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Sanmina (SANM) is under pressure after reporting its Q1 (Dec) results this morning. The quarter itself was strong, continuing its streak of double digit EPS beats, with this quarter's outperformance wider than the prior two, while revenue soared 59% yr/yr to $3.19 bln, above expectations and reflecting contributions from ZT Systems. The negative reaction stems from Q2 guidance, with EPS of $2.25-$2.55 roughly in line with expectations, while revenue of $3.10 bln-3.40 bln came in below expectations.

• Revenue was driven primarily by strength in communications networks and cloud and AI infrastructure, which represented about 62% of total revenue, along with the addition of ZT Systems. IMS revenue surged 72% yr/yr to $2.79 bln.
• Management expects the strongest momentum to remain in communications networks and cloud and AI infrastructure on AI-driven hardware demand and new program pipeline, while describing the other end markets as stable overall with improving trends expected into the back half of FY26.
• On ZT Systems, management said integration is on track and already EPS accretive, with growth expected to accelerate in the second half on new AI programs and deeper AI data center vertical integration.
• CPS revenue increased 4.3% yr/yr to $434 mln, and non-GAAP gross margin improved 40 bps to 12.9%, though margin was below recent levels as new program investments and transitions came online, which management expects to become margin accretive as ramps progress.

Briefing.com Analyst Insight

The quarter was strong for SANM as it continues to benefit from strong demand for AI driven hardware, which is supporting strength across its communications networks and cloud and AI infrastructure end markets. The ZT Systems contribution provided a meaningful boost to revenue, and management expects growth to accelerate in the second half. The issue is the Q2 guide, which points to only modest sequential revenue growth at the midpoint and is drawing scrutiny given the setup for a full quarter of ZT. Management said it reflects a transition period at ZT and reiterated both the core business and ZT should grow sequentially, but for a stock that has risen sharply, expectations were high and the guide did not satisfy high growth investors. Still, the broader tone stayed constructive, with management pointing to a strong pipeline of new AI programs and expecting momentum to build in the back half of 2026.