Fabrinet - Earnings Call - Q3 2025

Executive Summary

• Q3 FY2025 delivered revenue of $871.8M and non-GAAP EPS of $2.52, both above Wall Street consensus; GAAP EPS was $2.25. Telecom strength (+42% YoY, +17% QoQ) offset a datacom decline tied to a large customer transition.
• Revenue beat consensus by ~$14.9M and non-GAAP EPS beat by ~$0.05; management noted a one-time $4M contra revenue from the AWS warrant that compressed gross margin by ~40 bps.
• Guidance for Q4 FY2025: revenue $860–$900M and non-GAAP EPS $2.55–$2.70; management expects short‑term margin headwinds from multiple new ramps (1.6T datacom, telecom systems) but remains confident into FY2026.
• Strategic catalysts: AWS multi‑year manufacturing relationship (with warrant), continuing DCI/400ZR momentum, and anticipated 1.6T ramp; management sees tariff risk contained given FOB terms and no demand impact to date.

What Went Well and What Went Wrong

What Went Well

• Telecom revenue exceptional at $406M (+42% YoY, +17% QoQ) driven by DCI/400ZR momentum and recent system wins; optical communications overall rose to $657M.
• Non‑optical communications strength: Automotive $129M (+76% YoY, +24% QoQ); industrial laser $40M (+33% YoY, +8% QoQ).
• New hyperscaler relationship: AWS multi‑year manufacturing agreement plus warrant for up to 1% of shares; management expects revenue contribution starting FY2026, supporting long‑term growth.

What Went Wrong

• Datacom revenue fell to $251M (−18% YoY, −16% QoQ) due to a large customer product transition and normal fluctuations; 800G and faster products declined 8% YoY and sequentially.
• Gross margin compressed to 11.7% GAAP (12.0% non‑GAAP), with ~40 bps impact from the $4M AWS warrant contra revenue; FX was a minor headwind as anticipated.
• Near‑term margin headwinds expected in Q4 from multiple product ramps/start‑up costs; automotive sequential growth likely moderates after outsized recent expansion.

Transcript

Operator (participant)

Good afternoon. Welcome to Fabrinet's financial results conference call for the third quarter of fiscal year 2025. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Garo Toomajanian, Vice President of Investor Relations.

Garo Toomajanian (VP of Investor Relations)

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the third quarter of fiscal year 2025, which ended March 28, 2025. With me on the call today are Seamus Grady, Chief Executive Officer, and Csaba Sverha, Chief Financial Officer. This call is being webcast, and the replay will be available on the investor section of our website located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the investor section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation, as well as additional details of our revenue breakdown. In addition, today's discussion will contain forward-looking statements about the future financial performance of the company.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned risk factors in our Form 10-Q filed on February 4, 2025. We will begin the call with remarks from Seamus and Csaba, followed by time for questions. I would now like to turn the call over to Fabrinet's CEO, Seamus Grady. Seamus.

Seamus Grady (CEO)

Thank you, Garo. Good afternoon, and thanks to everyone joining us today. We had a very strong third quarter with a revenue of $872 million, which was above our guidance range. Our execution in the quarter was also strong, and we generated non-GAAP earnings per share of $2.52, which was also above our guidance range. Looking more closely at our strong quarterly results, we saw continued growth in optical communications. Telecom revenue was particularly exceptional and more than offset an anticipated decline in data revenue. Our telecom growth, which was up 42% from a year ago and 17% from Q2, was driven by a combination of contributions from recent system wins, continued 400ZR momentum for data center interconnect applications, and a strengthening telecom market. We're confident that our strong telecom trends will extend into the fourth quarter.

With respect to datacom, we continue to see near-term softness due to a product transition at a large customer. However, we remain optimistic about a return to datacom growth as demand for 1.6 Tbps devices increases and with the steepest part of the 1.6 Tbps ramp yet to come. In non-optical communications revenue, automotive again saw strong growth, with revenue up 76% from a year ago and 24% from Q2. Our industrial laser revenue also increased both year over year and sequentially. Looking ahead, while we expect continued year-over-year growth in non-optical communications in the fourth quarter, we anticipate that sequential growth may moderate, particularly in the automotive segment, where we have experienced outsized growth over the past few quarters. During the quarter, we also announced a new commercial relationship with Amazon Web Services.

This is our first direct relationship with the leading hyperscaler, where we will be providing Amazon with advanced manufacturing services in a multi-year agreement. Our agreement with Amazon reinforces our longer-term optimism and further aligns our interests through a warrant purchase agreement for up to 1% of our outstanding shares. We expect our Amazon partnership to provide an additional boost to revenue starting in fiscal year 2026. Our long-term confidence is also reflected in our share repurchase activity, with over $100 million worth of Fabrinet shares repurchased so far this fiscal year. In addition, our expansion plans remain on track, with Building 10 construction underway to meet our longer-term capacity needs. Looking ahead, we continue to be very excited about our future. We expect to see our consistent track record of year-over-year revenue growth extend into the fourth quarter with a corresponding increase in profitability.

Most importantly, we remain confident in our proven ability to execute extremely well, as we have demonstrated throughout our company history. Now I'll turn the call over to Csaba for more financial details on our third quarter results and our guidance for the fourth quarter of fiscal 2025. Csaba.

Csaba Sverha (CFO)

Thank you, Seamus, and good afternoon, everyone. We had a strong third quarter with revenue and non-GAAP net income per share that were above our guidance ranges. Revenue in the third quarter was $872 million, an increase of 19% from a year ago and 5% from Q2. This includes the impact of $4 million in contra revenue from the upfront vesting of a portion of the warrant with Amazon. We expect that future vesting events will not result in meaningful impacts in our quarterly financial results. Non-GAAP EPS was $2.52, exceeding our guidance range, with contra revenue impact flowing to the bottom line. Details of our revenue breakdown are included in the investor presentation on our website, so I will keep my comments focused on noteworthy highlights. For the third quarter, Optical Communications revenue was $657 million, up 11% from a year ago and 2% from Q2.

Within optical communications, datacom revenue was $251 million, or 38% of optical communications revenue, a decrease of 18% from a year ago and 16% from Q2, mainly due to product transitions at a large customer, as well as normal demand fluctuations at other customers. Telecom revenue was $406 million, or 62% of optical communications revenue, another significant increase, with revenue up 42% from a year ago and 17% from Q2. This exceptional telecom performance was again driven by a powerful combination of strong data center interconnect demand, recent system wins, and improving trends for traditional telecom products. Looking at optical communications revenue by data rate, revenue from 800 Gb and faster products was $236 million, down 8% both from a year ago and sequentially. Note that we don't break out revenue by specific speeds.

However, I will comment that while 800 Gb revenue declined in the quarter, we are seeing increasing 1.6 Tbps revenue and believe that the steepest part of the 1.6 Tbps ramp is yet to come. Revenue from products below 800 Gbps was $284 million, an increase of 27% from a year ago and 3% from Q2. Growth in this speed category is being driven primarily by 400ZR products for data center interconnect applications, with ZR products again representing 10% of total revenue. Revenue from optical communications products that are non-speed rated was $137 million, up 21% from Q2. Non-optical communications revenue was $215 million, up a strong 53% from a year ago and 15% sequentially. Automotive revenue was the biggest driver of this growth, with revenue of $129 million, up 76% from a year ago and 24% from Q2.

Industrial Laser revenue of $40 million increased 33% from a year ago and 8% from Q2. Other revenue of $45 million was flat sequentially. As I discussed the details of our P&L, expense and profitability metrics will be on a non-GAAP basis unless otherwise noted. Gross margin in the third quarter was 12%, but would have been consistent with Q2 levels if not for the contra revenue impact. Operating expenses were flat sequentially at $16 million. Operating income reached a new record of $89 million, representing an operating margin of 10.2%, which would also have been consistent with the prior quarter, similar to our gross margin. Our strong balance sheet continued to produce high interest income of $10 million in Q3, which was partially offset by a foreign exchange revaluation loss of $3 million.

Effective GAAP tax rate was 5.8%, and we continue to expect an effective tax rate in the mid-single digits for the fiscal year. Non-GAAP net income was $91 million, or $2.52 per diluted share, which was above our guidance range. Turning to our balance sheet, we ended the third quarter with cash and short-term investments of $951 million, up $16 million from the end of the second quarter. Operating cash flow in the quarter was $74 million. CapEx was $29 million, resulting in a free cash flow of $46 million in the third quarter. We remained active in our share repurchase program during the third quarter, buying back 162,000 shares at an average price of $214 per share for a total cash outlay of $35 million.

Over the past two quarters, we have repurchased just over $103 million, with approximately $197 million remaining under our current authorization at the end of the quarter. Now I will turn to our guidance for the fourth quarter of fiscal year 2025. While global tariffs have been in the headlines, we have not seen any material impacts to date. Given our FOB Fabrinet shipping terms, tariffs are typically handled by customers, and so far we have not observed any meaningful changes in demand. As a result, we remain highly optimistic about our business outlook, supported by several growth drivers. These include contributions from recent telecom system wins, the transition and ramp of 1.6 Tbps Datacom products, rising demand for data center interconnect solutions, and improving dynamics across traditional telecom markets.

In non-optical communications, we expect continued year-over-year growth overall, although we may face some near-term headwinds in the automotive segment, where we have seen outsized growth over the past few quarters. Nevertheless, we believe the long-term fundamentals across our non-optical portfolio remain strong. For the fourth quarter, we are guiding total revenue between $860 million and $900 million. This broader range mainly reflects the doubling of our revenue since we last set a $20 million guidance range, and also a prudent acknowledgment of the current global macroeconomic environment, including tariff risks and other external uncertainties. We expect earnings per diluted share to be between $2.55 and $2.70. While the significant number of new product ramps underway may present some short-term margin headwinds, we view these initiatives as strong catalysts for future growth.

These programs are positioning us exceptionally well as we head into fiscal 2026, reinforcing our confidence in the long-term trajectory of our business. Operator, we are now ready to open the call for questions.

Operator (participant)

As a reminder, if you'd like to ask a question at this time, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Karl Ackerman with BNP Paribas.

Karl Ackerman (Managing Director of Equity Research, Semiconductors and IT Hardware)

Yes, thank you, gentlemen. Two questions, if I may. For my first question, I wanted to focus on datacom. So datacom fell about $50 million sequentially, but your total 800 Gbps sales fell only about $20 million. Does that mean the decline in datacom fell within 400 Gbps and below port speeds, or does that mean that the program wins within telecom are 800 Gbps and above, and that's supporting or at least offsetting some of the decline of 800 Gbps products in datacom?

Csaba Sverha (CFO)

Hi, Karl, this is Csaba. Let me take this question. It is the later. We are seeing some strong growth, particularly in the DCI, which falls under the below 800 Gbps segment. That perhaps explains why we are seeing declining Datacom, but not as much of a decline that you would expect in 800 Gbps. We still have 400 Gbps programs in Datacom segment as well. It is a combination of both strong DCI as well as Datacom still had 400 Gbps, which is tapering off now.

Karl Ackerman (Managing Director of Equity Research, Semiconductors and IT Hardware)

Got it. Thank you. Thank you for that. Then just secondly, on margins, I was hoping you could address some of the maybe some reasons for the lower gross margins this quarter. I am specifically wondering how much perhaps the warrant and/or the Thai Baht influenced margins, gross margins this quarter. It appears that your outlook seems to account for a slight improvement in gross margins in June. I just wanted to clarify that. Thank you.

Csaba Sverha (CFO)

Let me take the warrant first. We did have an impact of about $4 million in our gross margin in our fiscal Q3. With that, our gross margin had an impact of about 40 basis points. Without the warrant, we would have been consistent both on gross margin and operating margin for Q3. The exchange rate headwinds was already baked in our guidance. It was not very meaningful. Now shifting to our Q4 forecast and guidance, our guidance, although we are not guiding gross margin, implies that we will encounter some short-term headwinds from product ramps, which typically would be absorbed in our results. However, this time in Q4, we are ramping quite a few significant recent wins, and we have some startup costs which are preparing us for a strong 2026. We anticipate some margin headwinds in Q4, but not any significant numbers.

With regards to exchange rate, we anticipate somewhat flat environment going into Q4. In summary, we had a one-time, I would say, impact from Amazon in 40 basis points in our Q3 results. We do not anticipate that to reoccur going forward. However, we do anticipate some short-term compression because of the new ramps that are leading us to fiscal 2026.

Karl Ackerman (Managing Director of Equity Research, Semiconductors and IT Hardware)

Got it. Thank you.

Csaba Sverha (CFO)

You're welcome.

Operator (participant)

Our next question comes from Samik Chatterjee with JPMorgan.

Samik Chatterjee (Managing Director and Equity Research Analyst)

Hi. Thanks for taking my question. I guess if I can start off on the datacom revenue as well, and your datacom revenue declined quarter over quarter, so did 800 Gbps as well. You talked about the product transition for the customer driving that decline. Maybe if you can just flesh that out for us a bit more in terms of is that customer really transition driven by that the customer has a lot of inventory and hence you're waiting for that to clear out before we see a more return to normal demand patterns, or is this more share allocation shifting between different suppliers when it comes to 800 Gbps? You mentioned the 1.6 Tbps ramp is still in front of you.

Maybe if you can just outline how much of that ramp should we expect in the June quarter, what is embedded in your guide on that front. I have a quick follow-up after that. Thank you.

Seamus Grady (CEO)

Hi, Samik. Yeah, the 1.6 Tbps ramp is really in front of us. We've built some qualification builds. We have built ship some 1.6 Tbps product, but really the bulk of the ramp is in front of us. Exactly why that might be, that's again a question probably more for our customer than for us. They don't necessarily share with us all of the puts and takes, but we don't believe we've lost any market share or anything like that. We believe a function of the product that uses 1.6 Tbps. I think the customer said that that product will really ramp and launch in the second half of the year. We are gearing up to support the customer in whatever timeline they need from us. We have shipped some, but the big 1.6 Tbps ramp is really in front of us.

Samik Chatterjee (Managing Director and Equity Research Analyst)

On the 800 Gbps, Seamus?

Seamus Grady (CEO)

Sorry, what was the question on 800 Gbps?

Samik Chatterjee (Managing Director and Equity Research Analyst)

On 800 Gbps, is this product transition for the decline that you're seeing, is that more a function of the customer having inventory of 800 Gbps, or are they allocating share between the different suppliers when it comes to 800 Gbps that is driving the decline?

Seamus Grady (CEO)

Yeah, I think it's more likely share than inventory. I think in our case, because we're gearing up to ramp 1.6, we have been putting capacity in place and in some cases converting capacity. The capacity is somewhat fungible, I would say, but not completely. We have been converting capacity to gear up to produce 1.6. Once you've transitioned that capacity over to 1.6, you don't really want to be transitioning back to 800 Gbps. From our point of view, if we look out to FY 2026, we'd really be tapering off 800 Gbps and ramping 1.6.

Samik Chatterjee (Managing Director and Equity Research Analyst)

Got it. Got it. Maybe I can just sneak one in. Your engagement with Amazon Web Services, which you announced, obviously it's a different nature of a customer than what you've traditionally worked with. Maybe just outline for us how should we think about the margin opportunity as well as what is the nature of the advanced manufacturing that you're supporting the customer on? Does it include transceivers? What is the magnitude of the opportunity that you see with the customer? Thank you.

Seamus Grady (CEO)

We expect the relationship to begin with a particular product family and to expand from there over time. Nothing is excluded in our agreement with Amazon or in our warrants arrangement with Amazon. There is nothing specified and also nothing excluded. We are excited to get going again with one product family, and we will be working hard. We are already engaged, I would say, with two particular products, two product types that we are ramping, and we are working hard on others. Multiple products within that customer. Again, the qualification builds are really going on at the moment, and the revenue is ahead of us. The revenue is in FY 2026. The revenue will ramp in FY 2026. There will be a little bit of revenue this quarter, but as Csaba mentioned earlier, it is one of many qualification builds.

Startup costs we'll have this quarter where we're getting ready to get going, but the majority of the ramp is in front of us.

Samik Chatterjee (Managing Director and Equity Research Analyst)

Thank you. Thanks for taking the questions.

Seamus Grady (CEO)

No problem. Thank you, Samik.

Operator (participant)

Our next question comes from Mike Genovese with Rosenblatt Securities.

Mike Genovese (Senior Research Analyst)

Great. Thanks very much. Obviously, telecom has been very positive here for a few quarters. I guess just the visibility going forward, how long do you expect telecom to continue to sequentially grow for into the future?

Seamus Grady (CEO)

I think for us, we have some pretty strong growth factors going on in Telecom in the quarter. Our Telecom revenue in the quarter just ended was $406 million, which is a high point for us. The previous high point was $405 million all the way back in Q1 of 2023, almost two years ago. As we all know, over the last couple of years, we have been going through inventory digestion and everything else that was going on, but we are now back to growth. $406 million in Q4. We think we have several growth vectors there that should augur well for the future. We have the Ciena win, which is really yet to ramp. Also, the ZR business, the DCI business in general, 400ZR, 800ZR beginning to ramp. Several growth factors there for us that we feel good about.

I think overall, I would say that the telecom business obviously remains very important for us, and we seem to have this pattern of if one part of our business is soft, because we've always said we have this countercyclicality. Previously, when our telecom business was quite soft, our datacom business showed particular strength. Now with our datacom business, I wouldn't call it soft. I'd call it we're waiting to really ramp a couple of programs that we've won. Our telecom business, yeah, Mike, it has been particularly strong. We see that. We think it's set to continue.

Mike Genovese (Senior Research Analyst)

Great. Thanks for that. I guess kind of following up on the Datacom side, since you're laying out this exactly what you just spoke about, sort of in between 800 and ramping 1.6 with the customer, is there anything more you can tell us just from externally as observers, which products from the customer we should be looking for to be more tied to your opportunity versus the products that they've shipped so far or in the past? Is there any help you can give us there? Hello?

Seamus Grady (CEO)

Sure. I'm sorry. Go ahead.

Mike Genovese (Senior Research Analyst)

I'm sorry. Did you hear the question? Can you hear me?

Seamus Grady (CEO)

I did. Can you hear me okay?

Mike Genovese (Senior Research Analyst)

Now I can hear you.

Seamus Grady (CEO)

Okay. Yeah. I think my sound was gone for a moment. Sorry. Yeah, Mike, our understanding is that the 1.6 Tb transceivers that we produce will be used for the customer's Blackwell Ultra product. And that's really as much as we know. The exact timing of when they're ready to launch that, that's a question for them. But we're ready to support them whenever they're ready to go.

Mike Genovese (Senior Research Analyst)

Okay. Perfect. And then just last quick follow-up for me. On the Amazon, the new stuff that we're talking about related to the warrant, will that be counted in the Datacom, I assume? The Datacom bucket?

Seamus Grady (CEO)

We're looking at that currently. The revenue at the moment is probably in the other category. It's quite small at the moment because it's just qualification builds. At the end of the year, we will probably revise how we categorize the revenue to make it more meaningful and more helpful for people such as yourselves. We may add a category, and we may provide a little bit further granularity on some of the other product revenues that we have. For now, I think, unless Csaba wants to correct me, I think it's in the other category at the moment. In the future, we would expect to have it would be in a couple of categories, we believe.

Mike Genovese (Senior Research Analyst)

Okay. Thanks again. Pass it on.

Seamus Grady (CEO)

Thank you. Thank you.

Operator (participant)

Our next question comes from Steven Fox with Fox Advisors.

Steven Fox (Founder and CEO)

Hi. Good afternoon. I had a couple of questions too. I guess first off, maybe a little bit more color on sort of the not that it's a huge headwind, but the headwind for as you ramp all these programs. You mentioned some sizable programs ramping now, 1.6 Tbps, it sounds like Amazon and ZR. How do we think about sort of the extent of these drags and maybe when they turn into sort of more of an incremental tailwind, or do we assume that there's other ramps behind them that sort of keep the margins at these levels? And then I had a follow-up.

Seamus Grady (CEO)

Yeah. I think overall, Stephen, the long-term growth drivers that we look at and that we use to make the long-term decisions for our business, they remain very much intact. At the midpoint of our guidance for Q4, if it comes to pass, if we were to come in at the midpoint of our guidance for Q4, that would put us at about an 18% growth for the year, which is really, we think, industry-leading. Any short-term headwinds due to program ramps and startup costs are very temporary in nature. Typically, Stephen, when we bring on a new product, the quarter in which you bring on that product, we'll have, as Csaba called them, startup costs. That is very short-lived. That tends to go away as soon as we start ramping. The long-term growth drivers remain intact.

We're looking at about 18% year-on-year growth at the midpoint of our Q4 guidance. Maybe more importantly, the new wins that we've talked about for the last while are now really all starting to contribute. In fact, the ramp for all of them are in front of us and will take place in FY 2026. The 1.6 Tb ramp, the Ciena win, we've always talked about that as an FY 2026 ramp. The Amazon business, we're doing the qualification builds on that, but that will ramp in FY 2026 as well. We're looking forward to a strong FY 2026. The telecom business is back to growth. Like I said, we had record telecom revenue of $406 million in the quarter, and it looks like the growth drivers for telecom are quite sustainable.

Our long-term drivers remain intact in any short-term headwinds that we're seeing to our margin because the startup costs are very short-lived, typically.

Steven Fox (Founder and CEO)

Great. That's super helpful. Just as a follow-up, I was just wondering, the Amazon business that you've won, does that preclude you from going after other cloud players or maybe, or the opposite, help you go after other cloud customers who may be pursuing similar type of supply chain strategies as Amazon when it comes to the services you provide? Thanks.

Seamus Grady (CEO)

Yeah. We think it should help us to go after other cloud providers. As you know, Stephen, we don't have any of our own products. We manufacture our customers' products. We are in conversations with other hyperscalers as well. None of our customer relationships are exclusive. In fact, our success with Amazon could be a proof point for other potential similar customers. We will be working hard on that over the next while.

Steven Fox (Founder and CEO)

Great. Thank you.

Seamus Grady (CEO)

Thank you, Steve.

Operator (participant)

Our next question comes from George Wang with Barclays.

George Wang (VP Senior Analyst)

Hey, guys. Thanks for taking my question. Firstly, just Seamus, can you talk about overall ASP trends for the industry and kind of especially from your standpoint in terms of 800 Gbps and the kind of 1.6 Tbps? Earlier, you talked about maybe because of abundance of supply, kind of incremental supply for the 1.6 Tbps, you have less of a 1.5x multiplier for the ASP. Generally speaking, can you also address in terms of the merchant supplies initially for the 1.6 Tbps, how are you comparing versus in the old cycle of 800 Gbps in the past?

Seamus Grady (CEO)

Unfortunately, George, you seem to have asked me two questions, neither of which I'm able to answer. ASP trends, the customer's ASP, we don't have any particular visibility on. The pricing trends of the merchant transceivers, we don't have any particular visibility on. We know what our price trend is like with our customer, and it's generally not something we comment in any great detail on other than to say, I think we've said in the past that the price uplift from our point of view for what we sell a 1.6 Tbps transceiver for as compared to what we would have sold an 800 Gbps transceiver is less than you might imagine. We've worked very hard with the customer to bring costs down, to drive yields up, and to make sure that we're very cost competitive. We feel we have a very cost competitive solution for our customers.

Really beyond that, when it comes to broader ASP trends and ASP trends for the merchant suppliers, we do not have any particular view on that, George.

George Wang (VP Senior Analyst)

Okay. Great. Just quickly, if I can squeeze in, Seamus, just in terms of kind of outsourcing trends, potential upside from your sort of co-opetition kind of partners, including Coherent, Lumentum, with the new leadership, like any refresher view in terms of getting more business from them in terms of kind of outsourcing as they might outsource more for you kind of from a more sort of OEM kind of standpoint? Just any thoughts on potentially kind of getting more share there?

Seamus Grady (CEO)

Yeah. I mean, we work hard with all our customers to convince them to outsource more with us, to outsource more with us, including the two that you mentioned. It would be premature for me to kind of comment on progress with that. Certainly, we would very much like to do more manufacturing for both of those companies and all of the other companies. Again, nothing particularly to talk about in a public forum, George.

George Wang (VP Senior Analyst)

Okay. Great. I'll go back to the queue. Thank you.

Seamus Grady (CEO)

Thank you, George.

Operator (participant)

Our next question comes from Ryan Koontz with Needham.

Ryan Koontz (Managing Director and Research Analyst)

Great. Thanks. I wanted to drill into tariffs if I could a little bit. Seamus, and your thoughts there? I mean, there's been chatter about attempts by commerce to kind of close loopholes for the Chinese setting up facilities outside of in other countries. I wondered if what you can share that what your thoughts are about how this might be resolved for U.S. companies that have set up facilities in foreign countries. Anything you can share there?

Seamus Grady (CEO)

Not particularly. We haven't seen any great impact from our customers, I think, since Liberation Day. I think like our customers, we're just waiting to see what the future holds. The way we look at the business, again, as I mentioned earlier, the long-term drivers remain intact. Any of the kind of disruption that is likely to be caused by tariffs, we haven't seen any particular impact yet. Our customers are responsible for the tariffs because we ship our product FOB, our factory in Thailand. Generally, the customers are responsible for the tariffs. While the situation is very fluid, the customer demand we're seeing for optical communications appears to be holding.

Ryan Koontz (Managing Director and Research Analyst)

Great. Just a quick update on Building 10, if you could, in terms of where you are, your milestones, and any rough idea what you might think you might have to begin some early production there?

Seamus Grady (CEO)

I'm sorry. Could you repeat the question?

Ryan Koontz (Managing Director and Research Analyst)

On Building 10, any milestones you can say you're approaching or any new targets on when you might see your first production from the new capacity?

Seamus Grady (CEO)

Yeah. I think we're on track. I would say we started, we broke ground in January, and we said it's about an 18-month timeline to be fully completed. We could start to produce before that, but it's about an 18-month timeline. We're on track, I would say, very much on track. I mean, in fact, if anything, we were talking last week about maybe looking at options to see if we could, if the need arose, if we could move a little bit quicker to get Building 10 up and running. I mean, we're very much committed to expanding our capacity, and we think we'll need all of us.

Ryan Koontz (Managing Director and Research Analyst)

Great. You're the talkback. Thank you.

Seamus Grady (CEO)

Thank you. Thank you, Ryan.

Operator (participant)

As a reminder, if you'd like to ask a question at this time, please press star one one on your touch-tone phone. Our next question comes from Tim Savageaux with Northland. Tim, your line is open.

Tim Savageaux (Senior Research Analyst)

Hey, good. Great. Good afternoon. Can you guys hear me?

Seamus Grady (CEO)

Yes. Hi, Tim. We can hear you now.

Tim Savageaux (Senior Research Analyst)

All right. Great. Sorry about that.

Seamus Grady (CEO)

No problem.

Tim Savageaux (Senior Research Analyst)

We're going to try to take another crack at quantifying the Amazon opportunity. Here's how I'll go about it. I mean, you've got peers or competitors with agreements talking about revenues of $400 million a year. Now, something like that would make Amazon around a 10% customer for you guys. It seems like they ought to have that potential. I don't know if you said it or not, but it seems like Ciena does as well. I mean, do you think Amazon could get to that level with you guys? I guess for both of these ramps, I don't know if this is a concept that applies anymore given the opportunity you have, but how long do you think you take to get fully ramped there?

Seamus Grady (CEO)

I think as with all of our customers, Tim, the commercial arrangements between us and Amazon prohibit us from discussing any of those kind of details. Your question was, could it get to that level? I think it could. We'll be working very hard to make sure we start off with one or two product families that we'll be making and that we expand that to others. We don't necessarily see that let's say there's a revenue that's tied to the warrant. We don't see that as a target. We see it as more of a minimum that we'll be going for and a platform upon which to build. Yeah, we're quite excited about that. Again, we think we'll do a great job for Amazon. We're already doing a great job for them, and we're really looking forward to expanding that relationship.

Did you have a question about Ciena as well?

Tim Savageaux (Senior Research Analyst)

It's basically the same question, I guess.

Seamus Grady (CEO)

Okay. I think you and others have done a pretty good job backing into the number if you look at the kind of trajectory that the customer has had previously with new product launches and then the kind of revenue level that they're able to get to and what that might mean when you strip out their gross margin. We have, let's say, a forecast that we have from the customer, but we only guide one quarter at a time. We are very optimistic about it, Tim, and it is in front of us. We are just beginning to get qualified and just beginning to ramp. Yeah, there are a few very big ones that we think will all ramp in fiscal year 2026, like we said, the 1.6 Tbps ramp, the Ciena business, and then the Amazon new business wins, all of which will ramp in fiscal year 2026.

Tim Savageaux (Senior Research Analyst)

Great. That kind of takes me to my second question with regard to, you mentioned Ciena is in very early days. In terms of the very strong telecom growth you saw in the quarter, you cited several, a couple of factors, a few, I guess, to be precise. ZR, strengthening telecom, which I'll take your non-speed-rated business increase there as a proxy for that to some degree, and then new wins. I assume that maybe those are wins other than the ramps that you're talking about or that we were just talking about. As you look at that $60 million sequential increase, I am inclined to think that the new wins and strengthening telecom are the balance of that, or sorry, are most of that.

I'd like to hear any comments about how you would kind of rank the drivers for the March quarter in terms of telecom growth.

Seamus Grady (CEO)

I think if you look at the growth in telecom in the March quarter, ZR has been growing nicely for us. That's a good chunk of it. The non-speed-rated products are back to growth again. The new wins are really just in qualification-type volumes. They're not particularly meaningful in the revenue in the March quarter. That growth is really yet to come.

Tim Savageaux (Senior Research Analyst)

Okay. Thanks for.

Seamus Grady (CEO)

Thank you, Tim.

Operator (participant)

That concludes today's question and answer session. I'd like to turn the call back to Seamus Grady for closing remarks.

Mike Genovese (Senior Research Analyst)

Thank you for joining our call today. We had a strong third quarter with results that exceeded our revenue guidance and many positive trends in our business. We are excited about closing out another record year with revenue growth of 18% at the midpoint of our guidance. We are even more excited about FY 2026 with new programs further contributing to our growth. We look forward to speaking with you in the future and to seeing those of you who will be attending the JPMorgan conference next week. Thank you and goodbye.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.