Sanmina(US:SANM)2021-05-04 02:06Financial Data and Key Metrics Changes - Q2 revenue was $1.7 billion, meeting the midpoint of the outlook of $1.65 to $1.75 billion [18] - Non-GAAP gross margin improved to 8.6%, primarily due to a favorable mix in the CPS segment [18] - Non-GAAP operating margin remained consistent at 5% despite lower revenues [18] - Non-GAAP fully diluted earnings per share of $1.01 exceeded the outlook of $0.76 to $0.86 [18] - Non-GAAP gross margins have exceeded 8% for the last four consecutive quarters [19] Business Line Data and Key Metrics Changes - IMS revenue was $1.37 billion, declining due to typical seasonality and supply chain constraints [20] - Non-GAAP gross margin for IMS declined to 6.9% due to lower revenue levels and a less favorable mix [20] - CPS revenue grew to $361 million from $319 million in the prior quarter, with non-GAAP gross margin improving to 14.2% [20] Market Data and Key Metrics Changes - Communication networks and cloud infrastructure accounted for 42% of revenue, while industrial, medical, defense, and automotive markets made up 58% [28] - Material shortages impacted revenue by approximately $50 million to $75 million in the second quarter [28] - For the third quarter, approximately 60% of revenue is expected from industrial, medical, defense, and automotive markets, with 40% from communication networks and cloud infrastructure [29] Company Strategy and Development Direction - The company is focused on delivering competitive advantages through industry-leading end-to-end technology solutions [32] - Management is prioritizing profitable growth and operational efficiencies to improve margins [31][34] - The company aims to navigate supply chain challenges while positioning itself for future growth [25][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating supply chain constraints and COVID-related challenges, emphasizing strong customer demand [25][27] - The outlook for Q3 revenue is expected to grow to between $1.675 billion and $1.775 billion, with non-GAAP diluted earnings per share projected between $0.84 and $0.94 [23][24] - Management highlighted the importance of material availability for achieving growth targets [41] Other Important Information - The balance sheet remains strong, with cash and cash equivalents increasing by $59 million to $575 million [21] - Free cash flow for the quarter was $67 million, contributing to a total of $117 million year-to-date [21] - Non-GAAP pretax return on invested capital was reported at 27.6% [22] Q&A Session Summary Question: Visibility on second half revenue outlook - Management indicated that visibility is improving, and if material availability is secured, year-over-year growth is possible [41][42] Question: Details on communications end market - Management noted strong demand in 5G mobile networks and healthy conditions in networking and optical segments [44] Question: Drivers behind CPS gross margin improvement - The growth in CPS revenue and a favorable product mix contributed to the margin improvement [45] Question: Priorities for cash management - The primary focus is on investing in the business and organic growth, with M&A considered opportunistically [48] Question: Need for changing operational footprints due to shortages - Management acknowledged the need for adjustments in working capital and inventory management to meet demand [51][55] Question: Impact of component shortages on revenue - Management confirmed that the impact of component shortages was accounted for in the guidance, and they are working to secure materials for future quarters [61]