Fabrinet (FN) shares climbed approximately 8% in premarket trading on Tuesday after the optical components manufacturer reported record fiscal first-quarter results and issued a stronger-than-expected outlook for the current quarter, driven by robust demand from data center customers.
The company posted revenue of $1.474 billion for the quarter ended September 25, up 51% year over year and surpassing both Wall Street's estimate of about $1.40 billion and its own guidance. Adjusted earnings came in at a record $4.34 per share, beating analyst expectations of $4.19 to $4.20. Non-GAAP gross margin was 12.1%, above the 12% consensus, while operating margin stood at 10.8%.
Data Center Revenue Surges 78% on AI Infrastructure Buildout
Data center revenue jumped 78% year over year and 16% sequentially to $777 million, representing approximately 53% of total quarterly revenue. The segment benefited from strong demand for optical transceivers, data center interconnects, and high-performance computing products. Fabrinet manufactures optical packaging and precision optical, electronic, and electromechanical components for original equipment manufacturers.
CEO Seamus Grady had previously highlighted the strength of customer demand during the company's fiscal fourth-quarter earnings call in August, noting that there appeared to be no end in sight to demand from customers. Revenue from communications infrastructure increased 35% to $444 million, supported by telecommunications components, optical networking, and satellite communications. Revenue from automotive, industrial, medical, and other specialized markets rose 20% to $253 million.
Capacity Expansion to Meet AI-Driven Demand
Fabrinet is aggressively expanding manufacturing capacity to support expected growth in AI infrastructure and optical connectivity. The company is expanding its Santa Clara facility, which is expected to add $300 million in annual revenue capacity. Its Nava 1 campus is projected to contribute another $400 million. At its Chonburi campus in Thailand, Fabrinet is developing Building 10, spanning approximately 2 million square feet and expected to add $3.5 billion in capacity. Initial production has begun, with completion expected in January.
The company expects its total annual revenue capacity to increase from $5.8 billion at the end of fiscal 2026 to approximately $10 billion by early January. A further facility is expected to add $3 billion in capacity and begin operations around mid-2028. Including a potential Building 12, Fabrinet estimates total capacity could reach $16 billion, up from its previous estimate of $14 billion. The company also expects near-packaged optics programs to begin generating revenue in the second half of fiscal 2027, while co-packaged optics opportunities are expected to take longer to develop.
Strong Q2 Guidance and Mixed Analyst Reactions
Fabrinet forecast second-quarter revenue of $1.6 billion to $1.65 billion, above the analyst consensus of approximately $1.48 billion. The company expects adjusted earnings of $4.77 to $4.92 per share, compared with Wall Street's estimate of $4.41. Management attributes the optimistic outlook to sustained data center demand, new product launches, and improving margins.
Analysts offered differing views following the results. Barclays lowered its price target to $496 from $739 while maintaining an Overweight rating, citing the contribution of the data center business to the quarterly earnings beat. JPMorgan analyst Joseph Cardoso raised his price target to $475 from $465 and maintained a Neutral rating, describing the results as robust and pointing to strength across Fabrinet's business segments.
Fabrinet's board also authorized an additional $103 million in share repurchases, bringing the program's aggregate authorization to $637.3 million. The company said $200 million remained available for buybacks.
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