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Sanmina (SANM) is trading sharply lower following the announcement of its $3.0 bln acquisition of ZT Systems' data center infrastructure manufacturing business from Advanced Micro Devices (AMD), reflecting investor concerns surrounding integration risks, the significant amount of new debt obtained to finance the deal, and the issuance of equity to pay for part of the premium. ZT Systems, acquired by AMD for $4.9 bln less than two months ago, is a supplier of hyperscale server solutions, specializing in the design, integration, manufacturing, and deployment of cloud and AI infrastructure for major clients like Amazon (AMZN) Web Services and Microsoft (MSFT) Azure.

The deal’s structure includes SANM paying $2.25 bln in cash, a $300 mln premium (split evenly between cash and equity), and up to $450 mln in contingent consideration based on the business’s financial performance over the next three years. In connection with the transaction, SANM has obtained committed financing from Bank of America for $2.5 bln.

• ZT Systems’ $5–6 bln revenue run-rate implies a price-to-sales ratio of approximately 0.5–0.6x, which is reasonable for a manufacturing business with lower gross margins (possibly below 10%) compared to AMD’s high-margin chip design operations. However, the contingent payment introduces risk, as achieving the full $3 bln valuation depends on sustained performance in a competitive market. While not overtly overpriced, the deal’s success hinges on SANM’s ability to leverage ZT Systems’ scale and customer relationships without eroding margins, particularly as hyperscale demand fluctuates.
• AMD’s decision to divest ZT Systems’ manufacturing business aligns with its strategic focus on high-margin, design-driven segments like AI accelerators and rack-scale AI systems, while shedding capital-intensive manufacturing operations. By retaining ZT Systems’ design and customer enablement teams, AMD ensures it can accelerate the quality and deployment of AI solutions for hyperscale clients without the burden of managing manufacturing.
• SANM’s designation as a preferred new product introduction manufacturing partner for AMD’s cloud rack and cluster-scale AI solutions strengthens this collaboration, enabling AMD to streamline supply chains and focus R&D on competitive areas like its Instinct AI accelerators and EPYC processors. Financially, the $3 bln sale, following the $4.9 bln acquisition, allows AMD to recoup a significant portion of its investment, bolstering its balance sheet for further AI investments, although the divestiture reduces AMD’s direct control over manufacturing quality and timelines.
• For SANM, acquiring ZT Systems’ manufacturing business is a strategic pivot to capitalize on the AI infrastructure boom, positioning it as a leader in cloud and AI ecosystems. The acquisition enhances the company's end-to-end component technology, systems integration, and supply chain solutions by integrating ZT Systems’ expertise in high-quality manufacturing for hyperscalers, particularly its advanced liquid cooling capabilities critical for dense AI compute environments.
• The deal is expected to be accretive to SANM’s non-GAAP EPS in the first year post-close, driven by synergies from combining SANM’s global manufacturing expertise with ZT Systems’ hyperscaler relationships and specialized facilities. However, SANM must navigate margin pressures in contract manufacturing and integration costs, which could temper EPS growth if hyperscale demand slows or competition intensifies.

For AMD, the divestiture sharpens its focus on high-margin AI design and recoups significant capital, though it risks reduced manufacturing oversight. Meanwhile, SANM gains a transformative foothold in AI infrastructure with strong revenue and EPS growth potential but faces challenges in integration and margin sustainability.