Fabrinet (FN) Earnings

Management highlights

### Overall Financial Performance - Q4 FY26 revenue exceeded the top end of prior guidance, with non-GAAP EPS of $4.10 also above guidance ranges. - Full year FY26 non-GAAP EPS reached $14.09, growing 39% year over year, outpacing revenue growth due to strong operating leverage. - Non-GAAP operating margin hit 10.9%, the highest level in 3 years, with operating expenses totaling only 1.3% of revenue. ### Segment Reporting Update - Management revised segment reporting to better reflect end market demand: the new structure splits business into Data Center, Communications Infrastructure, and Automotive, Industrial, and Other, replacing prior categorizations that misclassified some data center-bound products as telecom. This change is purely presentational and does not impact total revenue. ### Capacity Expansion Milestones - **Chonburi Campus (Thailand)**: Building 10 remains on track for completion in early FY27, adding 2 million total square feet of manufacturing space; 250,000 square feet is already qualified, with an additional 250,000 square feet expected to be qualified in Q1 FY27. Two additional 1.2 million square foot factories are planned for the Chonburi campus. - **Pinehurst Campus (Thailand)**: Conversion of 120,000 square feet of office space to manufacturing is complete, adding $200-$300 million in incremental capacity. - **Navanacorn (Thailand)**: Acquisition and commissioning of a new 200,000 square foot facility is complete, with full capacity of $200-$250 million expected to come online starting in Q1 FY27. - **Fabrinet West (Santa Clara, CA)**: Acquired a new 130,000 square foot campus less than a mile from the existing facility, doubling Silicon Valley footprint to support new product introduction and customer collaboration, adding $200-$250 million in incremental capacity. - Total planned capacity across all sites will support a long-term revenue run rate of $12.5-$14 billion, up from prior guidance of $11.5 billion, driven by additional acquired space and higher-than-expected revenue per square foot from efficiency gains and product mix improvements. ### Customer Base Diversification - As of FY26, four customers represent 10% or more of total annual revenue: Cisco (20%), NVIDIA (16%), Nokia (11%), and Amazon (11%), reflecting a diversified customer base across key end markets.

Guidance

- For the first quarter of fiscal 27, management expects total revenue to be between $1.375 billion and $1.425 billion, representing 43% year over year growth at the midpoint of the range. - Non-GAAP EPS is expected to be between $4.10 and $4.25, with temporary first quarter seasonality creating a modest margin headwind that is already incorporated into guidance. - Management confirms strong momentum across all three segments, with broad-based growth expected from data center transceivers, DCI, and HPC, as well as healthy growth in communications infrastructure and automotive/industrial. - While management only provides formal guidance for one quarter at a time, management has higher confidence than ever in the long-term growth outlook, with customer visibility extending into the second half of FY27 and beyond. Management notes that accelerating full-year growth in FY27 (beyond FY26's 36% rate) is within the realm of possibility based on current demand trends.

Segment performance

Fabrinet updated its segment reporting to align with end market deployment, resulting in three new segments for Q4 FY26: 1. **Data Center**: Includes optical/interconnect products for data center networking, DCI, HPC, and AI infrastructure. Revenue was $669 million, growing 68% year over year and 13% quarter over quarter, representing 51% of total Q4 revenue. DCI products reached an annualized run rate exceeding $1 billion, with solid additional contribution from HPC. 2. **Communications Infrastructure**: Includes optical/networking products for telecom and enterprise networks, excluding data center-specific applications. Revenue was $413 million, growing 40% year over year and 1% quarter over quarter, representing 31% of total Q4 revenue. Growth was broad-based across telecom systems, satellite communications, and telecom components. 3. **Automotive, Industrial, and Other**: Revenue was $234 million, growing 8% year over year and 9% quarter over quarter, representing 18% of total Q4 revenue. Improving sequential growth was driven primarily by EV charging infrastructure products, with a smaller contribution from LiDAR customer growth. Total Q4 FY26 revenue was $1.316 billion, up 45% year over year. Full year FY26 total revenue was $4.6 billion, up 36% from FY25.

Risks & headwinds

- Component supply constraints continue to affect the business, with demand for certain key components outpacing available supply. Management notes its supply chain team is actively mitigating gaps and has already incorporated expected supply constraints into FY27 Q1 guidance. - Thailand's implementation of the Global Minimum Tax (top-up tax regime) remains in regulatory transition, with implementing guidance and investment support measures still evolving. This creates uncertainty around future tax expense, which may vary from current provisions. - Proposed U.S. import restrictions on Chinese transceivers are not yet finalized, and it remains too early to assess the full impact on Fabrinet or the broader industry, as broad restrictions could disrupt overall market supply even if Fabrinet is positioned to capture displaced demand. - Forward-looking statements and demand visibility from customers are not binding order commitments, and actual results may differ from current expectations due to market and regulatory changes.

Analyst Q&A

• Q: An analyst asked about the company's long-term capacity expansion strategy, specifically whether the company will move forward with Building 11 in Chonburi after completing Building 10, and why the total planned capacity run rate increased from a prior $11.5 billion estimate. /

  A: Management confirms it continues to expand capacity ahead of demand, which has grown faster than original projections. Fabrinet exited Q4 FY26 at a $5.3 billion annual revenue run rate, and planned additions from already secured sites (Pinehurst conversion, Building 10, Navanakorn, Santa Clara, and two future Chonburi factories) will bring total capacity to $12.5-$14 billion. The increase from prior capacity guidance comes from both additional acquired space and higher-than-expected revenue per square foot driven by improved efficiency and a shift to more revenue-dense, complex product mixes. Management plans to continue aggressive capacity expansion to meet growing demand.

• Q: An analyst asked about Fabrinet's positioning for NPO (near-pluggable optics) opportunities, especially in light of the company's existing partnership with Raytec, and whether NPO growth is materializing faster than expected. /

  A: Management notes NPO sits between traditional pluggable modules and co-packaged optics (CPO), combining elements of both technologies. Fabrinet has decades of experience manufacturing high-volume pluggable modules (tens of millions built to date) and is already developing CPO products with customers, giving it strong positioning for NPO manufacturing. NPO is expected to be a more near-term growth opportunity than CPO, and the partnership with Raytec (which will add local capacity in Fabrinet's Thailand campus) will unlock demand for these new products by bringing all required packaging capabilities in-house. It remains too early to give specific revenue projections.

• Q: An analyst asked how Nokia reached 10% of annual revenue, and whether this growth comes from the legacy Infinera business or new wins with the combined Nokia-Infinera entity. /

  A: Management confirms growth is a combination of both factors. The legacy Infinera business has remained robust with no product rationalization after the Nokia acquisition, and has grown along with broader market demand. Fabrinet has also been able to leverage its strong existing reputation with Infinera to win new business from Nokia, where it historically had only a small footprint. The relationship is still early, and management sees significant additional growth potential with Nokia going forward.

• Q: An analyst asked if Fabrinet is seeing increased demand from hyperscale customers looking to diversify away from Chinese transceiver suppliers, and if the company has secured enough laser supply to support the upcoming 1.6T transceiver ramp. /

  A: Management notes that proposed import restrictions on Chinese transceivers are not yet finalized, and it is too early to assess the full market impact. Fabrinet does not manufacture for Chinese suppliers and focuses exclusively on Western customers, so restrictions could theoretically be a positive for the company if implemented, but broad restrictions would disrupt overall market supply in the near term. All component supply constraints, including for laser components, have already been factored into the company's Q1 FY27 guidance.

• Q: An analyst asked if accelerating full-year growth in FY27 (above FY26's 36% rate) is a reasonable expectation given strong demand and new capacity. /

  A: Management confirms that while it only formally guides one quarter at a time, accelerating full-year growth in FY27 is not out of the question based on current demand. Customers have provided visibility extending well into 2027 and beyond, and demand across all core data center categories (DCI, transceivers, HPC) is described as insatiable, with growth coming from both existing and new customers.