business from a customer perspective that they need that maybe is a little bit more challenging to procure today than maybe six months ago?
Well, maybe you got to go back to 2022 and 2023, what happened there. You know, there was a lot of demand. There was a lot more orders out there that were not real. Okay? So when it came to 2024, we went to what we call transitional year. We had to work inventory down. At the same time, a lot of these people in these components, they didn't invest. They didn't know what was going on. I would say 2025 was, "Hey, wait a minute. We don't have enough capacity." And if you look at the memory, it's crazy right now. I mean, it comes to connectors, it comes to circuit boards, it comes to a lot of these.
Yeah. PCBs. Yeah.
Yeah. So a lot of these things right now, it's I think, you know, semiconductor, I mean, they're starting to recover now, maybe now because. They really didn't invest. With AI driving the demand, you can see right.
Is there a risk though?
I'm not an expert in--
No, no. Right. I know. But is there a risk? Like, so if PCBs are in short supply, memory's in short supply, there's a lot of things in short supply, and there's not a lot of capacity coming online that you pointed out that, you know, supply chain didn't know what to do. Even now, I think the supply chain doesn't know how confident or comfortable they should be about adding capacity. And so as you tell your partners, "Hey, you better order 18 months in advance instead of 12," is there a risk that there is, you know, you have the demand but you can't ship, you can't procure, you can't build, you can't ship? Is that like a risk for the industry, not just for Sanmina but for the industry going forward?
I don't know if there is enough capacity to fill the whole demand. I think overall, shipments are gonna go up. Okay? The question is the supply chain, the subcomponents. Let's put it in, you know, semiconductor, mechanical, circuit board. Are they gonna be able to fill those things in? That's, that's a million-dollar question. But there's a lot better planning. I just had a customer. We had a 15-minute break. Called me up and he says, "Hey, we got this huge order. We do with this customer well over a billion dollars." And they said, "We got this huge order on this one part number." He said, "They want it now, but I need $200 million of that product now." And I know this guy for the last 20 years. I said, "How are we gonna do it?
So but there's a lot of planning. W e, -- you know, of course, we got everybody working, his team working, our team working on it, and we'll find a way. But it's also a good problem to have. I think you got to understand what happened in 2023, 2024, and 2025. I would say when it comes to supply chain, 2023, 2024, 2025 was like a kind of transition feeling what's happening. I think people today are finally getting confidence besides AI 'cause not just AI is driving.
[crosstalk] Right. AI on the more traditional products.
Other businesses are growing too. Medical is starting to expand, you know, because medical was really flat down after COVID. Industrial around power, it's also going crazy. Not just for data center. We just don't have enough power. So that part of the business. Only business that today is kind of a little bit kind of flattish is, you know, automotive around, especially electrical cars. But everything else, it, it seems like it's moving in the right direction.
Maybe in the interest of time, Jure, you know, I like to give companies an opportunity to kind of, you know, discuss why they think the market is wrong or misjudging your business. What is the market missing post the ZT transaction and sort of the transformative deal that it is for your business going forward?
Well, first of all, some of this is our own fault for not probably communicating properly with our investors. Sanmina was a bigger company. And then in 2010, 2011, we decided to get rid of all the consumer and PC business. And when we acquired SCI, you know, most of their business was consumer. At the same time, we had a major restructuring that everything was shut down in the United States and everything went to China, Asia. That restructuring is done. At that time, we kind of pulled back. Let's not chase revenues. Let's just focus on quality of the earnings and so on, which we accomplished that. We had a great balance sheet. So when we acquired ZT, we acquired it from the strength point of view.
I think today they still look at with, you know, with just disdain. I think people don't appreciate what EMS companies do, and there's no big, you know. EMS engineering capabilities are better than ODM capability. They just, ODM focuses on one or two things. We build 1,000 parts. Our capability is a lot more advanced when it comes to supply chain, so I think we, as an industry, not just that, you know, we are a lot more critical to all these technology companies to be successful, so for hyperscalers, we have to execute. Otherwise, they don't create everything. I think for Sanmina, I think we're in a very good position, in a very strong company right now, and, you know, we expect to grow this year comparing to the last year. I know we're including ZT acquisition, well over 50%. I think EPS will grow at least +50%. But we'll tell you a lot more in January.
Great. Perfect.
But we love what's in front of us.
Great. No, I think that's a great synopsis. I think we'll end it there. I think we're out of time. Jure, thank you for your time. Paige, thank you for your time. Thank you, everyone, and have a great day.
Thank you, Dave.