Coherent Corp. Q1 FY2026 earnings call

• Coherent is a leader in photonic technology, well-positioned for growth in AI data centers, communications, and industrial applications.
• Q1 operating results: Revenue up 6% sequentially and 19% year-over-year pro forma; non-GAAP gross margin expanded 70 basis points sequentially and 200 basis points year-over-year; non-GAAP EPS grew 16% sequentially and 73% year-over-year.
• Segment highlights: Datacenter and Communications saw strong growth; Industrial had stable growth with key areas like display capital equipment and advanced materials. Portfolio optimization: Sold Aerospace and Defense business, sold Munich product division, and continued to streamline physical footprint; debt reduced with refinancing, leverage down to 1.7x.

Datacenter and Communications: Largest and fastest-growing business. Q1 revenue grew 7% sequentially and 26% year-over-year. Datacenter revenue grew 4% sequentially and 23% year-over-year, constrained by indium phosphide laser supply but expected to accelerate; Communications revenue grew 11% sequentially and 55% year-over-year, driven by data center interconnect and traditional telecom. Industrial: Revenue grew 2% quarter-over-quarter and 4% year-over-year, with growth areas in display capital equipment, semicap equipment, and advanced materials for thermal management.

• Expect revenue for Q2 fiscal 2026 to be between $1.56 billion and $1.7 billion.
• Non-GAAP gross margin expected to be between 38% and 40%.
• Total operating expenses expected to be between $300 million and $320 million non-GAAP.
• Tax rate expected to be between 18% and 20% non-GAAP.
• EPS expected to be between $1.10 and $1.30 non-GAAP.

Q: Samik Chatterjee from JPMorgan Chase asked about the breadth of demand and Communications portfolio demand.

A: Jim Anderson said demand is very broad-based across Datacenter and Communications, with record bookings including for future quarters, strong orders for 800 gig and 1.6T transceivers, and growth in Communications including data center interconnect and traditional telecom.

Q: Simon Leopold from Raymond James asked about OCS trajectory and indium phosphide confusion.

A: Jim Anderson said OCS has broad customer and application engagement, with shipments to 7 customers and expected revenue ramp; indium phosphide production is ramping for EMLs, CW lasers, and photodiodes across multiple facilities.

Q: George Notter from Wolfe Research asked about manufacturing moves and real estate.

A: Jim Anderson said there's ongoing consolidation of underutilized sites and expansion of capacity in Datacenter and Communications, including indium phosphide and transceiver module capacity in Malaysia and Vietnam, with more consolidation potential in Industrial.

Q: Blayne Curtis from Jefferies asked about datacenter guide and constraints.

A: Jim Anderson said datacenter growth was constrained by indium phosphide capacity, with improvement in supply expected sequentially, and indium phosphide supply from internal and external sources increasing.

Q: Thomas O'Malley from Barclays asked about datacom drivers and 6-inch production margin impact.

A: Jim Anderson said datacom growth drivers include Datacenter and Communications, with Datacenter expected to accelerate; 6-inch indium phosphide production will benefit gross margin over time as it ramps.

Q: Papa Sylla from Citigroup asked about 1.6T uptake and indium phosphide capacity allocation.

A: Jim Anderson said 1.6T ramp is across multiple customers, with early adoption driven by EML and silicon photonics, and indium phosphide capacity allocated based on customer demand, fungible between EML and CW.

Q: Michael Mani from Bank of America asked about 1.6T share and portfolio optimization pricing.

A: Jim Anderson said 1.6T is ramping across multiple customers, and Sherri Luther said pricing optimization contributed to gross margin improvement, with benefits in both Industrial and Datacenter/Communications.

Q: Meta Marshall from Morgan Stanley Investment Management asked about FX and ZR capacity.

A: Sherri Luther said no material FX headwinds in Q1, and ZR capacity is ramping to meet strong demand in DCI applications.

Q: Ruben Roy from Stifel asked about OCS applications and debt.

A: Jim Anderson said OCS has broader application engagement than initially expected, and Sherri Luther said debt leverage is reduced to 1.7x with further debt reduction planned from the Munich division sale.

Q: Karl Ackerman from BNP Paribas Asset Management asked about transceiver module bookings and visibility.

A: Jim Anderson said there were record bookings for transceivers and components, with customers booking well in advance, including out to 2028.