Earnings Call Transcript - SANM Q1 2026

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to Sanmina's First Quarter Fiscal 2026 Earnings Conference Call. This call is being recorded on Monday, January 26, 2026. I would now like to turn the conference over to Paige Melching, SVP of Investor Communications. Please go ahead.

Paige Bombino, SVP of Investor Communications

Thanks, everyone. Good afternoon, ladies and gentlemen, and welcome to Sanmina's First Quarter Fiscal 2026 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. Good afternoon. 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 our presentation and take note of our safe harbor statement. During this conference call, we may make projections or other forward-looking statements regarding 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 projected 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 obligation to update or alter any of the forward-looking statements made in this earnings release, the earnings presentation, the conference call, or in the Investor Relations section of our 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 first quarter ended December 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 our website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, noncash stock-based compensation expense, amortization expense, and other unusual or infrequent items. Any comments we make on this call as they relate 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, tax, 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.

Jure Sola, Chairman and CEO

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today. Happy New Year and all the best to all of you. First, I would like to take this opportunity to recognize our employees and the Sanmina leadership team for doing a great job. So to you, Sanmina team, thank you for your dedication, hard work, and for delivering excellent service to our customers. Please turn to Slide 4. Ladies and gentlemen, I can tell you that I'm very pleased with our performance for the first quarter. Overall, we are executing according to our plan. Revenue came in at $3.19 billion, non-GAAP operating margin at 6%, and non-GAAP diluted earnings per share of $2.38. We delivered strong cash flow from operations of $179 million. Again, I'm excited about the future opportunities that we have in front of us. So now let's go to our agenda for today's call. We have Jon, our CFO, to review details of our results for you. I will follow up with additional comments about the results and future goals. Then Jon and I will open for questions and answers. And now I'd like to turn this call over to Jon.

Jonathan Faust, Executive VP and CFO

Great. Thank you, Jure, and good afternoon, ladies and gentlemen, and thank you for joining today's earnings call. Before I review our financial results for the quarter, I want to acknowledge the entire Sanmina team for their focused execution and thank them for delivering a solid start to the new fiscal year. Now please turn to Slide 6, where I'll speak to the financial highlights. We're very pleased with our first quarter results, which as you can see, either met or exceeded all of our outlook commitments. Our revenue of $3.19 billion and our non-GAAP operating margin of 6.0% each came in towards the high end of our outlook. In regards to revenue, both the core Sanmina business and the ZT Systems business came in near the high end of their respective outlook ranges. Also, our non-GAAP diluted earnings per share of $2.38 exceeded our outlook. These results represent a great start to fiscal 2026 and set us on the right path towards achieving our growth and margin expansion objectives for the year. Now please turn to Slide 7, where I'll speak to the P&L performance. As I just mentioned, we delivered revenue of $3.19 billion, which was up 59% compared to the same period a year ago. This was driven primarily by growth in the communications networks and cloud and AI infrastructure end markets for the core Sanmina business and the addition of the ZT Systems business, which Jure will speak to in more detail as part of his prepared remarks. Non-GAAP gross profit was $298 million or 9.3% of revenue, up 30 basis points compared to the same period a year ago. This was driven by favorable mix as well as operational efficiencies. Non-GAAP operating expenses were $106 million or 3.3% of revenue, down 10 basis points compared to the same period a year ago. We continue to make targeted investments to drive future growth, but are doing so in a very structured and disciplined manner. Non-GAAP operating profit was $192 million or 6.0% of revenue, up 40 basis points compared to the same period a year ago, and at the 6% level for the second quarter in a row. This is a result of revenue growth, favorable mix, and strong operational discipline. Non-GAAP other income and expense was a net expense of $19.1 million, which was $3.9 million favorable to our guidance, driven by our strong cash generation. Non-GAAP diluted earnings per share came in at $2.38, based on approximately 56 million shares outstanding, and was up 66.1% compared to the same period a year ago. As we mentioned on our prior call, we expect fiscal 2026 to be a growth year, and our results for the first quarter represent a solid start towards achieving that objective. Now please turn to Slide 8, where I'll speak to the segment results. IMS revenue came in at $2.79 billion, up 72% compared to the same period a year ago, driven primarily by growth in the communications networks and cloud and AI infrastructure end markets for the core Sanmina business and the addition of the ZT Systems business. IMS non-GAAP gross margin was 8.7%, up 80 basis points compared to the same period a year ago. This was due primarily to favorable mix, including the impact from the addition of ZT Systems revenue and operational efficiencies in both the core Sanmina and ZT Systems businesses. CPS revenue came in at $434 million, up 4.3% compared to the same period a year ago. CPS non-GAAP gross margin was 12.9% and up 40 basis points compared to the same period a year ago. That being said, the 12.9% is lower than our recent performance, and that's due to multiple investments that came online to support new programs, which we expect will deliver margin accretive growth in the near future as well as a few program transitions. While we executed well, we continue to see opportunity for further improvement in both revenue growth and margin expansion, which we will continue to focus on going forward. Now please turn to Slide 9, where I'll speak to the balance sheet highlights. We maintained a very strong balance sheet in the first quarter. Cash and cash equivalents were $1.42 billion. At the end of the quarter, we had no outstanding borrowings on our $1.5 billion revolver, leaving us with substantial liquidity of approximately $3.6 billion to support the expected growth of the business. We ended the quarter with inventory of $2.2 billion, net of customer advances, which is up 74% versus the same period a year ago, driven by the ZT Systems acquisition. Inventory turns, net of customer advances, were 5.3x for the quarter, down from 5.8x in the same period a year ago, driven by the ZT Systems acquisition. It's also important to note that the Q1 calculation only includes 2 months of ZT Systems' cost of goods sold. Now that being said, core Sanmina's inventory turns, net of customer advances, improved for the quarter, both sequentially and versus the same period a year ago. While we're pleased with these results, we believe there is still room for improvement. Our non-GAAP pretax ROIC was 32.1% for the quarter, well above our weighted average cost of capital and a sizable improvement from the 23.5% from the same period a year ago. We continue to have one of the strongest balance sheets in the industry with a net leverage ratio of 0.8x. This ratio is calculated conservatively by annualizing our Q1 EBITDA results as using the pro forma trailing 12 months for ZT Systems wouldn't accurately represent the current run rate of the business. Our long-term net leverage target remains 1.0x to 2.0x, and we expect our leverage to increase into this range over time as we invest in working capital to support the growth of the ZT Systems business. 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 financial policies to guide our decision-making process. And to be clear, our goal remains to achieve investment-grade ratings over time. Now please turn to Slide 10, where I'll speak to the cash flow highlights. As a result of the team's disciplined working capital management, our first quarter cash flow from operations came in at a solid $179 million. Capital expenditures were $87 million for the quarter, slightly above our outlook. As I've mentioned before, we will continue to make strategic investments in the technologies and capabilities needed to strengthen our position in the market and to support our growth expectations, and we expect to fund these efforts through our strong cash flow generation in line with our capital allocation strategy. To that end, we anticipate ongoing targeted investments in both capacity and technology across our operations in the United States, India, and Mexico, to drive further growth and margin expansion across all of our end markets. Free cash flow was $92 million, enabled by our strong working capital management and operational discipline. During the quarter, we repurchased 516,000 shares for approximately $79 million to offset dilution for the year. At quarter end, we had approximately $160 million remaining on our current 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 11, where I'll speak to our capital allocation strategy. When it comes to capital allocation, it's incredibly important to have a clear strategy and a well-defined set of priorities when making decisions. As we shared with you before, our first priority is to invest in our business to drive long-term organic growth and margin expansion. We evaluate all investments with discipline and take a structured ROI-based approach. Second, we continuously evaluate strategic acquisition and partnership opportunities, which need to meet our ROI expectations to help accelerate our growth. Third, we carefully manage our balance sheet and liquidity position with a focus on our long-term net leverage target as well as our long-term goal of achieving investment-grade ratings. Finally, when appropriate, we return capital to shareholders through share repurchases, subject to maintaining a strong balance sheet and liquidity position. We have and will continue to execute on this strategy by utilizing these options, which enables us to take advantage of opportunities to grow our business. Now please turn to Slide 12, where I'll provide our outlook for the second quarter, which is based on current customer forecasts, a full quarter of the ZT Systems business, and taking into account ongoing market uncertainties stemming from tariffs and the geopolitical landscape. Our second quarter outlook is as follows: We expect revenue between $3.1 billion and $3.4 billion. At the midpoint of $3.25 billion, that reflects 62% growth compared to the same period a year ago. We continue to expect the core Sanmina business to grow in the high single digits this fiscal year. As for ZT Systems, the business is performing well and in line with our expectations as we work through the transition period, and we're very excited and focused on the opportunities and future ahead. Non-GAAP operating margin of 5.7% to 6.2% dependent on the mix of the business. We expect other income and expense to be a net expense of approximately $26 million as it now includes a full quarter of our new debt structure. We expect our non-GAAP effective tax rate to be between 21% to 23%. We estimate an approximate $3 million non-cash reduction to our net income to reflect our India joint venture partners' equity interest. Non-GAAP diluted earnings per share is expected in the range of $2.25 to $2.55 based on approximately 56 million fully diluted shares outstanding. At the midpoint of $2.40, that represents a 66.7% increase compared to the same period a year ago. Capital expenditures are expected to be around $95 million as we continue to invest strategically to support our future growth expectations. Finally, depreciation is expected to be approximately $45 million. In summary, fiscal 2026 is off to a great start. We remain focused on driving revenue growth, margin expansion, and cash generation while maintaining a healthy balance sheet and making investments that further support our strategic objectives. Based on our Q1 performance and our outlook for the second quarter, combined with the demand signals from our customers, we continue to expect fiscal 2026 to be a growth year. There's a lot of work ahead of us, but we are very excited about our future. And with that, let me turn the call back over to Jure.

Jure Sola, Chairman and CEO

Thank you, Jon. Ladies and gentlemen, let me add a few more comments about our results for the first quarter and the rest of fiscal year '26 and beyond. So please turn to Slide 14. As you heard from Jon, we delivered strong results for the first quarter. We delivered revenue and non-GAAP operating margin at the high end of our outlook, and non-GAAP diluted earnings per share exceeded our outlook. Most importantly, fiscal year '26 is on track with our expectations; the way I would say it is a great start to fiscal year 2026. As you can see, our consistent execution is driving our financial performance. Also, I can tell you this is an exciting time to be at Sanmina. Please turn to Slide 15. Let's look at the revenue by end market for the first quarter 2026. For communication networks, cloud and AI infrastructure, that came in around 62% in total. Sanmina's core business in this segment grew year-over-year approximately 20%. ZT revenue came in at the high end of our guidance at a total of $1.964 billion. For industrial, energy, medical, defense and aerospace, automotive and transportation, that was 38% of our revenue or $1.226 billion. That was slightly down year-over-year, about 3%. The way I would evaluate this segment is it is very consistent and stable. This is a heavily regulated market that we participate in, focused on mission-critical and advanced technology products. I will talk more about it later regarding the future of this segment. As you can see, Sanmina is well diversified within market leaders. Bookings continue to be solid, with over 1% for solid demand on existing business and a strong pipeline of new projects. At this time, we're seeing very positive trends across the majority of our focused end markets. To tell you more about it, please turn to Slide 16. Now let me talk to you about the end markets, the way we see it today. Overall, there's a very positive trend for us as we look at fiscal year '26 and beyond. For communication networks and cloud infrastructure, we are well positioned for growth in this segment. For the communications segment, we participate mainly in high-density high-performance networks. We see strong demand for high-performance switches and enterprise storage. We're also growing and expanding our optical advanced packaging products business. We provide high-performance network systems from 400, 800 gig, and we're starting to ship 1.6 terabytes. For cloud and AI infrastructure, we see strong demand and strong growth opportunities, and we are well positioned in the cloud and AI end market. We expect strong, we see a strong pipeline of new projects to drive growth for the second half of calendar year '26 and calendar year '27 and beyond. Now let me talk to you about industrial and energy. For industrial and energy, we have a great base of customers, with strong demand for power products to support AI data centers and solid demand for safety and surveillance equipment. We see solid new projects in the pipeline to drive future growth. The industrial and energy segment is a very strong segment for us. So let me tell you more about our expansion of the new state-of-the-art factory in Houston, Texas for our energy business. The outlook for electricity demand is very positive. There are several areas within these power markets where we have prominent roles, such as distribution, transmission, and storage of electrical power. In energy segments such as distribution, we're focusing on medium voltage transformers. For transmission, we're concentrating on grid-scale transformers. And for storage, we're enhancing battery storage systems. Here, we are involved in the early stages of product design to full systems, utilizing our vertical integration such as electronics, machining, fabrication, bus bars, etc. I should mention that we've been working on this expansion of our energy business for the last couple of years. So we made the decision to grow this business because, as I said earlier, the outlook for electricity demand is very positive. For these projects, we partnered with a company called Contra, out of Croatia, to co-design custom medium voltage transformers for our customers, along with other opportunities for the U.S. market. We have a long-term commitment from our customer. This is a large, industry-leading strategic customer for Sanmina. We're ramping up this facility right now, and we are planning to ship a few units in late 2026 and be ready for full production in calendar year 2027. This presents an exciting opportunity for our energy business and for Sanmina. Let me tell you more about medical. Our medical segment is well diversified within the market that we participate in. We're starting to see a recovery in this medical segment. We expect medical drug delivery devices to grow in fiscal year '26 and '27. Overall, our medical business presents solid opportunities in the pipeline. For defense and aerospace, we continue to see strong demand for the next few years. This segment continues to perform well, and we see strong opportunities in the pipeline for the next few years. For transportation, this business is starting to become more stable. We have a great customer base, and for the next year, we have new programs that will drive our growth. Therefore, in industrial and energy, medical, defense, aerospace, and automotive transportation, we overall expect solid opportunities in these segments and foresee more growth in the second half of fiscal year 2026. Now please turn to Slide 17. Now let me tell you more about Sanmina's ZT Systems AI business. I can express that we are executing according to plan. The integration is on track and going well. A great aspect of this acquisition is that it's immediately accretive to our EPS. ZT Systems margins are in line with those of core Sanmina, as Jon mentioned. Most importantly, we have a strong management and technical team in place. So where do we go from here? We expect more growth in the second half of the calendar year driven by new projects. As I said before, and we're reiterating, the goal is to double Sanmina's revenue in the next 2 years. The AI opportunities are on track to deliver over $16 billion in our calendar year '27. We're also pursuing vertical integration opportunities for AI; as you see on the right side of the slide, we discuss full system integration for AI data centers at scale. Our capabilities for AI data centers are industry-leading, covering everything from components and liquid cooling racks to full system integration at scale. Please turn to Slide 18. Let me talk about our priorities. First, we are focused on our customers as we always have. Our focus is to continue to deepen our customer partnerships and add new market-leading customers to our base. Second, we must continue to focus on leadership in technology. Our technology is a competitive advantage in the high-technology markets. Our capabilities are in place from design to full system at scale, and we plan to do more in the future. Third, we need to execute on ZT Systems' opportunities. ZT Systems is working on large opportunities for the AI data center business, mainly driven by new projects. Sanmina is well positioned, and we're investing in AI data centers while continuing to expand capacity for the future requirements for fiscal years '27 and '28. Number four is to continue to drive profitable and sustainable growth. At Sanmina, we refer to this as building bigger for the future while staying true to our core values, focusing on margin expansion, and diversifying into higher margin sustainable business. I can tell you that we are forecasting steady improvements in operating margin. Short term, we're forecasting a 5.7% to 6% operating margin. Longer term, we expect to enhance those margins from 6% to 7% and above. Overall, our strategy is to build a stronger Sanmina for the future, always maximizing shareholder value for our investors. Please turn to Slide 19. In summary, we are focused on sustainable and profitable growth. As John mentioned, this is a great start to our fiscal year 2026. We expect core Sanmina to grow in the high single digits, with strong demand from AI hardware in the second half of calendar year '26, '27, and into '28, all driven by new platform and technology projects. We have capacity and power requirements to support present customer demand but are also continuing to invest for the future. Our focus on market diversification is centered on opportunities with higher margins. Our manufacturing footprint is well aligned with our customer requirements, and we have a strong presence in the U.S. The key to our strategy is to remain focused on Sanmina's core strategy and to be the partner of choice for market leaders. So ladies and gentlemen, thank you all for your time and support. Operator, we're now ready to open the lines for questions and answers, and thank you again.

Operator, Operator

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

Ruplu Bhattacharya, Analyst

Can you help me parse through the sequential revenue guidance for the March quarter? Looks like revenues at the midpoint are guided up $60 million. If I think about it, ZT, you should have a full quarter of revenues, which is about $1.4 billion. That means that Sanmina itself is contributing, say, $0.5 billion of incremental revenues for 2 months versus 3 months in the March quarter. So is something weaker sequentially? Like any color you can give us on revenue from legacy Sanmina versus ZT non-accelerated versus NVIDIA? How are you seeing the trends in those different buckets of revenue?

Jure Sola, Chairman and CEO

Okay. First of all, actually, our business is improving in the second quarter. So let me explain that. Yes, you're right. We only had 2 months, and you cannot take 2 months and divide by 2 and multiply by 3 because the transition of our business is mainly focused on what we call the base business that’s going to stay with us and the future business. So if you really look at it today from our perspective, we're only guiding one quarter at a time. However, overall, if you look at the Street expectations, we feel comfortable with that. We're just guiding one quarter. For the first quarter, we should be more than a 3% expectation, approximately $100 million. As we're guiding to $3.1 billion to $3.4 billion, Sanmina's core business will grow quarter-over-quarter and will grow double digits year-over-year. We also expect the ZT Systems business to grow quarter-over-quarter. So overall, we expect a strong quarter. Most importantly, I think we are positioning the company for the new products and new platforms that are going to emerge at the end of the fiscal year and the calendar year, and we're investing for that. We're really excited about the future.

Jonathan Faust, Executive VP and CFO

I think you covered it well, Jure. First and foremost, just to clarify regarding Q1 results, both parts of the business—core Sanmina and ZT Systems—performed well at the high end of the range. We did provide specific guidance in that first quarter, but we're very pleased to see both parts of the business perform well. Yes, ZT Systems is effectively in line with our expectations. You can go back to what we said back on May 19 and see that everything we've committed about the business has happened as expected, including in Q1. We're very excited about the future. The transition is taking place as anticipated, and we're focused on executing those new opportunities.

Jure Sola, Chairman and CEO

To add to that, we have a lot of interest from existing and future customers regarding what's going on. I mentioned in my prepared statement, I'm very comfortable and excited with the team and what they can achieve. They are effectively self-sufficient going forward. So this was a great acquisition for Sanmina, and this will transform Sanmina significantly. There's no way we could get to 2027 without the potential we have and the new platforms coming out.

Ruplu Bhattacharya, Analyst

Okay. I appreciate the details there. Can I ask a conceptual question about the business? I see there are really three parts to it. There's the non-accelerated part, which would be just non-GPU servers or racks. Then there's the accelerated part, and there's some legacy NVIDIA business you would have. As we think about this total revenue, I think last quarter, we were talking about high $5 billion to $6 billion, and the guidance implied something like $5.7 billion. Does that $5.7 billion kind of factor in some decline in the NVIDIA part of the business whereas as you ramp AMD, you're going to be focused more on that? How fast do you think that transition can occur this year? Do you think that you will ramp AMD in time to offset any declines in the NVIDIA business?

Jonathan Faust, Executive VP and CFO

Good question, Ruplu. Back in May '19, we indicated that once we closed the transaction, we would expect the revenue run rate to be between $5 billion to $6 billion, which reflected our outlook on how that transition would occur with the accelerated compute component of the portfolio. That has unfolded as we expected. If you annualize our Q1 guide to 2 months, you get to $5.7 billion. We're still navigating that transition right now. Many old platforms have rolled off, so we are focused on the future. That's why we wanted to clarify at the time we were just guiding the Q1 number and now guiding Q2. The opportunities, as Jure mentioned earlier, for accelerated compute are significant. That's our current focus and it comes towards the end of our calendar year 2026.

Jure Sola, Chairman and CEO

Yes, adding to that, opportunities utilizing the AMD partnership are substantial for us. We are making all the necessary investments to support future demands. So Ruplu, as you know, we prefer to guide one quarter at a time. We feel confident about our guidance. As evident, we are increasing our earnings per share. This is the second quarter that we delivered at 6%. We can expand margins on both Sanmina and ZT in the future. There are exciting prospects ahead, and we see more vertical integration opportunities that we are beginning to address. In one year's time, we expect that the vertical integration around the AI data center business will improve. And our core business around data centers is performing very well. Overall, we are pleased with what we have. While there was a slight downturn in the automotive segment, it's stabilizing, while other business segments are moving in the right direction.

Ruplu Bhattacharya, Analyst

Can I ask for clarification, Jure? I know you're not guiding for the full year, but one thing you said in your prepared remarks is that when you look at consensus estimates, you're comfortable with them. If I look at incentives for 2026, it's around $14 billion of revenue. I think your last guidance for ZT was in the high $5 billion to $6 billion range. Are you still comfortable with that message today?

Jure Sola, Chairman and CEO

The message is that if you look at the first call, we believe we have a very good chance of hitting $14 billion.

Ruplu Bhattacharya, Analyst

Understood. Can I ask...

Jure Sola, Chairman and CEO

As much as I hate to provide yearly expectations, I can tell you I'm personally more optimistic about some opportunities we have today than I was back in May when we made the deal, and even stronger than 90 days ago. Though there’s quite a bit of work ahead, we are prepared for it.

Ruplu Bhattacharya, Analyst

Right. If I can sneak one last one in. Jure, let's move beyond data centers. Regarding the communications market, it seems to have been undergoing years of inventory correction. How do you see that recovering? What happened in the December quarter, and how do you see the March quarter in terms of the overall communications market—whether it's optical or networking, or whatever part you play in it?

Jure Sola, Chairman and CEO

Yes, our performance in the communications market is very strong. We have some material shortages out there around memory and some custom ASICs, but demand is very strong, and we expect that strength to continue. It was very strong in the December quarter, and I believe it will remain strong in the March quarter. I anticipate continued strength for the remainder of the year. However, as always, we prefer to take it one quarter at a time. But we're excited about the overall year and the future.

Operator, Operator

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

Steven Fox, Analyst

I guess just off of all that, maybe you can tie that into the operating margin. It looks like the operating margin was a little bit better in the quarter. It appears that it could be flattish moving forward. Can you talk about the factors influencing this, both positive and negative, and why you're able to maintain that 6% margin, not only this quarter but next quarter as well? I have a follow up question.

Jonathan Faust, Executive VP and CFO

Yes, Steve, this is Jon. We're very pleased with the operating margin for the quarter. As I mentioned in my prepared remarks, it pretty much aligns with where we finished last year in Q4. It's largely dependent on mix. That was a significant factor in our business. But it's also the same levers that we’re consistently focused on. Just to clarify, we're always looking to drive operational efficiencies within both our segments—IMS and CPS. The addition of ZT Systems has positively influenced the overall mix. We're consistently scouting for opportunities to enhance our SG&A cost structure, and we're focused on growing segments that are accretive to the overall margin profile. Last year, Jure and I spoke about various investments we were making in CPS, particularly those that would be margin accretive. We are beginning to see some returns on those investments, leading to some short-term pressure in CPS, but the long-term opportunities are very much present. It's the same set of strategies we continuously implement, and that will remain our focus going forward.

Jure Sola, Chairman and CEO

To add to that, the investments we are making, specifically looking ahead to '26 and '27, are primarily focused on businesses that can yield higher margins for us. The key for us is that we will take one day at a time and one quarter at a time, but we are positioning the company to actively pursue higher-margin business opportunities, ones that we expect to be sustainable, not just for one quarter but for many quarters. Our business is becoming increasingly technology-driven, which demands a higher return on investment to enable future investments.

Steven Fox, Analyst

Just to be clear, when we're discussing mix here, John, are we referring to the mix of components, products, and services or the mix across different markets?

Jonathan Faust, Executive VP and CFO

Steve, I was more focused on the mix across components, products, and services. At the end of the day, it's critical to remember that despite the acquisition of ZT Systems, our core strategy remains unchanged. Sanmina is committed to focusing on technology-driven growth. With ZT, we have effectively expanded our IMS portion of the portfolio. The strategy of enhancing our offerings across all businesses remains constant, with a keen eye on maintaining cost efficiency while growing CPS to constitute a larger part of our overall mix and focus.

Unknown Analyst, Analyst

Got it. And then as a follow-up, can you provide more insight on ZT's upcoming wins later in the year? It sounds like you have confidence in your acquisitions and significant contracts. Is it all accelerated compute-related technology, or how would you describe why you are confident in achieving your $14 billion to $16 billion revenue targets?

Jure Sola, Chairman and CEO

First and foremost, the reason we are winning is execution. Our team is well-known for its capability to execute effectively. They have established strong relationships with our existing customers. We are structuring for the future, and our upcoming technologies will allow us to handle very complex systems. Our customers believe we are positioned to win. That said, we still have to work on it and deliver on our commitments. Opportunities are not an issue. It's all about timing and ensuring that we deliver what we promised to our customers. Anything else, Jon?

Jonathan Faust, Executive VP and CFO

The only thing I would add, Steve, is that multiple components contribute to the ZT business. All of these aspects are areas of interest and investment for us. The accelerated compute sector represents a substantial growth opportunity, and we're focused on all elements of the business.

Jure Sola, Chairman and CEO

Moreover, I should mention that while we typically don’t speak of this much, there was considerable concern that we wouldn't retain all customers. However, our team has done a fantastic job, and there's high confidence that these customers will continue to grow with us in the future. We plan to add new customers to our portfolio as well, so from an opportunities perspective, that’s not a concern. The demand is there based on what we observe and hear from our customers. As mentioned before, we spent around $87 million in the last quarter, and we plan to surpass that this coming quarter as most of that investment targets our growth expectations for '27 or '28.

Operator, Operator

There are no further questions at this time. I would like to turn the call back to Jure Sola for closing comments. Sir, please go ahead.

Jure Sola, Chairman and CEO

Well, ladies and gentlemen, again, thank you for your time today. Hopefully, we answered most of your questions. If not, please feel free to contact us. Looking forward to talking to you, if not in the near term, then 90 days from now. Thanks a lot. Bye-bye.

Operator, Operator

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