SANM Q3 2024: Book-to-Bill 1.1x, Comms & Cloud Revenue Up 8%
- Communications & Cloud Infrastructure Growth: Management highlighted an 8% sequential growth in communications networks and cloud infrastructure, driven by new programs in high-performance network routing and optical packaging, suggesting continued demand improvement in Q4.
- Robust Book-to-Bill Ratio & New Program Wins: A sustained book-to-bill ratio of 1.1:1 driven by released orders for new programs indicates a strong future revenue pipeline.
- Improving Inventory Management: The company is targeting improvement in inventory efficiency—from 4.9x turns towards 6x turns—which reflects better operational performance and more effective cash conversion.
- Delayed CPS Programs: Two CPS programs were pushed out to Q4, negatively impacting revenue and margins, as evidenced by a sequential decline in CPS margins from approximately 13% to 11.5%.
- Slower Inventory Absorption: Management noted that customer inventory is being burned down at a slower pace than expected, which could delay revenue improvements and extend working capital issues.
- Continued Softness in Key Markets: There is persistent softness in the automotive segment, with expectations that demand in this area will continue to remain weak, potentially affecting overall revenue growth.
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Fiscal Outlook
Q: What is FY25 growth outlook?
A: Management expects fiscal 2025 to be a growth year despite slower inventory reduction, with Q4 revenue guidance of $1.9-2.0B offering a solid start, though precise percentages remain to be defined. -
Bookings Ratio
Q: What drives the steady bookings?
A: The 1.1:1 book-to-bill ratio is powered by new program releases scheduled over the next 2–4 quarters, reflecting strong revenue momentum. -
Inventory Improvement
Q: How are inventory turns improving?
A: Current inventory turns stand at 4.9, with management targeting a move toward around 6 turns through better customer absorption and internal efficiency efforts. -
Communications Growth
Q: How are communications trends evolving?
A: The communications networks and cloud infrastructure segment grew roughly 8% quarter-over-quarter, driven by robust demand for high-performance network and optical packaging solutions. -
End Markets Outlook
Q: What is the Q4 outlook for end markets?
A: While automotive remains soft, industrial strength is improving, defense shows solid performance, and medical holds steady, collectively suggesting overall flat to slightly higher results. -
CPS Push-Out Details
Q: What about the CPS program delays?
A: Two delayed CPS programs, now resolved, have been pushed to Q4—causing only a minor impact on overall revenue and EPS. -
CPS Margin Decline
Q: Are margin declines confined to CPS delays?
A: Yes, the decline in CPS margins—from about 13% to 11.5%—is largely due to these two programs, with most negative effects expected to reverse next quarter. -
Inventory Drivers
Q: What is behind improved inventory turns?
A: Both recovering customer demand and continued internal efficiency improvements are contributing to better inventory performance, aiming for a return to historical levels.
Research analysts covering SANMINA.