Sanmina-SCI Corp. had some promising news in its latest quarter: Revenue was slightly higher than expected, gross margins swung up nicely, inventories fell to a two-year low, cash flow from operations rose and the promised management changes at key business units were completed.
Moreover, Sanmina-SCI stayed in compliance with all of its debt covenants and generated enough cash to refocus attention on paying down debts.
"What can I say about [fiscal] 2007?" asked Jure Sola, chairman and CEO of Sanmina-SCI during a conference call on the company's results. 'It was a challenging year. We are finishing our restructuring here and the good thing is that we are almost done. It was also a transition year for us, going to a new strategy."
If Sola and his crew were somewhat satisfied with Sanmina-SCI's improvements over the last quarter, investors and analysts were quick to indicate they expected more. While the company successfully chipped away at its problems during the fiscal 2007 fourth quarter ended Sept. 29, it made limited progress on other fronts, according to Kevin Kessel, an analyst with Bear Stearns & Co. Inc.
"The good news is that Sanmina's quarter was slightly above expectations and it guided to further improvement roughly in line with expectations," Kessel said in a report. "But, we can't ignore the bad news which includes the enclosure business losing $10 million for the second quarter in a row, the inability to sell the PC business which creates the possibility for more write downs on top of the $1.1 billion goodwill impairment in the quarter and lack of visibility towards future growth."
Executives at the San Jose, Calif.-based company urged patience, noting that the company saw positive results from strategic reorganization steps being taken to put the difficult times behind it. In the latest quarter, for instance, sales fell to $2.5 billion in the September quarter from $2.7 billion in the year-ago comparable period. Gross margins improved to 5.1 percent from 4.7 percent.
Operating expenses, after excluding one-time charges, also declined, and the company recorded improvements in various end-markets, including communications, multimedia, military and aerospace, where it continued to attract new customers.
Still, there were numerous problem areas. Sales in the computing, medical, automotive, personal computing, industrial and semiconductor segments fell from the preceding quarter.