Sanmina-SCI: The good, the bad, and...the potential?

October 30, 2007

A Wall Street review for recent financial performance for electronics manufacturing services (EMS) provider Sanmina-SCI follows.

Bear Stearns electronics contract manufacturing industry analyst, Kevin Kessel, opines there's some good news and there's some bad news coming from Sanmina-SCI's most recent quarter.

The good news is that Sanmina-SCI's quarter was slightly above Wall Street's expectations plus, it guided to further improvements roughly inline with Wall Street expectations. The company also posted $111 million in free cash flow and approximately $419 million for FY07...which is about $0.8 per share in free cash flow. This is certainly noteworthy for a $2 stock.

However, Stearns' Kessel also noted he can't ignore the bad news which includes Sanmina-SCI's enclosure business losing approximately $10 million for the second quarter - in a row; the inability for the Company to sell off its personal computing business, which, by the way, creates the possibility for more write downs on top of the $1.1 billion goodwill impairment during the recent quarter and, the lack of visibility toward future growth for the Company.

Essentially, Kessel notes that Bear Stearns sees Sanmina-SCI's financial FY08 performance to be flat when compared to FY07.

Kessel continues his analysis of Sanmina-SCI by pointing out that after a company writes down $1.1 billion in goodwill, one could wonder what future potential may exist for that particular company.

He goes on to indicate he believes Sanmina-SCI has potential, but, he stresses it is important to try to determine whether the Company's potential will ever be realized.

There are a lot of ‘if's' involved, indeed: if the Company's new management hires can fix its vertical model and make it work; if Sanmina-SCI can sell its personal computing business, if it can find a way to return to growth and, if it can continue to generate free cash flow at its current rate.

Sanmina-SCI is guiding for $650 million to $750 million in free cash flow in FY08 (including divestitures) which is approximately $1.30 per share.

Source: Bear Stearns