Sanmina Corporation (SANM) Q1 2026 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to Sanmina's First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] 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.

Thanks, [indiscernible]. 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.

Good afternoon.

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 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, 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.

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today, and Happy New Year and all the best to all of you. First, I would like to take this opportunity to recognize our employees and Sanmina leadership team for doing a great job. So to you, Samina team thank you for your dedication hard work and 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, and we delivered strong cash flow from operation 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 John, 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 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, 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 and exceeded our outlook. These results represent a great start to fiscal 2026 and sets 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 VT Systems business, which Jerry 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 and based on approximately 56 million shares outstanding and 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 ZG 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, that Q1 calculation only includes 2 months of ZT systems cost of goods sold. Now that being said, core Sanmina 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 technologies 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 CAP 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. And 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 to $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 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 noncash reduction to our net income to reflect our India joint venture partners' equity interest. Non-GAAP diluted earnings per share in the range of $2.25 and 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. And finally, depreciation of 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.

Thank you, John. Ladies and gentlemen, let me add a few more comments about our results for the first quarter. and the rest of the fiscal year '26 and beyond. So please turn to Slide 14. As you heard from John, 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 important, fiscal year '26 is on tracking to our expectation, the way I would say it, 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 exciting time to be in 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 core business in this segment grew year-over-year approximately 20%. ZTE revenue came for our plan at the high end of our guidance in 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 review this segment is very consistent and stable. This is a heavy regulated market that we participate, and we focus on mission-critical and advanced technology products. and I'll talk more about it later on about the future by this segment. As you can see, Sanmina is well diversified within market leaders. Bookings continues to be solid, over 1% -- over 1 I should say, solid demand on existing business and 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 -- more about end markets, the way we see it today. overall, it's a very positive trend for us as we look at the fiscal year '26 and beyond. For communication networks and cloud infrastructure, we are well positioned for growth in this segment. For Communications segment, we participate mainly in a 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 do high-performance network systems from 400, 800 gig, and we're starting to ship 1.6 terabytes. For cloud and AI infrastructure, we see a strong demand -- strong growth opportunities, and we are well positioned in cloud and AI end market. We expect strong -- we see a strong pipeline of new projects to drive the growth for 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. We have 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. Industrial and Energy is the very strong segment for us. So let me tell you more about our expansion of new state-of-art factory in Houston, Texas for our energy business. Outlook for electricity demand is very positive. There are several areas for these power markets were [indiscernible] plays such as distribution, transmission and storage of electrical power. In Energy segments such as distribution, we're going to focus on medium voltage transformers. For transmission, we're going to focus on grid scale transformers. And for storage, storage battery storage systems. Here, we basically get involved in early stage of product design to full system and utilizing our vertical integration such as electronics, machining, fabrication, bus bars, et cetera. On this extension, I should say, of this energy business, we've been working for the last couple of years. So we made a decision to to basically 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 Europe, Croatia, to co-design custom medium voltage transformers for our customers plus other opportunities for U.S.A. 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. It's exciting opportunity for our energy business and also for Sanmina. Let me tell you more about the medical Medical is well diversified within a 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. An overall medical business for us, we see solid opportunities in pipeline. For defense and aerospace, we continue to see strong demand for the next few years. This segment continues to do well. We see strong opportunities in pipeline for next few years. For our more in transportation, this business for us, starting to become more stable. We do have a great customer base. And what we see for next year is that we have new programs that will drive that growth for us. So for industrial and energy, medical, defense, aerospace, automotive transportation, overall, we see solid opportunities in this segment. and we expect to see more growth in the second half of fiscal year 2026. Now please turn to Slide 17. Now let me tell you more about Sanmina T system AI business. I can tell you that we are executing to the plan. Integration is on track and is doing well. Good thing about this acquisition is it's immediately accretive to our EPS. ZT system margins is in line with our core Sanmina, as John told you. And most important, we do have strong management and technical team in place. So where do we go from here? We expect more growth in the second half of calendar year driven by new projects. As I said before, and we're saying this again, the goal is to double Samina revenue in the next 2 years. And what we see today, the AI opportunities are on track to deliver a $16-plus billion in our calendar year '27. We're also pursuing vertical integration opportunities for AR. As you see on this slide, on the right side of the slide, when we talk about full system integration for AI data center at the scale. So you can see all the way from design to the full system. Our capabilities for AI data center are industry-leading for components from components and liquid cooling racks to full system integration at scale. Please turn to Slide 18. Let me talk about our priorities. Number one, we are focused on our customers as we always did. The focus is to continue to broaden and deepen our customer partnership. And we are also adding new market-leading customers to our base. Number two, 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 are planning to do more for the future. Number three, how to execute on ZT system opportunities. ZT systems is working on large opportunities for AI data center business, mainly new projects driven. Sanmina is well positioned. We are investing in AI data center and continue to expand capacity for the future requirements for fiscal year '27 and 28 in -- and of course, number 4 is to continue to drive profitable and sustainable growth. In Sanmina, we call this building big for the future, while staying through to our core values focusing the margin expansion, continue to diversify to higher and sustainable margin business. I can tell you that we are forecasting steady improvements in operating margin. Short term, we're forecasting 5.7% to 6% operating margin. And longer term, we expect to improve those margin from 6 to 7-plus percent. So overall, our strategy is to build bigger as stronger Sanmina for the future and always maximize shareholder value for our investors. Please turn to Slide 19. I -- 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. -- and we expect strong demand from AR hardware in the second half of calendar year '26, '27 into 28, all driven by new platform, new technology projects. We have capacity and power requirements to support customer demand for present demand, but we are continuing to invest for the future. We focused on market diversification with higher margin opportunities. Our manufacturing footprint is well aligned with our customer requirements, and we do have strong U.S.A. presence. The key to our strategy, again, to continue remain focused on Sanmina's strategy and to be a partner of choice with the market leaders. So ladies and gentlemen, now I would like to 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 Instructions] Your first question comes from the line of Ruplu Bhattacharya from Bank of America.

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 DT itself is contributing, say, $0.5 billion of incremental revenues 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 T NVIDIA? How are you seeing the trends in those different buckets of revenue?

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 I don't think it's -- you cannot take 2 months divided by 2 multiple by 3 because the transition of our business, this business is mainly all businesses being transitioned, and we're now strictly focus what we call 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 1 quarter at a time. But if -- but overall, if you look at the Street expectation, we feel comfortable with that. We're just guiding 1 quarter. For the first quarter, we should be more than a 3% expectation by approximately $100-plus million. So as we're guiding to $3.1 million to $3.4 million, Sanmina business itself, the core business will grow quarter-over-quarter and will grow double digits year-over-year, okay? And we expect ZT system to grow quarter-over-quarter. So overall, we expect a strong quarter. Most importantly, I think we are positioning the company for the new product, new platforms that are going to be coming up in the end of the fiscal year and calendar year and we're investing for that. So we're really excited about the future about that. So that's all I have to say, Jon, anything else you want to add to that?

I mean I think you covered it well, Jure, I mean First and foremost, just talking about the Q1 results, Ruplu, both parts of the business. Core Sanmina and ZT Systems performed well at the high end of the range. And we did provide specific guidance in that first quarter, but we're very pleased to see both parts of the business do well. And yes, just like Gary was saying, ZT Systems is effectively in line with our expectations. You go all the way back to May 19 what we said and pretty much everything we've said and committed about the business has been happening the way that we expected, including in Q1. So very excited about the future. The transition is taking place like we expect, and we're just focused on executing those new opportunities.

As you can add to that up, I think we have a lot of interest from existing customers and future customers what's going on. And as I said in my prepared statement, the most importantly, I think the more learn about site's management. I'm very comfortable, very excited with the team, what they can do. It's -- they're basically self-sufficient going forward. So we're excited, a great acquisition for Sanmina, and this will transform Sanmina. I mean there's no way we could get to in '27 without a potential that we have and the new platforms coming out.

Okay. I appreciate the details there. Can I ask a conceptual question about as I see the business, there are really 3 parts to the business, right? 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. And then obviously, you're going to be ramping with AMD in the second half of the year, as you said. 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, and so that will ramp. So any thoughts on how fast that transition can occur this year? Like do you think that you will % AMD in time for any offset to the NVIDIA business that might decline?

Yes. Good question, [indiscernible], this is Jon. So just to verify and a reminder for everyone, the -- back in May '19, we said when we closed the transaction, we'd expect the revenue run rate to be between $5 billion to $6 billion. right? So that was implying that we had a point of view on how that transition was going to occur with the accelerated compute component of the portfolio and they pretty much landed right in our expectations, right? You annualize our Q1 guide to 2 months and you get to $5.7 billion. But we're still going through that transition right now. And a lot of the old platforms at this point now have rolled off. So we're really just focused about the future. But that's why we wanted to be clear at the time we were just guiding the Q1 number that we did, and now we're guiding Q2. But the opportunity, like Jure was saying for accelerated compute specifically is is huge. And that's what we're focused on right now and doing our part of that to be able to execute on that demand and on that opportunity. And that really comes towards the end of our calendar -- at the end of calendar 2026.

Yes. If I can add to that, we really -- opportunities utilizing AMD partnership is huge for us and all the investments being made to be able to support future required. So Ruplu, I would just say is, you know us, we like to guide 1 quarter at a time. We feel very comfortable about our guidance. As you can see, we are increasing our earnings per share. This is the second quarter that we delivered 6%. I think we can expand margins, both on Sanmina side and ZT site in the future. Those are exciting things. and there's a lot of vertical integration opportunities that we're starting to kind of work on that. It's going to take some time. But in a year from now, we should be able -- that part of the business when it comes to vertical integration around the AI data center will improve. And then our core business around data center is doing really well. So we are -- we like what we have. As I said in my prepared only few businesses is that automotive was down, but it's getting stable, but everything else starting to move in the right direction.

Can I -- can I ask a 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 that. If I look at incentives for 2026, right now, it's about $14 billion of revenue. And I think your last guidance for ZT was kind of in that high $5 billion to $6 billion range. Are you still comfortable? Is that the message today [indiscernible]

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

$14 billion okay. I understand. And then can I ask...

As much as I hate to tell you on a yearly basis, let me just put -- I'm personally more excited about some front of what opportunities we have today than in May when we did a deal and even a lot stronger than 90 days ago, a lot of work in front of us, but we're not afraid of work.

Right. If I can sneak one last one in. Jure, let's move beyond data center. If you look at the communications market, right, I mean from an optical and networking, how are you -- that market has been going through many years of inventory correction -- how do you see that recovering? What is happening? Can you give us what happened in the December quarter and how you see the March quarter in terms of the overall communications market, whether it's optical or networking or whatever the part you play in.

Yes, very strong. I mean, very strong today. I mean we have some material shortages out there around memory and some of the special ASIC customer ASIC but very strong demand, and we expect -- first of all, it was very strong in the December quarter. It will continue to be strong in March quarter. I think it will be very strong for the rest of the year. But Ruplu, 1 quarter at a time, but we're excited about the year and the future.

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

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 looks like it could even be flattish this quarter. Can you talk about some of the things going on, puts and takes and why you're able to hang on to that like 6 handle maybe not only this quarter, but next quarter? And then I have a follow-up question.

Yes. Steve, this is Jon. So very pleased with the operating margin for the quarter. As I was saying in my prepared remarks, pretty consistent with where we exited last year in Q4. And it's largely dependent on mix. That was a big factor in our business. But it's also the same levers that we're always focused on, that we're talking about. So just to be clear and to reiterate that, but we're always looking to drive operational efficiencies within both of our businesses or within both of our segments, both IMS and CPS. Clearly, the addition of ZT it helped out as well. We're always looking for opportunities we're efficient with our SG&A cost structure, too. And we're really focused on growing those businesses that are accretive to the overall margin profile. Last year, Jure and I talked a lot about investments that we were making in CPS in particular, that would be margin accretive. And we're starting to see some of those investments coming online. So that created a little bit of short-term pressure in CPS in particular, but long term, the opportunity is there. So it's the same set of levers that we're always executing on, and that's what we're going to continue to do going forward.

[indiscernible], I can add to that. And investments that we are making, especially as you look at in the '26, '27 a year, it's a lot of it in the businesses that can deliver the higher margin. for us. So the key for us, that's why we feel -- of course, you've got to take one day at a time, one quarter at a time, but we are positioning company to really push for the higher-margin business, something that is sustainable, not just for 1 quarter, but is sustainable for many quarters. As you can see, our business is becoming more technology driven. It requires a higher return on investment to be able to make investments for the future.

And just to be clear, when we're talking about mix here, John, are we talking about mix of components, products and services or mix across served markets.

[indiscernible], I was referring more to across components, products and services, Steve. I think at the end of the day, I think the key important thing to remember here is that even with the acquisition of ZT Systems, our core strategy hasn't changed. What Sanmina wants to focus on. Clearly, that added to the overall IMS part of the portfolio. And that's great. It's essentially an extension of the TAM more broadly into the data center end market or as we call it the cloud and AI infrastructure end market. But the core strategy of always trying to get better on all the programs across all of our businesses hasn't changed and then also our focus on our cost structure and just growing CPS to be a bigger component of the overall mix. So core strategy hasn't changed, excited about and just on XT, they've been executing well, pretty much everything that we said back to May, we've executed on to date. And now we're focused, as Jure was saying, on all the opportunities we've got ahead of us in that business.

Got it. And then just as a follow-up, can you just help us a little bit more on the ZTE wins for later in the year? It sounds like you have confidence in these wins that you've won some substantial stuff -- but I'm wondering if you can give us color as to is it all accelerated computer-related legacy technology too. How would you sort of describe what and why you're winning that you have confidence in doing like $14 billion [indiscernible] $16 billion in [indiscernible]

I think number one, why we're winning is execution. This is a great team. They are known to execute. They have a very strong relationship with existing customers. And the way we are structuring for the future and the technologies that are coming out, these are very difficult systems. And I believe that we are positioned our customers believe that we're positioned to win. We still have to work on it and deliver opportunities [indiscernible] are there. I mean, opportunity is not an issue. I think it's all about timing and making sure that we do what we said we're going to do as we're making commitments to our customers. Anything else, Jon?

The only thing I would add to that, Steve and Ruplu talked about it earlier, but there's multiple components to the ZT business and all of them we're interested in and we're investing in accelerated compute is certainly the part of it that has the most growth potential, but we're focused on all aspects.

And I think what I would just to set, we don't talk too much about it, but I think we're able to there was a lot of talk. We're not going to be able to retain all customers. I think our team is doing a great job, and we have a high confidence that those customers will grow in the future, and we're going to be adding new customers to that. So from an opportunities point of view, that's not an issue. I think the demand for at least what we see today, what we hear from our customers, like I said, there's a lot of opportunity. We are investing for the future. As you just heard from John earlier, we spent, what, over $85 million last quarter $87 million, and we're going to be spending around 90 plus. And that's all for future. That's -- 90% of that is really for '27 or '28.

[Operator Instructions] Your next question comes from the line of Anja Soderstrom from Sidoti.

So within Industrial Medical, our understands where -- what was the pocket of weakness there to [indiscernible]

Well, I think as I said in my prepared statements, I think we had some weakness in the last couple of quarters in automotive, transportation, part of the way we measure it. They're starting to stabilize, and it's mainly driven with some of the new programs that are coming that we won. And so I would say that business is going to be a short-term stable, but the longer term, I think, will start recovering. Medical is starting to recover pretty nicely. We're pretty well diversified there. Defense and Aerospace, it's pretty stable. It's all about these are long-term programs and just that sometimes they don't move as fast, but the demand for those are solid Industrial, I just talked about earlier, that's a very good market for us. We talked about expansion down in Houston, Texas. We do have orders and the books already for what we call medium voltage transformers that we codesign with the Croatian European company. We're very excited about that. Actually, customer wants the product today. So overall, that segment, we expect it to grow more growth in the second half of our fiscal year, calendar year.

Okay. And did you say you expected that to grow sequentially in the second quarter?

Yes, we're going to see some growth in the second quarter, but we'll see more growth in the second half of of our fiscal year '26.

And then in terms of the cash cycle days, you said there were some things going on in this quarter that drove that up. Do you think we'll see a drop in the second quarter? Or is that going to be taking some time to get that down?

Yes. What I was referring to there, Anja, is that whether it's our -- I was talking primarily in my prepared remarks about inventory turns. And in that calculation, you've got the full amount of inventory that came over from but only 2 months of the cost of goods sold. So it somewhat distorts the calculation. Same thing applies for the cash conversion cycle, but that also applies to revenue as well. So I think we'll be a little bit better. But all in all, we're pleased with performance of the business on that front. And it's per our expectations. As I mentioned for core Sanmina, we drove improvement on inventory turns, and that's been the big area that we've been focused on for the last couple of years. So we continue to do well on that front, but more work to be done. In ZTE, once we've got a full quarter in there, I think you'll get a more realistic view of inventory turns, cash conversion cycle. But as always in our business, that's always going to be an area of focus of where can we optimize, how can we do better?

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.

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

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