Fabrinet Q1 FY2026 earnings call

• Fabrinet had an exceptional start to fiscal 2026 with record revenue and earnings exceeding guidance.
• Telecom revenue hit a record, driven by data center interconnect (DCI) products. Datacom declined less than expected.
• Introduced HPC as a new revenue category, with $15 million contributed in Q1.
• Construction of Building 10, totaling 2 million square feet, is on track, with acceleration of a portion to be completed mid-2026.
• Optimistic about second quarter growth, expecting revenue between $1.05 billion and $1.1 billion and EPS between $3.15 and $3.30, driven by telecom growth, datacom demand, and HPC ramp.

Fabrinet's first quarter of fiscal year 2026 had record revenue of $978 million, a 22% increase from the prior year and 8% from the fourth quarter. For product segments:

• Optical Communications: Revenue was $747 million, up 19% y-o-y and 8% q-o-q. Telecom revenue reached a record $412 million, up 59% y-o-y and 15% q-o-q, with DCI revenue at $138 million, nearly doubling y-o-y and 29% q-o-q. Datacom revenue was $273 million, down 17% y-o-y but only 1% q-o-q, with a smaller decline than expected.
• Non-Optical Communications: Revenue was $231 million, up 30% y-o-y and 5% q-o-q. High-performance computing (HPC) contributed $15 million in Q1.
• Automotive: Revenue was $122 million, up 19% y-o-y but down 5% q-o-q.
• Industrial laser: Revenue was $40 million, up 12% y-o-y and flat q-o-q.

• Anticipates second quarter revenue to be in the range of $1.05 billion to $1.1 billion, representing 29% growth y-o-y at the midpoint.
• Expects earnings per diluted share to be between $3.15 and $3.30.
• Confident in continued growth across telecom, datacom, and HPC, with HPC program ramping quickly.

• Component constraints may persist into the second quarter.
• Foreign exchange headwinds could partially offset gains from revenue growth.

Q: Congrats on the quarter, gentlemen. For my first question, what is embedded in your December quarter outlook for datacom? And as you address that, what are your assumptions on having access to necessary 200-gig per lane EML laser capacity to support that growth?

A: Thank you, Karl. So we're not really going to comment on individual components or individual customers at this stage. I think what we would say is we're in the -- we're in the very early stages really of a generational transition to photonics that we've seen going on for some time. Fabrinet is really ideally positioned to continue to capitalize on this transition. We manage a lot of complexity for our customers. And as we've seen, growth doesn't always happen in a straight line. But for any company, I think the best predictor of future performance is past performance. And if you look at our -- over any time horizon, you care to look at our 10-year history, the revenue, we had compounded annual revenue growth of 16%, we compounded the earnings 21% over that same 10-year horizon. Last year, revenue grew 19%. Last quarter, our revenue grew 22% and as Csaba said, at the midpoint of our guidance. For this quarter, we're projecting to grow 29%. So really, Karl, our objective is to make sure we have enough, if you like, earns in the fire and enough customer opportunities in front of us that we can continue to deliver that kind of outsized growth. We're quite excited about the this period that we find ourselves in the middle of. And we think we're readily positioned. And we're just going to continue to to continue to keep pushing ahead, winning those opportunities and executing on them. so we continue to grow in the future the way we have done so in the past.

Q: Seamus, if I can maybe start with a question on asking you to compare the ramps of the HPC customers vis-a-vis the new telecom customer that you were going to ramp on in this quarter. Our impression going into this quarter was that the HPC customer would ramp faster than the new telecom customer. But just looking at the results, it seems to have been like a lot more skewed towards the new telecom customer, but anything to share on that front, how those 2 ramps are going relative to your own expectations? And how much of a contribution are you getting getting from the new telecom customer that's ramping and how you're thinking about that ramp? And I have a follow-up.

A: Yes. I think they're ramping differently. I would say they're very different products. If you look at the high-performance compute product, it's an existing product that's already up and running with very high demand. And we're one of a number of suppliers producing the product. So we're just getting going with that. The telecom, the new telecom program that you mentioned, that's a new product. So now they both end up growing at a certain trajectory, but the other one is a new product. So the product has to grow in the market and then obviously, we'll grow as that product grows, as that product grows in the market. The HPC product, I think it gets off to a fairly slow -- reasonably slow start because it's quite a complex product, and there's a lot to be bedded down in terms of automation, et cetera. But we're pretty confident that we should see some very strong growth in that in the short to medium term. So they're both strong growth drivers for us. None of these products grow in a straight line and part of what we provide for our customers is the ability to manage a slow, steady growth. If it's a new product, maybe slightly more steep when we're maybe transferring from another supplier or as we've seen in the past, when you have completely outsized growth, we can also cope with that. So we take the good with the bad. None of these programs, like I said, none of them grow in a straight line. So we're just focused on making sure we execute in a very strong way for our customers, excellent delivery, excellent quality and at a very competitive cost. So that's our focus.