Sanmina Corp Q4 FY2025 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to Sanmina's Fourth Quarter Fiscal 2025 Earnings Conference Call. This call is being recorded on Monday, November 3, 2025. I would now like to turn the conference over to Paige Melching, Senior Vice President of Investor Communications. Please go ahead.

Thank you, John. Good afternoon, ladies and gentlemen, and welcome to Sanmina's Fourth Quarter and Fiscal 2025 Earnings Call. A copy of our press release and slides for today's discussion are available on our website at sanmina.com in the Investor Relations section. Joining me on today's call is Jure Sola, Chairman and Chief Executive Officer. And Jon Faust, Executive Vice President and Chief Financial Officer. Before I turn the call over to Jure, let me remind everyone that today's call is being webcasted and recorded and will be available on our website. You can follow along with our prepared remarks in the slides provided on our website. Please turn to Slide 3 of the presentation and take note of our safe harbor statement. During this conference call, we may make projections or other forward-looking statements regarding the future events or the future financial performance of the company. We caution you that such statements are just projections. The company's actual results could differ materially from those projections in these statements as a result of factors set forth in the safe harbor statement. The company is under no obligation to and expressly disclaims any such obligation to update or alter any of the forward-looking statements made in the earnings release, the earnings presentation, this conference call or our Investor Relations section of the website, whether as a result of new information, future events or otherwise, unless otherwise required by law. Included in our press release and slides issued today, we have provided you with statements of operations for the fourth quarter and fiscal year ended September 27, 2025, on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on the website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, noncash stock-based compensation expense, amortization expenses and other unusual or infrequent items. Any comments we make on this call as it relates to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, operating income, operating margin, taxes, net income and earnings per share, we are referring to our non-GAAP information. I'd now like to turn the call over to Jure.

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today. Please turn to Slide #4. First, I would like to take this opportunity to recognize Sanmina's leadership team and our employees for doing a great job. So to you, Sanmina's team, thank you for your dedication, hard work and delivering excellent service to our customers. Ladies and gentlemen, I can tell you that I'm very pleased with our performance for fiscal year 2025. Revenue came in at $8.13 billion, growth of 7.4% year-over-year. Non-GAAP operating margin came in at 5.7%. We're able to expand these margins by 30 basis points year-over-year. Non-GAAP EPS came in at $6.04. That's growth of 14.4% year-over-year. We also delivered very strong cash flow from operations of $621 million. And for the fourth quarter fiscal year 2025, we delivered solid revenue of $2.1 billion and non-GAAP EPS of $1.67 per share. Now let's go to our agenda for today's call. We have Jon, our CFO, to review details of results for you. I will follow with additional comments about Sanmina results and future goals. Then Jon and I will open for question and answers. And now I'd like to turn this call over to Jon. Jon?

Great. Thank you, Jure, and good afternoon, ladies and gentlemen. We appreciate your participation in today's earnings call. Before I discuss our financial results, I would like to thank the entire Sanmina team for their hard work and dedication and for executing a strong close to the fiscal year. The team has demonstrated exceptional focus and agility in meeting our customers' evolving needs all year long. Jure and I, along with the entire Sanmina management team, commend these efforts, which have resulted in strong fourth quarter and fiscal 2025 performance. Now please turn to Slide 6, where I'll speak to the financial highlights. We're very pleased to report that our fourth quarter results either met or exceeded our previously communicated outlook. To be specific, our non-GAAP gross margin of 9.4% and our non-GAAP diluted earnings per share of $1.67 both exceeded our outlook. Furthermore, our revenue of $2.1 billion and our non-GAAP operating margin of 6.0% were both at the high end of our outlook. These strong quarterly results as well as our performance throughout the year contributed to our ability to achieve fiscal 2025 results in line with our expectations, as Jure mentioned at the beginning of the call. Now please turn to Slide 7, where I'll speak to our P&L performance for the fourth quarter. As previously noted, we generated revenue of $2.1 billion, which represents an increase of 3.9% year-over-year. This growth was primarily driven by broad-based demand across the majority of our end markets with particular strength in the communication networks and cloud and AI end markets, which Jure will speak to in more detail in his prepared remarks. Non-GAAP gross profit was $196 million, representing 9.4% of revenue and a 70 basis point improvement versus the same period a year ago. This expansion in our gross margin was a result of favorable product mix and ongoing operational efficiencies. Non-GAAP operating expenses totaled $70 million, slightly above our outlook, reflecting our continued strategic investments aimed at driving future growth. Non-GAAP operating income was $126 million or 6.0% of revenue, representing a 70 basis point improvement versus the same period a year ago. This improvement was driven by a combination of revenue growth, favorable mix and disciplined execution. Non-GAAP other income and expense resulted in a net expense of $5.1 million, slightly above our outlook, largely due to foreign currency. And finally, non-GAAP diluted earnings per share was $1.67 based on approximately 54.9 million shares outstanding, representing a 16.7% increase compared to the same period a year ago. Now please turn to Slide 8, where I'll speak to our segment results. IMS revenue came in at $1.68 billion, up 3.3% year-over-year. This was driven by growth across most end markets with particular strength in the communication networks and cloud and AI end markets. CPS revenue came in at $448 million, up 7.3% year-over-year. And CPS non-GAAP gross margin was 14.5%, up 90 basis points versus the same period a year ago. The strong performance in CPS was driven by revenue growth, favorable mix and ongoing operational efficiencies. While we're pleased with the performance of both the IMS and CPS businesses this quarter, we have not yet reached our full potential. We recognize the ongoing opportunity for further improvement in both revenue growth and margin expansion, which will remain key focus areas going forward. Now please turn to Slide 9, where I'll speak to our P&L performance for fiscal 2025 as compared to the same period a year ago. At the beginning of the year, when we provided our outlook for fiscal 2025, we said we expected revenue to grow high single digits, that non-GAAP diluted earnings per share would grow faster than revenue and that we generate strong cash flow. And I'm pleased to report that we delivered on all of those commitments. In fiscal 2025, we executed to our plan, and we continue to see positive trends as we move into fiscal 2026. Revenue for the 12 months increased by 7.4% year-over-year. This growth was driven by solid performance across the majority of our end markets with notable strength in the communication networks and cloud and AI end markets. Non-GAAP gross profit was $744 million or 9.2% of revenue, up 50 basis points compared to the prior year. Non-GAAP operating income was $465 million or 5.7% of revenue, up 30 basis points compared to the prior year. These improvements were the result of revenue growth, favorable product mix and strong operational execution. Non-GAAP diluted earnings per share was $6.04, which equates to an increase of 14.4% year-over-year. Now please turn to Slide 10, where I'll speak to the balance sheet highlights. For many years, Sanmina has had one of the strongest balance sheets in the industry, and we continue to add to that strong foundation this quarter. Cash and cash equivalents were $926 million. At quarter end, we had no outstanding borrowings on our $800 million revolver, leaving us with substantial liquidity of approximately $1.8 billion. We ended the quarter with inventory net of customer advances of $1.1 billion, representing a 12.1% decrease in absolute dollar terms versus the same period a year ago. Inventory turns, net of customer advances improved to 6.7x for the quarter as compared to 5.7x in the same period a year ago. Our non-GAAP pretax ROIC for the quarter was 28.3%, well above our weighted average cost of capital and a sizable improvement from 23.0% in the same period a year ago. The company continued to be in a net cash position at the end of the quarter, and our gross leverage ratio was 0.32x. This robust financial profile enables us to effectively execute on our strategic initiatives while still navigating macroeconomic uncertainties. Now please turn to Slide 11, where I'll speak to the cash flow highlights. Thanks to the disciplined working capital management of the Sanmina team, cash flow from operations for the fourth quarter was $199 million and came in very strong for the fiscal year at $621 million. Net capital expenditures for the quarter were $62 million and totaled $142 million for the fiscal year or 1.8% of revenue. This is in line with historic levels of CapEx spending, which typically ranges between 1% to 2% of revenue. As we move forward into the new year, we remain committed to making strategic investments in the capabilities and technologies necessary to strengthen our market position and support our long-term financial goals. To that end, we anticipate ongoing targeted investments in both capacity and technologies across our operations in the U.S., India and Mexico. Free cash flow for the quarter was $137 million and $478 million for the full fiscal year. We repurchased 1.44 million shares for $113.7 million for the year. And as of September 27, 2025, we had $239 million remaining under our authorized share repurchase program. Our strong cash flow performance has provided us with the financial flexibility to allow for continued investments in the business while also returning capital to shareholders, all within a disciplined and balanced capital allocation framework. Now please turn to Slide 13, where I'll speak to the transaction details around the ZT Systems acquisition. This is an exciting time for Sanmina as the acquisition of ZT Systems is truly transformative. It increases our scale, expands our capabilities and enables us to capitalize on the significant growth opportunities in the cloud and AI end market. On this slide, I'm comparing the original transaction details to our latest estimates as of the closing date, some of which are still pending a 90-day working capital true-up process. First, as a result of the hard work and dedication of all the teams involved, we were able to close the transaction earlier than expected. Second, pending the working capital true-up process I mentioned earlier and assuming a full earn-out of the contingent consideration, we estimate the closing purchase price to be $2.05 billion, which is based on $1.05 billion of net working capital. The lower net working capital dollar amount is primarily the result of production seasonality given the earlier-than-anticipated closing date as well as disciplined inventory management. Third, as we discussed in May, the purchase price reflects a premium of $300 million to the book value of the acquired net working capital and property, plant and equipment with $150 million of this premium in cash and $150 million in Sanmina equity. At closing, AMD received approximately 1.15 million shares based on a share price of $130.32 calculated based on the volume-weighted average price for the 5 trading days prior to closing. We believe that having AMD as a shareholder will only further align our interest, especially as it relates to our new strategic partnership. Lastly, as referenced earlier, there is also a contingent consideration of up to $450 million, which is based on the financial performance of the business over the next 3 years. Now please turn to Slide 14, where I'll speak to our strong balance sheet and liquidity position. As a result of our industry-leading balance sheet, we were able to secure the necessary financing for this transaction on attractive terms. This puts us in a position to capitalize on future opportunities, both for ZT Systems and for the legacy Sanmina business. We secured a Term Loan A of $2.0 billion, of which $600 million is a delayed draw and a Term Loan B of $800 million. With these funds, we repaid Sanmina's existing Term Loan A and at closing, we have $2.2 billion of funded debt. As a reminder, we are targeting a net leverage ratio of 1.0x to 2.0x over time with the goal of achieving an investment-grade rating. At the end of the fourth quarter, standalone Sanmina had $926 million of cash and cash equivalents. As a part of the new financing structure, we also increased our revolver from $800 million to $1.5 billion. The combination of cash, our revolver and the delayed draw on our Term Loan A gives us a significant amount of liquidity to support the growth of both ZT Systems and the legacy Sanmina business. Also, I want to emphasize our commitment to maintaining a healthy balance sheet, which means carefully managing the liquidity needed to invest in the business and capitalize on the strategic opportunities that further excel our position in the market with strong fiscal policies and controls. Now please turn to Slide 15, where I'll cover our first quarter 2026 outlook. Our guidance is based on current customer forecasts, 2 months of the ZT Systems acquisition and ongoing market uncertainties stemming from tariffs and the geopolitical landscape. Our first quarter outlook is as follows. We expect revenue between $2.9 billion to $3.2 billion. We expect legacy Sanmina revenue to be in the range of $2.05 billion to $2.15 billion, which at the midpoint reflects 4.7% growth versus the same period a year ago. We expect ZT Systems to be in the range of $850 million to $1.05 billion for the 2 months after closing, pending final accounting policy alignment. At the midpoint of $3.05 billion for the total company, that reflects 52% growth versus the same period a year ago. Non-GAAP operating margin of 5.6% to 6.1%. We expect other income and expense to be a net expense of approximately $23 million; an effective tax rate of 21% to 23%, which is up slightly from legacy Sanmina due to the U.S.-based earnings pickup from ZT Systems. We estimate an approximate $4 million non-cash reduction to our net income to reflect our India joint venture partners' equity interest. Non-GAAP diluted earnings per share in the range of $1.95 to $2.25 based on approximately 56 million fully diluted shares outstanding. At the midpoint of $2.10, that represents a 46.3% increase versus the same period a year ago. Capital expenditures are expected to be around $85 million as we continue to invest strategically to support our future growth expectations. And finally, depreciation of approximately $45 million. In summary, we're very pleased with our Q4 and fiscal 2025 performance as we've made great progress towards our financial goals. Also, now that we've completed the ZT Systems acquisition, we're very excited about our growth potential, both in that part of the business and the legacy Sanmina business, too. And with that, let me turn the call back over to Jure.

Thank you, Jon. Ladies and gentlemen, I would like to provide additional insights on our results for fiscal year 2025 and discuss our plans for fiscal year 2026 and beyond. Recently, Sanmina completed the acquisition of ZT Systems' data center AI infrastructure business from AMD. Before I proceed with our results, I want to take this moment to welcome the ZT Systems team to Sanmina. Together, we are now a stronger company, and this is an exhilarating time for all of us. Please refer to Slide 17. As Jon mentioned, we achieved strong fourth-quarter results, with revenue and non-GAAP operating margin at the high end of our expectations. Additionally, our non-GAAP gross margin and diluted EPS were above our forecast. Fiscal year 2025 was a successful year for Sanmina, and importantly, we have positioned ourselves for a promising future. To summarize, our consistent execution is enhancing our financial performance. Please turn to Slide 18. Let's review our revenue by market for the fourth quarter of fiscal year '25. The industrial, energy, medical, defense, aerospace, and automotive sectors have shown consistent performance. These accounted for 59% of our quarterly revenue and 62% for the year, resulting in a year-over-year growth of 2.2%. In the communication networks and cloud and AI infrastructure space, we experienced robust demand, contributing 41% of our quarterly revenue and 38% for the year, with a remarkable year-over-year growth of 17%. For fiscal year '25, our top 10 customers made up 51.7% of our revenue, demonstrating our diversification with no single customer exceeding 10%. Overall, our bookings remained strong, with a book-to-bill ratio around 1:1, indicating positive trends ahead. To elaborate further, please refer to Slide 19. In examining our end markets, we note several positive trends. In the industrial and energy sectors, our strong customer base and new projects in the pipeline should drive growth in fiscal year '26. The medical sector is well diversified, and we anticipate solid growth. In the defense and aerospace markets, we continue to see strong demand across technology components and complete system assembly. In automotive and transportation, while there may be short-term softness, we have a solid customer base and promising new opportunities, suggesting growth in fiscal year '26. In communication networks and cloud and AI infrastructure, we reported strong demand for high-performance switches and enterprise storage and are expanding in optical advanced packaging. We have a significant pipeline for the second half of calendar year '26 and into '27, and we are optimistic about the prospects for cloud and AI infrastructure. New programs will foster growth into calendar year '26 and beyond. Please turn to Slide 20. Now, let me provide more details about Sanmina AI and ZT Systems. This strategic acquisition from AMD enhances Sanmina's advanced cloud AI technology and allows us to perform full system integration at scale. Our strategy is to deliver industry-leading capabilities, offering end-to-end solutions for cloud and AI infrastructure markets. As displayed in this slide, Sanmina's contribution, coupled with ZT's strengths, enables us to engage early in product design. We are expanding this team and transferring several engineering professionals to our Viking enterprise to support ZT moving forward. We provide advanced technology printed circuit boards, high-tech board assembly and testing, custom and open compute mechanical racks and enclosures, liquid cooling solutions, as well as server and storage options through collaborative development with clients to ODM, custom memory, and optical modules, all the way to full systems. It's clear why ZT Systems aligns well with Sanmina's strategic growth objectives. As Jon indicated, we will keep investing in this vital end market. Please turn to Slide 21. Now, let’s discuss our priorities for 2026. First, we must focus on our customers, ensuring our strategy revolves around their needs. We have established strong, long-term partnerships with many market leaders and continue to expand our customer base in these key sectors. Our technological edge remains a significant advantage as we maintain and increase our investments in core technologies. Secondly, we will effectively capitalize on the opportunities presented by ZT Systems. We have confidence in the management team at ZT, led by our founder, Frank Zhang, who has over 30 years of experience in this operation. With support from our President and COO, Mike Landy, we believe we have a top-tier team in place to guide this organization going forward. The integration of ZT Systems with Sanmina is expected to be smooth, and both Jon and I acknowledge the significant opportunities for ZT systems ahead. Thirdly, we aim to drive profitable growth. While growth is important, we prioritize enhancing margins to retain long-lasting customers. We are optimizing our capital structure to support growth over the next 2 to 3 years from 2026 through 2028. As John stated, ZT Systems currently has an annual run rate revenue of approximately $5 billion to $6 billion. In the last quarter, we communicated our goal to double Sanmina's revenue to around $16 billion within three years, and now we see a path to achieving this sooner, within the next two years. As I mentioned, we are committed to margin expansion by providing competitive advantages for our customers. In the short term, we forecast margins to fall within the range of 5.6% to 6.1% plus. In the long run, we aim to expand our margins with a goal of reaching 6% to 7% plus. In simple terms, our strategy is to construct a more substantial and resilient company for the future. Please turn to Slide 22. In closing, we concluded fiscal year 2025 with considerable momentum. We are dedicated to executing our transformation from a position of strength. We expect the legacy Sanmina business to continue growing at a high single-digit rate and anticipate solid growth in the cloud and AI sectors in the latter half of calendar year '26 and continuing into '27 and beyond. Our capabilities in cloud and AI will provide solutions from concept to development, delivered with quality, speed, and scalability. This represents a competitive advantage for Sanmina. Additionally, Sanmina has an efficient manufacturing footprint aligned with global production requirements and a strong presence in the U.S. Overall, there are significant opportunities to drive profitable growth. Thank you all for your time and support. Operator, we are now ready to open the lines for questions and answers. Thank you once again.

Your first question comes from the line of Ruplu Bhattacharya from Bank of America.

Jure, congratulations on completing the ZT Systems acquisition. Can you confirm whether its annual run rate is still between $5 billion and $6 billion? One of the slides indicates that it has corporate average margins. You're projecting an operating margin of 5.9%. Should we assume that the ZT Systems business is also expected to achieve a similar operating margin in the high 5% range, around 5.9%? Please confirm the revenue and operating margins for the ZT Systems.

Well, first of all, thank you for the compliment. I'm very excited about the ZT acquisition. We've gotten to know the team at ZT. We have excellent people there, and it fits with our culture. So we're really excited about what's in front of us. Maybe I'll turn it over to Jon when it comes to the margins, but we are very optimistic. Go ahead.

Yes. Ruplu, on the first point about the revenue. So we did want to give some color on ZT Systems for that 2 months, and we guided a range of $850 million to $1.05 billion. You take that midpoint to $950 million for the 2 months and annualize it, puts you at about $5.7 billion. So check the box. We said that we closed in that $5 billion to $6 billion run rate on an annual basis, and we did that. And then to your second question on the margin profile, like as it shows on the slide, we expect ZT, we guided on a combined basis, but said that ZT is in line with Sanmina. So yes, the short answer to the question is we expect both sides of the business to be within that 5.6% to 6.1% range.

For my next question, can I ask about the legacy business? Looking at the guidance for the first quarter, it's between $2.05 billion and $2.15 billion, which indicates mid-single-digit growth at this point in the first quarter. However, one of the later slides mentions that the legacy business is expected to grow in high single digits. Are you anticipating high single-digit growth for the legacy business excluding ZT in fiscal '26? If so, what factors contribute to that acceleration in the second half for the legacy business?

Yes, that's exactly right, Ruplu. We disclosed ZT a week ago, so we didn't want to touch too much on a full year basis for that, but we'll come back in January in our next earnings call and give some more specifics. But at least for the legacy Sanmina business, very similar to how we guided fiscal year 2025. We expect '26 to have revenue growth in that high single-digit range. To your point, the midpoint would be just shy of 5%, so in the mid-single-digit range, but we expect that to accelerate. And that's based on all the opportunities that Jure spoke to on the end market slide. We see a lot of opportunity ahead. In the first quarter here, it will be more in that midrange. But as we continue on throughout the year, particularly into the back half or the second half of the fiscal year, we expect that to accelerate.

Yes, I’d like to add that we are observing more positive activities as we approach next year in sectors like industrial, energy, and medical. The defense sector remains stable, and we are enhancing our component capabilities in that area. Our military circuit boards are performing well and are quite profitable. The automotive sector is slightly down in the short term, but we have new programs that should counterbalance that. Regarding communication networks and cloud AI infrastructure, without ZT, we are focusing on integration infrastructure. However, when considering the AI aspects of what Sanmina offers, including our storage ODM, circuit boards, and mechanical racks, that segment of our business is currently very active, and we anticipate it will grow more than last year. Overall, we are quite confident in the Sanmina legacy business. As mentioned previously, our objective is to return this business to a revenue run rate of $9 billion to $12 billion, which remains our plan. It’s crucial for Sanmina to be a diversified company, not overly reliant on a single market segment. We are enthusiastic about the growth opportunities and what we can develop around AI with ZT. I noted earlier that ZT aligns perfectly with our strategy. Most importantly, we have strong management in place. We are committed to investing; AMD has already invested significantly over the past year, and we will continue to do so. We possess outstanding capabilities for emerging technologies set to roll out by the end of this year and into the future. Therefore, I believe there is substantial upside, and our success will depend on our execution.

Okay. If we put all of what you said together, so if the legacy business grows high single digits, that would be about $8.9 billion in fiscal '26. And then ZT is $5.7 billion at the midpoint, like Jon said. So total for fiscal '26 looks like the implied guidance is about $14.5 billion or $14.6 billion. Did you say then that looking forward, the comment that you made, Jure, on the $16 billion 1 year ahead of time. So are we essentially saying that, that $14.5 billion in fiscal '26 can then grow to $16 billion, so about 10% year-on-year growth between fiscal '26 and fiscal '27? Was that the comment?

I'm very optimistic about what lies ahead. We will provide more detailed information in January, as we couldn't disclose all the details regarding forecasts due to legal reasons. Looking back about six months or three months ago, we anticipated that we could double the size of Sanmina within three years. Given our legacy business and the growth potential with ZT and AI opportunities, we believe we can achieve that in the next two years.

Right. And the 2 years would put it at calendar '27 for the $16 billion?

Yes.

But maybe one last question.

But Ruplu, let me just say, trust me, we're going to give you a lot more information in January.

Okay. Understood. Let me just ask one more quick question on working capital because you're taking on working capital. Jon, how should we think about cash conversion cycle and free cash flow going forward?

Yes. I mean, first of all, I'm very pleased with how we performed in Q4 and all fiscal year '25, right? Jure and I both talked about that cash flow from operations for the full year being at $621 million, which you don't see very often when you're driving growth. We drove revenue growth of 7%. So our cash conversion cycle exiting Q4 is back in the 50s, which is a good place to be. That's where we wanted to get to. Now we still see some room for improvement. And I'm talking about the legacy business right now. We still see the opportunity to generate cash from that perspective. And for ZT, it will really depend. As Jure was saying, at this point, we're just guiding Q1 because we just closed the transaction last week. Now depending on growth and working capital needs, that might become a draw on cash. But we think we're in a good position right now. So bottom line being legacy business, continue to expect to generate cash flow from operations. And ZT, more to come on what we think for the full year and what that will mean from a cash perspective.

Your next question comes from the line of Steven Fox from Fox Advisors.

A couple of questions for me. So without putting numbers around it, I was just curious how you think about the opportunity to rebuild the accelerated compute arm of ZT. There's been, I guess, public questions about the ability to do that relative to competition. There was some hint here, but I was just wondering how we should think about how long that takes to sort of get going and how broad you can be with the opportunity? And then I had a follow-up, please.

Yes, I am very enthusiastic about the talent we acquired through the ZT purchase. We have a strong team, and the founder will remain with us to advance the business. He is excited, and so am I. We are assembling an excellent team and will be investing in it. Additionally, we are transitioning our Viking Enterprise group to support ZT, as ZT operates as an ODM. We also plan to transfer a significant part of our engineering services group to enhance the Viking team and strengthen our engineering capabilities. We are actively hiring to elevate our ODM business. Sanmina possesses extensive technology, and our aim is to connect the two through system architecture and electrical mechanical design, especially in AI, where there is a high demand for advanced circuit boards. We believe we can add value by assembling subsystems and designing mechanical solutions for liquid cooling. We are collaborating with partners and utilizing some of our custom and open compute enclosures. You are familiar with the Viking storage, and we also have Viking technology for custom memory and optical modules. We believe these innovations will enhance our margins in communication and AI. There is a lot of work ahead, but significant achievements require effort.

Yes. Absolutely not. I guess just to interpret what you said, though, Jure, is that you're implying that you need to pull the full system solution from soups and nuts together first before you can then sort of go after the accelerated compute business again? Is that fair to say?

No, we're going to pursue this aggressively. We have a strong partnership with AMD through NPI, so we will engage in that area right away. Additionally, we are expanding our engineering team to collaborate with AMD and other platforms immediately. As you know, ZT had a large engineering team, and we plan to develop whatever is necessary to meet our customer needs.

That's helpful. And then just on the cash flows in the transaction, just to be clear, Jon, the $2 billion purchase price, is that close to what the final number would be? Or could it balloon back to $3 billion? And then when we think about cash flows, it sounded like you can grow cash flows on legacy Sanmina. And then depending on growth, we'll see if you need to invest in working capital on the ZT business. Am I reading all that right? If you can provide some color there?

Yes, you're correct, Steve. Regarding the first point, I don’t anticipate the number will change significantly. It will go through a 90-day true-up process since we're closing in the middle of the quarter and have worked on some estimates. We'll need to reconcile that, but I wouldn't expect any major changes. It should be close to the final figure. As for future cash flow generation, there are still opportunities on the legacy side of the business to generate cash even as we grow. This past fiscal year, specifically in 2025, we made significant progress in inventory, allowing us to generate $621 million. Opportunities have decreased, but we still expect to generate cash. Concerning ZT, it’s still early, as we just closed last week. We'll monitor the business trajectory, especially in the second half, as that could influence cash usage. However, we'll provide more details each quarter as we move forward.

Your next question comes from the line of Anja Soderstrom from Sidoti.

Congrats on closing the ZT Systems acquisition so early. You mentioned you see a lot of AI opportunities in the pipeline for ZT Systems. What do you see potential beyond what you currently have in the book?

Could you repeat the question, Anja?

Yes. You see a lot of AI opportunities in the pipeline for the ZT systems. What kind of opportunities do you see there?

Okay. Well, first of all, we've been building our capability to support data center AI all the way from high-technology boards to assembly, mechanical, liquid cooling, ODM, JDM and so on, both in custom memory and custom optical modules, we've been expanding that. ZT brings to us a complete, what I would call strategic acquisition that complements Sanmina's advanced cloud AI technology that gives us the ability to do full system integration at scale. We have that today. So when you really look at the ZT today specifically, there's great opportunities in our pipeline that will allow us to really grow in '26, '27, '28. I mean, let's focus on the next 3 years. Who knows what's going to happen 5 years from now? But at least for the next 3 years, we see a lot of opportunities that based on our capabilities today, we can compete in this segment with anybody. And especially, as I said earlier, I think the key for us is to make sure that we execute on these opportunities. And I have a very high confidence because we have strong leadership in there. We're basically letting them go ahead and take it to the next level. So opportunities are great. A lot of work in front of us, but we are excited. We think we can build something big, something good that's going to be good for our employees, for our investors, and we'll be able to provide some great capabilities for our customers and give them a competitive advantage.

Okay. And then how do you expect this to affect your Indian joint venture?

It can enhance the India joint venture. There are many opportunities in India related to cloud AI growth. We are currently collaborating with our partners in India on these opportunities. We are in the process of building a new factory that will allow us to expand our AI capabilities. We are making investments now, and this facility is set to go live early next year, which we believe will yield very positive results.

Okay. And then it seems like auto was a bit challenging for you. What do you see there? And you were also talking about new opportunities there that could help you drive growth there.

Yes. Automotive was quite strong at the beginning of the year and experienced a slight slowdown towards the end. However, overall, the performance has been good. We have secured some new programs in the last 60 to 90 days that will impact us starting in '26 and '27 and beyond. Thus, we remain optimistic and are well positioned with several key customers.

We don't have any other questions at this time. Please continue, sir.

Operator, is there any other questions? Well, first of all, I'd like to thank everybody on this call. If there are any questions, please let us know. Otherwise, we're looking forward to talking to you in 90 days from now. Thanks a lot for your support. Bye-bye.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.