Business Context and Reporting Period
Company: Sanmina Corporation
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended March 28, 1998
Business Overview: Sanmina is a leading independent provider of customized integrated electronics manufacturing services (EMS), including turnkey electronic assembly, printed circuit board fabrication, and system testing. The company serves OEMs in telecommunications, networking, industrial, medical, and computer systems sectors.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Mar 28, 1998 |
3 Months Ended Mar 29, 1997 |
6 Months Ended Mar 28, 1998 |
6 Months Ended Mar 29, 1997 |
|---|---|---|---|---|
| Net Sales | $172,146 | $133,823 | $331,253 | $258,997 |
| Gross Profit | $37,626 | $28,036 | $72,303 | $55,887 |
| Operating Income | $26,433 | $17,778 | $46,603 | $36,207 |
| Net Income | $16,873 | $10,681 | $29,381 | $22,494 |
| Diluted EPS | $0.71 | $0.47 | $1.24 | $0.98 |
| Cash from Operations (6 mo) | $35,212 | $22,104 | ||
| Working Capital | ||||
| Convertible Debt | $95,607 (Long-term) |
Margins (3 Months Ended Mar 28, 1998):
- Gross Margin: 21.9%
- Operating Margin: 15.4%
- Net Margin: 9.8%
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 29% year-over-year for the quarter and 28% for the six-month period, driven by increased shipments of EMS assemblies to existing and new customers.
- Profitability: Net income rose 58% for the quarter and 31% for the six-month period. Operating margins improved from 13.3% to 15.4% for the quarter.
- Acquisitions:
- Elexsys International: Acquired in Nov 1997 via pooling of interests; prior period results were restated to include Elexsys.
- Pragmatech, Inc.: Acquired in Feb 1998 for approx. $5.7 million cash; accounted for as a purchase.
- Debt Reduction: The company repaid approx. $12.8 million of Elexsys debt and repurchased $2.4 million of convertible debentures, reducing net interest expense significantly.
- One-Time Costs: The six-month period included $3.9 million in merger and acquisition costs.
Outlook, Risks, and Management Commentary
- Guidance: Management anticipates operating expenses will increase in absolute dollars to support higher sales volume but expects expenses as a percentage of sales to remain constant or decrease due to efficiencies from Elexsys integration.
- Liquidity: Cash and short-term investments totaled $119.6 million. Management believes existing resources and operating cash flow are sufficient to meet liquidity needs through the end of the fiscal year.
- Risks:
- Results are sensitive to order timing, product mix, and capacity utilization.
- Customer orders can be canceled or delayed with short lead times.
- Integration risks associated with recent acquisitions (Elexsys and Pragmatech).
- Exposure to economic cycles and rapid technological change in the electronics industry.
- Year 2000: The company is addressing Y2K issues but does not expect a material impact on operations.
Investor Verification Checklist
- Verify the sustainability of the 29% revenue growth rate given the cyclical nature of the electronics industry.
- Confirm the integration progress and synergy realization from the Elexsys merger and Pragmatech acquisition.
- Monitor the concentration of sales to principal customers and the risk of order cancellations.
- Review the impact of the $3.9 million merger costs on the six-month operating margin.
- Assess the company's ability to maintain gross margins as product mix fluctuates.