Sanmina(US:SANM)2022-05-03 02:08Financial Data and Key Metrics Changes - Q2 revenue reached $1.91 billion, growing approximately 9% from the prior quarter and exceeding the outlook of $1.7 billion to $1.8 billion [14][16] - Non-GAAP gross margin was 8.1%, down from 8.5% in the prior quarter, primarily due to higher direct material costs and annual salary increases [15][16] - Non-GAAP operating margin remained stable at 5%, while non-GAAP fully diluted earnings per share increased by approximately 6% to $1.14, exceeding guidance by $0.09 [16][25] - Cash flow from operations was $79 million, with free cash flow at $52 million, indicating strong cash generation capabilities [21][22] Business Line Data and Key Metrics Changes - Q2 IMS revenue increased to $1.56 billion, driven by strong customer demand, with non-GAAP gross margin for IMS at 7%, down from 7.5% in the prior quarter [18] - Component products and services revenue grew approximately 6% to $390 million, with non-GAAP gross margin increasing by 50 basis points to 12.1% [19] Market Data and Key Metrics Changes - Communication networks and cloud infrastructure accounted for 40% of revenue, growing around 8%, while industrial, medical, defense, and automotive markets contributed 60% of revenue, with industrial growth at 13% [31][32] - Book-to-bill ratio was 1.1, indicating strong bookings and a solid pipeline of opportunities [32] Company Strategy and Development Direction - The company is focused on mission-critical, high-complexity markets, with plans to diversify end markets and invest in talent and technology to support growth [37][39] - Sanmina aims to leverage its strong supply chain capabilities to manage material constraints and drive growth in optical systems, 5G networks, and cloud infrastructure [35][36] Management's Comments on Operating Environment and Future Outlook - Management noted that while customer demand remains strong, supply chain challenges persist, particularly due to COVID lockdowns in China [25][29] - The outlook for Q3 revenue is projected between $1.825 billion and $1.925 billion, with expectations for non-GAAP gross margin between 8% and 8.5% [25][41] Other Important Information - The company has a healthy balance sheet with cash and cash equivalents of $560 million and total liquidity of approximately $1.3 billion [20] - Share repurchase authorization was increased by an additional $200 million, reflecting confidence in cash flow generation [23] Q&A Session Summary Question: Margin dynamics and revenue guidance clarification - Management explained that margins are influenced by product mix and higher direct material costs, with expectations for gross margins to improve in the next quarter [46][47] Question: Impact of regional supply chain shifts - Management acknowledged that customers are moving production closer to end destinations, which could benefit margins in the long term [60][61] Question: Supply chain stability - Management indicated that the supply chain remains challenging but stable, with no major improvements expected in the short term [69] Question: Impact of China lockdowns - Management confirmed some impact from lockdowns but emphasized that they are adapting to the ongoing challenges [72][73] Question: Long-term growth expectations - Management expressed confidence in growth opportunities and plans to invest in technology and products to drive margin expansion [80][81]