Coherent Corp. Q2 FY2026 earnings call

Key Points

• Coherent is at the center of optical networking infrastructure growth due to AI build-out. Q2 operating results: revenue up 9% sequentially and 22% year over year pro forma. Non-GAAP gross margin expanded.
• Data center and communications segment drives growth, with data center seeing strong growth in 800 gig and 1.6 gig transceivers, and bookings exceeding 4x. Indium phosphide production is ramping, aiming to double capacity by end of 2026.
• CPO and OCS progress: large CPO order, OCS backlog growing with multiple customer engagements. Communications market growth driven by data center interconnect and traditional telecom. Portfolio optimization: sale of Munich product division, exiting sites.

The Data Center and Communications segment accounts for over 70% of revenue. In Q2, data center and communications revenue grew 11% sequentially and 34% year over year. The data center business had Q2 revenue growing 14% sequentially and 36% year over year. The communications market had Q2 revenue growing 9% sequentially and 44% year over year. The industrial segment had revenue growing 4% sequentially and was flat year over year on a pro forma basis, excluding revenue from the recently divested aerospace and defense business.

Q3 Outlook

• Revenue expected between $1.7 billion and $1.84 billion.
• Non-GAAP gross margin expected between 38.5% and 40.5%.
• Total operating expenses expected between $320 million and $340 million on a non-GAAP basis.
• Tax rate expected between 18% and 20% on a non-GAAP basis.
• EPS expected between $1.28 and $1.48 on a non-GAAP basis.

Risks

• Supply-demand imbalance in indium phosphide may continue as demand outpaces capacity.
• Dependence on key customers and potential changes in demand from those customers could impact performance.

Q: How would you characterize the demand visibility and capacity ramp for indium phosphide?

A: Demand visibility is extraordinary with bookings out into calendar '27 and long-term forecasts. Indium phosphide capacity is ramping with wafer starts at 80% of target to double capacity by end of 2026, with six-inch wafers providing cost and chip production advantages.

Q: Any way to quantify OCS backlog and material impact to revenues?

A: OCS backlog grew sequentially in Q2 with over 10 customer engagements, and revenue is expected to ramp this quarter and into next year.

Q: Thoughts on 800 gig vs 1.6 terabit mix and margin implications?

A: 1.6 T has higher ASPs and expected higher gross margins, with ramp driven by EML and silicon photonics initially, followed by VCSEL-based in the second half of the year.

Q: Indium phosphide supply and industry equilibrium?

A: Supply-demand imbalance not expected to resolve this year or next, with strong customer demand absorbing capacity.