SANM Q3 2025: Reaffirms $5–6B ZT Systems Run Rate; Core Growth 7%
- Strategic Acquisition Upside: The acquisition of ZT Systems is expected to add $5–6 billion of annual net revenue run rate, providing a stable and scalable revenue base, while the strong team and increased engineering and sales investments are anticipated to drive faster market penetration in data center and AI segments.
- Robust Core Business Growth: Management expects core revenue to grow at 7% or higher year over year, supported by a stable customer base and positive customer forecasts amid easing geopolitical uncertainties, indicating resilient and sustained business performance.
- Margin Enhancement Initiatives: Continued improvements in margins—such as CPS margin gains and overall non‐GAAP operating margin improvements—demonstrate effective cost management and operational efficiencies that are likely to bolster profitability further in upcoming periods.
- Integration and Inventory Risk from the ZT Systems Acquisition: Management acknowledged potential risks related to inventory evaluation—with concerns over legacy inventory and the possibility of write‐downs on lagging GPU products—and the inherent challenges of integrating a new business, which could pressure margins and disrupt operations.
- Slowing Near-Term Growth Outlook: Despite strong Q3 performance, guidance for Q4 implies a significant slowdown in revenue growth (from 11% YoY in Q3 to an implied lower rate in Q4), raising concerns about the sustainability of growth in the near-term.
- Macroeconomic and Geopolitical Uncertainties: Ongoing tariff pressures and evolving global supply chain dynamics, as discussed during the Q&A, pose potential headwinds that could adversely affect customer demand and overall financial performance.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +11% | Total Revenue jumped to $2,041.6 million in Q3 2025 compared to $1,841.43 million in Q3 2024, reflecting a rebound from previous macroeconomic uncertainties and customer inventory headwinds seen in Q2 2024. Improved end-market demand, operational efficiency, and strong geographical performance in regions like the Americas contributed to this recovery. |
Integrated Manufacturing Solutions | +11.7% | The Integrated Manufacturing Solutions (IMS) segment increased to $1,639.3 million in Q3 2025 from $1,468.26 million in Q3 2024, driven by higher demand across end markets and effective regional manufacturing execution. This momentum builds on the partial recovery seen in earlier periods, marking a sustained improvement in response to favorable market conditions. |
Components, Products and Services | +7.8% | CPS revenue grew to $402.3 million in Q3 2025 compared to $373.17 million in Q3 2024, with a growth rate that reflects improved demand and a favorable product mix. This increase aligns with previous trends driven by operational efficiencies and margin improvements that have been part of the company's strategic initiatives. |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Margin Expansion and Operating Leverage | Q4 2024, Q1 2025 and Q2 2025 emphasized improving non‐GAAP operating margins, segment‐specific margin improvements and disciplined investments in operating expenses ( , , ). | Q3 2025 reported a non‐GAAP operating margin of 5.7% with a 40 bps improvement and highlighted margin expansion through favorable revenue mix, operational efficiencies and the positive impact of the ZT Systems acquisition ( , ). | Consistent focus on margin expansion, with an enhanced strategic emphasis on acquisitions to drive future improvements. |
Inventory Management and Correction Dynamics | In Q4 2024, Q1 2025 and Q2 2025 the discussion centered on inventory reduction, improved inventory turns and customer inventory corrections—with metrics improving despite challenges like excess pipeline inventory ( , , ). | Q3 2025 noted a 12% reduction in inventory and an improvement in inventory turns from 5.1x to 6.3x while also addressing potential risks from the ZT Systems acquisition related to older inventory ( ). | Steady commitment to efficiency, with improved metrics now coupled with emerging risk considerations from the acquisition. |
Capital Allocation and Free Cash Flow Generation | Previous periods (Q4 2024, Q1 2025 and Q2 2025) stressed a disciplined and balanced capital allocation approach, strong free cash flow generation and strategic use of share repurchases and investments ( , , ). | Q3 2025 continued the disciplined approach with robust free cash flow of $168 million and strong working capital management supporting ongoing strategic investments and shareholder returns ( ). | Consistent and steady focus on capital allocation and free cash flow, reinforcing long‐term stability and reinvestment strategies. |
Revenue Growth and Market Expansion (Cloud, Communications, Data Center) | Q4 2024, Q1 2025 and Q2 2025 highlighted solid revenue growth (sequential increases of around 9.6% and year‐over‐year gains between 7% and 8.1%), driven by strong performance in communications networks, cloud infrastructure and emerging data center opportunities ( , , ). | Q3 2025 showed a 10.9% year‐over‐year revenue increase, with particular emphasis on robust demand in communications and cloud segments, and strategic expansion into data center and AI infrastructure markets powered by the ZT Systems acquisition ( ). | Robust and improving growth narrative, with an increasingly aggressive push into next-generation markets through strategic acquisitions. |
Strategic Acquisitions and Integration Risks | In Q4 2024, the focus was on organic growth with selective mention of strategic acquisitions; Q1 2025 mentioned M&A and partnerships as capital allocation priorities, while Q2 2025 did not address this topic in detail ( , ). | Q3 2025 provided a detailed discussion of the ZT Systems acquisition including expected revenue synergy, potential integration risks (such as inventory issues and operational transition) and capital allocation impact ( ). | New and intensified focus on acquisitions with detailed analysis of integration risks driven by a major strategic deal. |
Global Capacity Expansion and Geographic Diversification | Q4 2024 and Q1 2025 did not discuss this topic; Q2 2025 described capacity expansion efforts in India, Mexico and North America with details on facility growth ( ). | Q3 2025 emphasized strategic investments in capacity and technology across the United States, India and Mexico, and noted that the ZT Systems acquisition would enhance manufacturing capacity in the US and Europe ( ). | Broadening geographic focus from regional capacity expansion to an expanded global footprint that now includes Europe. |
Geopolitical, Tariff, and Macroeconomic Uncertainties | Q4 2024 and Q1 2025 did not address these uncertainties; Q2 2025 briefly discussed tariff impacts and global uncertainties with cautious optimism ( ). | Q3 2025 offered a more detailed discussion of evolving geopolitical, tariff and macroeconomic uncertainties, noting that while the "temperature is coming down," proactive measures (such as leveraging a global footprint) are in place to manage these risks ( ). | Increased emphasis on external uncertainties with a proactive stance to mitigate risks amid a dynamic global environment. |
AI Integration and Emerging Technology Deployment | Q4 2024 provided an in‐depth discussion on AI’s role in external growth and internal process optimizations; Q1 2025 touched on high-performance network integration for cloud solutions; Q2 2025 highlighted investments in AI-related components ( , , ). | Q3 2025 reinforced the focus on AI by linking the ZT Systems acquisition to enhanced end-to-end solutions in data center and AI infrastructure, continuing the trend of deploying emerging technologies to maintain a competitive edge ( ). | Consistent emphasis on AI integration, now further bolstered by strategic acquisitions to expand and refine technological capabilities. |
Early-stage Cloud Infrastructure Growth Challenges | Q4 2024 mentioned inventory absorption challenges affecting cloud infrastructure growth and Q1 2025 discussed early-stage challenges alongside investments in capabilities; Q2 2025 offered little detail on challenges ( , ). | Q3 2025 did not specifically mention early-stage cloud infrastructure challenges, implying that earlier issues are largely resolved or integrated into the broader growth narrative ( ). | Diminishing focus on early-stage challenges, suggesting that initial hurdles have eased as the market matures and growth opportunities are realized. |
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Acquisition Outlook
Q: Is ZT forecast still $5–6B revenue?
A: Management reaffirmed a $5–6B annual revenue run rate for the acquisition, noting that the business remains profitable and that their existing sales and technical teams are being expanded to drive integration. -
Growth Outlook
Q: Will core growth persist beyond Q4?
A: They explained that despite a softer Q4—attributable to inventory normalization and market dynamics—the core business is expected to grow about 7% year-on-year going into fiscal 2026. -
Inventory Risk
Q: Are there concerns with ZT inventory levels?
A: Management stressed a working capital target of $2B to manage inventory risk, ensuring that inventory is well-supported by customer demand and forecast analysis. -
CPS Margins
Q: Can CPS margins sustainably surpass 15%?
A: They noted a sequential improvement of 320bps in CPS margins and expressed confidence that continued investments will help maintain margins above 15%. -
Operating Margins
Q: What margins are expected after the acquisition?
A: Management anticipates that enhanced integration and strategic initiatives will elevate operating margins to levels above 6%, with further clarity expected post-acquisition. -
India JV
Q: How is the India joint venture progressing?
A: They reported that the India JV is performing strongly, with promising growth across several segments and meeting net income adjustment expectations. -
Tariffs Impact
Q: Do tariff changes pose major risks?
A: Management indicated that while tariff dynamics remain fluid, any related costs are passed to customers, and their regional flexibility helps to mitigate significant headwinds.
Research analysts covering SANMINA.