Sanmina Corporation (SANM) — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023 (52 weeks); comparisons are with fiscal 2022, ended October 1, 2022. This is an annual report, not a standalone fourth-quarter filing.
Business context
Sanmina provides electronics manufacturing, components, products, engineering, logistics and repair services to OEMs in industrial, medical, defense and aerospace, automotive, communications networks and cloud infrastructure markets. Integrated Manufacturing Solutions (IMS) contributed about 80% of FY2023 revenue; Components, Products and Services (CPS) contributed about 20%. The ten largest customers represented 48% of sales; Nokia was at least 10% of sales.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $8.935 billion | $7.920 billion | +12.8% |
| Gross profit / margin | $743.2 million / 8.3% | $622.2 million / 7.9% | Margin +0.4 percentage points |
| Operating income / margin | $455.7 million / 5.1% | $349.5 million / 4.4% | Margin +0.7 percentage points |
| Net income attributable to common shareholders | $310.0 million | $240.4 million | +28.9% |
| Diluted EPS | $5.18 | $3.81 | +36.0% |
| Cash from operations | $235.2 million | $330.9 million | Down $95.7 million |
- Both end-market groups grew: Industrial, Medical, Defense and Aerospace, and Automotive sales rose 13.6%; Communications Networks and Cloud Infrastructure rose 11.7%. Management cited stronger demand, better component availability and new-program ramps, particularly in the first half.
- IMS gross margin improved to 7.7% from 7.2%; CPS gross margin improved to 11.6% from 10.6%. Higher volume and efficiency helped, while CPS also benefited from product mix; some fixed-price contract losses partly offset CPS gains.
- Cash and cash equivalents were $667.6 million, versus $529.9 million; working capital was approximately $1.8 billion, versus $1.4 billion. Operating cash flow was pressured mainly by a $414 million reduction in accounts payable and an $89 million increase in receivables, partly offset by a $210 million inventory reduction.
- Capital expenditures were $191.4 million. Sanmina repurchased $84 million of shares under its programs during FY2023; $279 million remained authorized at year-end. No cash dividends have been paid, and none are anticipated in the foreseeable future.
- Debt included a $332.5 million Term Loan Due 2027 and $8.4 million of short-term borrowings. No revolver borrowings were outstanding; $787 million was available under the $800 million revolver after letters of credit. The company reported compliance with debt covenants at year-end.
- About 59% of cash was held outside the United States. SIPL, the India joint venture, held $186 million that Sanmina said was not available for general corporate purposes.
Material changes and unusual items
- Revenue increased $1.02 billion year over year and operating margin expanded. Net income also rose, despite higher interest expense ($36.3 million versus $22.5 million) and income tax expense ($85.3 million versus $61.9 million).
- Sanmina received approximately $216 million from Reliance’s purchase of a 50.1% interest in its India manufacturing entity, SIPL. Sanmina retained 49.9% ownership but consolidates SIPL based on contractual decision-making control; $17.5 million of FY2023 net income was attributable to noncontrolling interests.
- Receivables factoring increased: approximately $2.6 billion of receivables were sold in FY2023, versus $1.9 billion in FY2022. Factoring discounts were $19 million, versus $6 million.
- The financial statements received an unqualified audit opinion, but the auditor concluded internal control over financial reporting was ineffective because of material weaknesses at one division. The weaknesses involved management tone, inadequate finance staffing and ineffective review of long-term contract cost estimates. The division represented about 3% of annual revenue. The weaknesses had led to prior-period restatements and immaterial misstatements in FY2023 quarterly periods; remediation was underway but not yet considered complete.
Outlook, risks and contingencies
- The filing provides no quantified revenue, earnings or margin guidance. Management said macroeconomic challenges—including inflation, currency movements, competition and supply-chain issues—could continue, and that further cost increases may reduce profitability if not passed on to customers. It expects some component delays and shortages to persist in the short to medium term.
- Key operating risks include customer concentration and order cancellations, component shortages and price increases, labor costs, tariffs, foreign-exchange exposure, geopolitical disruption, and the ability to maintain utilization and replace mature programs. Customer forecasts are generally not firm long-term commitments.
- Liquidity outlook: management believes cash, available facilities, receivables programs and operating cash flow will be sufficient for working-capital needs for at least the next 12 months, while noting that a demand decline, uncollectible receivables or unrecovered customer inventory obligations could weaken liquidity.
- Contingencies include an environmental case in Southern California: a court found Sanmina and other defendants liable for certain past investigation costs, and further proceedings could produce additional losses that may be material; the amount cannot be estimated. Sanmina is also defending Dialight litigation, responding to DOJ Civil Investigative Demands concerning SCI government-contract activities, and contesting an IRS proposed adjustment concerning a 2009 tax position that could materially affect results if resolved unfavorably.
- Other notable exposures include $34 million accrued for environmental, warranty, litigation and other contingencies, plus $53 million of liabilities for uncertain tax positions. The company also disclosed a technical credit-agreement default in May 2023 after a late 10-Q filing; it cured the default within the stated period.
Important facts for investors to verify
- Progress and independent testing of remediation for the internal-control material weaknesses, especially controls over government-contract cost estimates and revenue recognition.
- Whether operating cash flow improves as receivables, payables and inventory normalize, and how much cash-flow support continues to come from factoring.
- Customer concentration, Nokia-related sales, end-market demand and the persistence of supply constraints and price pass-through.
- Developments and potential financial exposure in the environmental, Dialight, DOJ/SCI and IRS matters; several loss amounts are not estimable in the filing.
- Availability and restrictions on cash held abroad and at SIPL, as well as debt repayment, interest costs and compliance with credit-agreement covenants.