Business Context and Reporting Period
Company: Sanmina Corporation
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three and six months ended March 31, 2001 (Fiscal Year 2001)
Business Overview: Sanmina is a leading provider of customized integrated electronic manufacturing services (EMS), including printed circuit boards, backplane assemblies, and enclosure systems. The company operates 60 facilities globally.
Key Event: On March 1, 2001, Sanmina completed the acquisition of AB Segerstrom and Svensson ("Segerstrom"), a global supplier of integrated enclosure systems. The transaction was accounted for as a pooling of interests, requiring the restatement of prior period financials to include Segerstrom's results.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Mar 31, 2001 | 3 Months Ended Apr 1, 2000 | 6 Months Ended Mar 31, 2001 | 6 Months Ended Apr 1, 2000 |
|---|---|---|---|---|
| Net Sales | $1,191,138 | $948,358 | $2,676,709 | $1,785,713 |
| Gross Profit | $193,275 | $146,643 | $456,173 | $276,782 |
| Gross Margin | 16.2% | 15.5% | 17.0% | 15.5% |
| Operating Income | $93,557 | $93,398 | $273,278 | $171,502 |
| Net Income | $62,245 | $58,991 | $178,196 | $105,785 |
| Diluted EPS | $0.19 | $0.18 | $0.52 | $0.34 |
| Cash & Equivalents (End of Period) | $562,685 | $521,441 | $562,685 | $521,441 |
| Total Debt (Long-term) | $1,210,834 | $1,200,764 | $1,210,834 | $1,200,764 |
| Operating Cash Flow (6 Months) | $122,802 | ($14,800) | ||
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 25.6% for the quarter and 49.9% for the six-month period compared to the prior year. This growth is attributed to industry demand, new customer wins, and the inclusion of Segerstrom's results.
- Restructuring Charges: The company recorded $24.9 million in plant closing, relocation, merger, and restructuring costs for the quarter ended March 31, 2001. There were no such charges in the comparable prior period. These costs include $7.2 million in severance, $12.5 million in merger fees, and $5.2 million in facility consolidation costs.
- Operating Expenses: Total operating expenses rose significantly to $99.7 million for the quarter (from $53.2 million) and $182.9 million for the six months (from $105.3 million). Excluding the $24.9 million restructuring charge, operating expenses as a percentage of sales remained flat at 5.9% for the six-month period.
- Liquidity: Cash provided by operating activities for the six months ended March 31, 2001, was $122.8 million, a significant improvement from a cash use of $14.8 million in the prior year period. However, cash and cash equivalents decreased by $435.6 million during the six months due to heavy investing activities ($599.9 million used), primarily for purchasing short-term investments and property, plant, and equipment.
Guidance, Outlook, and Risks
- Revenue Guidance: Management expects revenues for the quarter ending June 30, 2001, to be in the range of $900 million to $1 billion.
- Margin Outlook: Gross margins are expected to fluctuate based on production volumes, product mix, and pricing terms from OEM divestiture transactions. Operating expenses are anticipated to increase in absolute dollars to support higher sales volume but should remain relatively constant as a percentage of sales.
- Key Risks:
- Customer Concentration: The ten largest customers accounted for 51.8% of sales in the quarter and 52.4% for the six months. No single customer exceeded 10% of sales in the current period.
- California Energy Crisis: A significant portion of operations is in California. Rolling blackouts and increased electricity prices could disrupt operations and increase expenses.
- Integration Risks: Risks associated with integrating Segerstrom and realizing anticipated synergies.
- Industry Cyclicality: The electronics industry is subject to rapid technological change and economic downturns, which could lead to order cancellations or delays.
Investor Verification Checklist
- Verify the impact of the Segerstrom acquisition on future revenue growth and integration costs beyond the initial $24.9 million charge.
- Monitor the California energy situation and its potential effect on operating costs and production continuity at California facilities.
- Assess the sustainability of gross margins given the mix of OEM divestiture transactions which may carry less favorable pricing terms.
- Review the company's ability to maintain operating cash flow given the significant cash outflows for investments and capital expenditures.
- Track the concentration of sales to the top ten customers and any potential loss of major accounts.