Based in San Jose, California, Sanmina-SCI Corporation (SANM) is a supplier and manufacturer of end-to-end electronic manufacturing services (EMS) and complex electronic components like printed circuit boards (PCBs) and backplane assemblies. Yesterday, the company announced that it will release its third quarter 2009 results on July 22, 2009.

In the second quarter, Sanmina had reported GAAP revenue from continuing operations (core EMS) of $1.195 billion, which was down 34.2% year-over-year. Revenues were below the company’s guidance and our expectation. Adjusted net loss per share for the quarter was $0.06, a reversal from our expectation of net profit.

Sanmina had reported flat top-line growth in fiscal 2008 with much lower revenue in the first half of 2009. This is a result of softness across all of its end markets, and weak demand impacted by a deteriorating global economy.

The company also issued disappointing guidance for the third quarter on account of weak demand. Sanmina stated it would generate positive cash flow from operations in the quarter, but provided a cautious outlook. Moreover, we believe that the outlook for the industry is weak, as core sectors continue to face sluggish demand.
 
As a result of a slowdown in the global electronics industry and the world economy, Sanmina had earlier initiated a restructuring plan under which it announced the closure of facilities in Western Europe, and plant closures in Sweden, Pheonix, Arizona, Cherbrook, and France. It had shut down 70 factories and retrenched approximately 25,000 employees, mainly in North America and Europe.

It further plans to retrench approximately 10% employees worldwide. The restructuring plan undertaken during the first quarter is expected to be completed by the end of fiscal 2009 and total costs are expected in the range of $25.0 million to $35.0 million.

Operating expenses have continued to move downward since the last year, as the company focused on reducing its infrastructure costs. The company anticipates additional improvements this year as it continues to reduce waste, take advantage of low-cost footprint, and improve operational efficiency. Sanmina expects to continue pursuing its long-term global realignment program, which is expected to further reduce tax expense in 2010.

However, given our industry-wide concerns, limited customer demand visibility and a challenging global economy, we believe sustained improvements could be hard to come by. Although Sanmina has improved its cost structure, top-line growth is sluggish and we believe the company will struggle in 2009.

In addition, Sanmina operates in a highly competitive EMS industry, which includes companies such as Celestica (CLS), Flextronics International (FLEX), Hon Hai (FoxConn), Jabil Circuit (JBL) and Plexus Corp (PLXS) that provide a broader range of manufacturing services to companies that utilize electronics components.

We expect Sanmina to report adjusted net loss of $0.04 per share in the third quarter of 2009. Revenues are expected to slip about 36.6% year-over-year. We rate the stock a Sell and set a six-month target price of $0.20.

Read the full analyst report on “SANM”
Read the full analyst report on “CLS”
Read the full analyst report on “FLEX”
Read the full analyst report on “JBL”
Read the full analyst report on “PLXS”
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