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Sanmina (SANM -4%) is heading lower following its Q3 (Jun) earnings report last night. This EMS provider missed analyst expectations on EPS and revenue. However, its results were within prior guidance ranges. Sanmina also guided Q4 (Sep) EPS and revs below analyst expectations. Q3 revenue fell 16.6% year/year to $1.84 bln, but was up slightly sequentially. This marked Sanmina's first quarter of sequential revenue growth in six quarters.

• Industrial, medical, aerospace/defense and automotive represented 64% of revenue. That was down 3.6% sequentially. However, its communication segment, which includes cloud infrastructure, represented 36% of revenue. Communication revenue was up 8.3% sequentially.
• Getting a bit more granular, its medical segment driven by digital health and medical devices. Sanmina notes that it has a strong base of medical customers with positive long term trends, driven by new opportunities in the pipeline. In automotive, Sanmina is focused on EVs, car connectivity, ADAS, electrical chargers etc. In industrial and energy, Sanmina says it has a solid customer base with new projects in the pipeline.
• The Communications segment is improving because Sanmina is beginning to see customer inventory absorption improve. Sanmina expects this market to continue to move in the right direction, driven by high performance cloud, IP routing switches, and some optical packaging systems. Also, Sanmina is starting to see pickup from some existing customers as they are working their inventory down. Sanmina would like to see inventory worked down even more quickly, but at least it's going in the right direction.
• Non-GAAP operating margin declined to 5.3% from 5.7% a year ago and 5.4% in Q2 (Mar). It was at the low end of its prior outlook and was driven by gross margin coming in just below the midpoint of its prior outlook. However, it was in-line with its 5-6% short term target range. EMS is a low margin business, so even small declines in this metric can have an impact on EPS, so we watch this metric cosely.

Overall, Sanmina has been going through some difficult times with revenue declining yr/yr for four consecutive quarters. Also, the Q4 guidance was a letdown for investors. Probably the highlight was the sequential improvement in its Communications segment and the inventory absorption finally taking hold there. However, Sanmina continues to see softness in Automotive and Industrial. Finally, the stock had started to move higher in recent weeks heading into this report. That tells us sentiment was running high that Sanmina was turning a corner. Unfortunately, today's results were a bit disappointing.