| | | Fabrinet outlines $910M–$950M Q1 revenue target as growth accelerates with AWS partnership and 1.6T product ramp
Aug. 18, 2025 8:00 PM ET
AI-Generated Earnings Calls Insights
Earnings Call Insights: Fabrinet (FN) Q4 2025
Management View- CEO Seamus Grady highlighted, “We had an excellent fourth quarter, ending an outstanding year with tremendous momentum. Fourth quarter revenue was $910 million, which was above our guidance range and up more than 20% from a year ago and 4% from Q3. With margins that were a little better than expected, we also achieved record non-GAAP earnings of $2.65 per share.”
- Grady emphasized the successful navigation of a major datacom customer’s product transition and record highs in the telecom segment, citing, “We established a significant partnership with Amazon Web Services, which we anticipate will be a meaningful revenue driver in fiscal year 2026.”
- The CEO announced, “Construction began on Building 10, which will add 2 million square feet of capacity to our overall footprint,” and noted $126 million returned to shareholders through buybacks.
- Grady stated, “Robust customer demand across our business leaves us better positioned than ever to capitalize on the many significant opportunities ahead of us,” and projected, “with multiple growth drivers providing clear visibility toward reaching $1 billion in quarterly revenue.”
- CFO Csaba Sverha reported, “We had a very strong fourth quarter, achieving new quarterly records for both revenue and non-GAAP net income. Revenue in the fourth quarter was $910 million, above our guidance range and an increase of 21% from a year ago and 4% from Q3. Non-GAAP EPS was $2.65, a new quarterly record.”
- Sverha disclosed, “Optical communications revenue was $689 million, up 15% from a year ago and 5% from Q3. Within Optical communications, telecom revenue reached a robust $412 million, up 46% from a year ago and 1% from Q3. For the first time, we are reporting DCI revenue, which reached $107 million in the fourth quarter, representing 12% of overall revenue.”
Outlook- Sverha provided Q1 fiscal 2026 guidance: “We anticipate healthy year-over-year and sequential growth in the first quarter, with total revenue in the range of $910 million to $950 million.”
- He added, “We expect earnings per diluted share to be between $2.75 and $2.90.”
- Management noted temporary margin pressure due to annual merit increases and new product ramp inefficiencies but anticipated these would subside, stating, “We remain optimistic that we can achieve gross margins within our mid-5% target range while continuing to generate operating leverage.”
- Grady also commented on component supply challenges impacting datacom in Q1, but expects “these supply issues, which we expect to be temporary.”
Financial Results- Fabrinet reported Q4 revenue of $910 million and non-GAAP EPS of $2.65, both new records for the company.
- Optical communications revenue was $689 million, with telecom revenue at $412 million and DCI revenue at $107 million.
- Datacom revenue was $277 million, down 12% year-over-year but up 10% sequentially, driven by demand for new higher data rate products.
- Revenue from 800-gig and faster products reached $313 million, up 21% year-over-year and 32% sequentially, “driven primarily by the ramp of new 1.6T datacom products,” according to Sverha.
- Non-optical communications revenue was $221 million, up 41% year-over-year. Automotive revenue was $128 million, with a modest decline, and industrial laser revenue was $40 million.
- Operating cash flow was $55 million and capital expenditures rose to $50 million, mainly due to Building 10 construction.
- Share repurchases totaled $22 million for the quarter and $126 million for the year.
Q&A- Karl Ackerman, BNP Paribas: Sought clarification on whether new HPC segment revenue was included in datacom for Q1. Grady responded, HPC will be reported in its own category and not within datacom.
- Ackerman asked about hyperscaler transceiver opportunities and growth prospects for 800 gig vs. 1.6T. Grady explained, for their main customer, future opportunities will focus on 1.6T, but for other datacom customers, both 800 and 1.6T are priorities, outlining four distinct datacom growth vectors: their largest customer, other datacom customers, merchant transceiver manufacturers, and hyperscalers direct.
- Timothy Paul Savageaux, Northland Capital Markets: Asked about the potential for accelerating growth in fiscal 2026 and the impact of component issues. Grady indicated optimism for FY26, noting, “The datacom business is coming back and the demand is outstripping supply right now. That's a temporary issue, but we have very strong demand for 1.6 terabit products right now.”
- Savageaux also inquired about the Building 10 expansion timeline. Grady said, “We're really communicating that because it will impact our CapEx...we do want to be able to occupy a few hundred thousand square feet of Building 10, probably 3 to 6 months ahead of originally contemplated.”
- Joseph Lima Cardoso, JPMorgan: Asked about gross margin and OpEx trends as new programs ramp. Sverha explained, “We do anticipate that these headwinds to be temporary and subside over time...We don't anticipate any structural changes in our portfolio or margin profile.”
- Further, Grady discussed component supply constraints causing a near-term dip in datacom revenue, saying, “We believe the supply issues will be temporary. But they will take a little bit of time to fully resolve, maybe 1 or 2 quarters.”
- Steven Fox, Fox Advisors: Sought clarification on Q4 gross margin performance. Sverha noted, “Building 10 expenses are not in the numbers. So Building 10 is a future event...the existing business continues to execute very well, and we have a very strong execution.”
- Fox also asked about DCI business momentum. Grady highlighted, “Our DCI business has been very strong. We've captured a number of customers there. They're all ramping, and we're able to keep up with the demand. And the demand seems to be...strong, it's robust and it looks to be durable.”
- George Notter, Wolfe Research: Inquired about Amazon warrant vesting and revenue impact. Sverha confirmed future vesting is revenue and volume shipment dependent. Grady described the AWS high-performance compute opportunity as “significant,” with revenue ramping in Q1.
- Ryan Koontz, Needham: Asked about 800G demand visibility. Grady replied, “Our visibility is quite good...it's supply constrained as opposed to demand constrained right now.”
- Koontz also queried auto segment outlook, with Grady expecting “steady” performance, driven by infrastructure/EV charging rather than consumer sentiment.
Sentiment Analysis- Analysts pressed for details on growth sustainability, margin headwinds, and supply chain constraints, reflecting a slightly positive but cautious tone. There was particular interest in the durability of telecom and datacom demand and the potential upside from AWS and DCI.
- Management’s sentiment was confident in prepared remarks, with Grady stating, “We remain confident in our ability to maintain excellent execution while continuing to grow both revenue and earnings.” During Q&A, management addressed concerns directly but acknowledged temporary issues, such as component supply constraints and margin pressures, indicating overall optimism.
- Compared to the previous quarter, both analysts and management remain upbeat, but the conversation shifted more toward addressing supply challenges and new program ramp costs. Management confidence remained high, with less discussion of macro headwinds than previously.
Quarter-over-Quarter Comparison- Guidance for Q1 fiscal 2026 increased to a revenue range of $910 million to $950 million and EPS of $2.75 to $2.90, compared to Q4’s revenue guidance of $860 million to $900 million and EPS of $2.55 to $2.7 in the previous quarter.
- Strategic focus has shifted to the AWS partnership, the new HPC category, and the acceleration of Building 10 capacity to meet demand. The company is also discontinuing certain revenue breakouts, reflecting changes in product composition and reporting.
- Analysts’ focus moved from general product transitions and margin headwinds to the specifics of ramping new programs, supply constraints, and the scale of the AWS opportunity.
- Management’s tone remains confident, with slightly more discussion of temporary bottlenecks and execution on multiple new programs.
Risks and Concerns- Supply constraints for specific datacom components are creating near-term revenue dips, though management is working with customers and suppliers to resolve them and expects these issues to be temporary.
- Margin pressures are anticipated in Q1 due to merit increases and inefficiencies from new program ramps, but management expects to recover through operational efficiencies.
- Customer concentration remains high, with NVIDIA and Cisco representing 28% and 18% of revenue, respectively.
- Analysts repeatedly raised concerns about the timing and magnitude of resolving supply chain challenges and the sustainability of growth in key segments.
Final Takeaway
Fabrinet closed fiscal 2025 with record revenue and earnings, driven by robust growth in telecom, DCI, and the start of volume shipments for 1.6T datacom products. The company enters fiscal 2026 with strong momentum, guided by a significant AWS partnership, continued expansion of high-speed optical products, and the acceleration of capacity expansion in response to customer demand. Management remains highly optimistic about sustaining growth and execution despite temporary component supply constraints and short-term margin pressures, positioning Fabrinet to capitalize on multiple growth vectors in the year ahead.
Read the full Earnings Call Transcript |
|
