Sanmina Corporation (NASDAQ:SANM)

CAPS Rating: 5 out of 5

An independent global provider of customized, integrated electronics manufacturing services. The company provides these services primarily to original equipment manufacturers.

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Player Avatar NetscribeSemiCdr (41.10) Submitted: 5/30/2007 7:52:02 AM : Underperform Start Price: $3.52 SANM Score: -536.37

For the second quarter ended March 31, 2007, Sanmina-SCI reported revenue of $2.61 billion, down from $2.78 billion in the first quarter of fiscal 2007 ended December 31, 2006 and modestly down from $2.67 billion reported in the second quarter of fiscal 2006 ended April 1, 2006. Net income for the second fiscal quarter of 2007 was $793 thousand, down from the first quarter net income of $34.7 million.

Sanmina’s has been working on its restructuring plans with restructuring going on in it’s in the components business, due to which it was negatively affected. The company generates approximately 20% of its revenues from the sale of electronic components, specifically bare printed circuit boards, high-end backplanes, cables, enclosures, machining, optical modules, and plastics. The most recent quarter’s results highlighted ongoing problems in this business, as the sales from this business declined 20% sequentially; driving the company’s operating margins down 100 basis points from 2.5% to 1.5%.

The company’s most recent restructuring plan calls for selling off non-core assets—its PC assembly business, a memory module business, and other assets. The management is looking out sell of its underperforming PC business but the company is unlikely to find a buyer of its PC business. Additionally two of the company’s PC customers, IBM and HP, are customers in other segments of the company’s business, accounting for almost 10% of the revenue. Walking away from the PC assembly business is also expected to trigger business losses in the other segments of the company.

With end demand headwinds in major markets compounding an already cloudy roadmap in its components business, Sanmina is unlikely to impress the investors in the coming months.

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