Research & Analysis: Sanmina Corporation (NASDAQ: SANM)

SANM, Industrial Automation & Nearshoring contract manufacturing

I’ve been seeing more and more reports of the decoupling of US and Chinese trade due to the ongoing trade war. It’s surprising how fast the shift in tone has changed from being a terrible move on the US’s part to Chinese factories and ports are struggling in orders & bookings, and shipments. It feels like an eternity since tariffs were imposed on China given the heightened awareness across media platforms, from reports in the Wall Street Journal to casual postings on LinkedIn. I’m even seeing “influencers” discuss the topic on social media, whether they’re talking about the localized impacts of the trade war or discrediting fashion brands for overpriced leggings and handbags. Though none of this should come as a surprise given the typical retail markup and the nameplate value, the kicker is that the majority of the fashion-oriented targeting are French and Italian brands, not US brands.

Regardless, it is becoming more and more clear that the days of cheap Chinese manufacturing may very well be behind us, bringing in the new age of Industry 4.0.

This led me to wonder exactly how the decoupling will be resolved. Of course, manufacturing and resource sourcing will need to be migrated from China to other countries, including the US. As discussed in the previous weeks’ newsletters, industrial automation will be front and center as the next-generation facilities are erected.

With the rerouting of trade and manufacturing, one has to wonder who exactly will pick up the work. Most products, including electronics devices, are outsourced across multiple facilities before reaching a product integrator, similar to Apple’s relationship with Foxconn.

This week we’ll be reviewing Sanmina Corporation (NASDAQ: SANM), a contract design and manufacturing firm based in San Jose, California. Sanmina is a vertically integrated contract manufacturer that designs and manufactures various systems and subassemblies for customers.

Sanmina Operations

63% of Sanmina’s operations are in the industrial market with the remaining 37% being in communications and cloud infrastructure. Sanmina operates across multiple markets, including

• Industrial & Energy

• Medical

• Aerospace & Defense

• Automotive

Management sees the industrial & energy markets to be high-growth opportunities for the firm in the coming years. Sanmina is currently seeing new projects in the pipeline that can drive growth. Medical and aerospace & defense remain strong for Sanmina, potentially driving accretive growth. Though management is optimistic of the automotive & transportation market, I suspect that area of business may become a laggard with the carved-out 25% tariff on automotive and related parts.

I suspect these projects center around the rerouting of international trade as manufacturing migrates closer to home. This in particular may be impacted by the recent tariffs imposed on China as alluded to at the beginning of this report. Tariffs could go multiple ways for Sanmina; for example: