Fabrinet - Earnings Call - Q4 2025

Executive Summary

• Q4 FY25 delivered record revenue of $909.7M and non-GAAP EPS of $2.65; both were above guidance and modestly ahead of consensus (Rev +$27.7M; EPS +$0.02), with non-GAAP gross and operating margins steady at 12.5% and 10.7% respectively. Q4 consensus: Revenue $882.0M*, EPS $2.63* (beat) (Values retrieved from S&P Global).
• Mix favored Optical Communications ($688.7M) led by DCI/ZR within Telecom ($411.8M), while Datacom remained in transition ahead of 1.6T ramps; Non-Optical was $221.0M with Automotive ~$127.9M.
• Q1 FY26 guidance implies continued growth: revenue $910–$950M and non-GAAP EPS $2.75–$2.90 vs consensus revenue $935.0M* and EPS $2.82* (range brackets consensus) (Values retrieved from S&P Global).
• Strategic tailwinds: new system wins (e.g., Ciena), AWS multi‑year manufacturing agreement with warrant alignment, and capacity expansion (Building 10) position FY26 for ramps in DCI, 1.6T, and systems—key stock catalysts alongside sustained Telecom strength.

What Went Well and What Went Wrong

• What Went Well

  • Record Q4 revenue ($909.7M) and record non-GAAP EPS ($2.65), both above guidance; FY25 revenue grew 19% to $3.42B; CEO: “Our fourth quarter was exceptional… record quarterly revenue… non-GAAP EPS also reached a new all-time high”.
  • Telecom outperformance and DCI/ZR momentum offset Datacom softness; optical communications revenue reached $688.7M, with DCI at $107.0M and Telecom $411.8M.
  • Strategic wins and partnerships: AWS direct relationship with warrant (proof point to other hyperscalers) and Ciena systems ramp underpin FY26 growth confidence.

• What Went Wrong

  • Datacom softness amid customer product transition; management expects 1.6T ramps ahead but acknowledged near-term pressure and capacity conversion away from 800G.
  • Free cash flow tightened sharply in Q4 on elevated CapEx ($50.4M), with quarterly FCF at $4.7M vs $70.4M in Q4 FY24.
  • Margin headwinds from new product ramps and seasonal merit increases expected in Q1; FX revaluation losses also impacted results intra-year.

Transcript

Speaker 2

Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the fourth 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, VP of Investor Relations.

Speaker 3

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 fourth quarter of fiscal year 2025, which ended June 27, 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 a replay will be available on the Investors 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 Investors 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 May 6, 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?

Speaker 0

Thank you, Garo. Good afternoon, and thanks to those joining our call today. We had an excellent fourth quarter, ending an outstanding year with tremendous momentum. Fourth quarter revenue was $910 million, which was above our guidance range and up more than 20% from a year ago and 4% from Q3. With margins that were a little better than expected, we also achieved record non-GAAP earnings of $2.65 per share. For the full year fiscal 2025, revenue reached a record $3.4 billion, representing a robust 19% increase over the prior year. Non-GAAP EPS also hit an all-time high at $10.17. Looking back, fiscal year 2025 was an exceptional year of execution and growth for Fabrinet. We navigated a significant product transition at a major DataCom customer, while our Telecom business and overall revenue reached record highs.

We established a significant partnership with Amazon Web Services, which we anticipate will be a meaningful revenue driver in fiscal year 2026. Construction began on Building 10, which will add 2 million square feet of capacity to our overall footprint. We also marked the 15th anniversary of our IPO by ringing the opening bell at the New York Stock Exchange. Additionally, we returned $126 million to shareholders through our buyback program, with continued repurchases expected in fiscal 2026. We begin fiscal 2026 with strong, broad-based momentum. Robust customer demand across our business leaves us better positioned than ever to capitalize on the many significant opportunities ahead of us. In fact, with multiple growth drivers providing clear visibility toward reaching $1 billion in quarterly revenue, we are now evaluating options to accelerate the completion of a portion of Building 10 to meet increasing customer demand.

Looking more closely at our fourth quarter results, Optical Communications revenue delivered strong growth. Telecom revenue increased 46% from a year ago and 1% from Q3, with system programs and demand for Data Center Interconnect products driving the bulk of our growth. In fact, DCI revenue represented one quarter of our total Telecom revenue and grew 45% from a year ago. We expect our Telecom momentum to continue into Q1, especially as we begin to ramp volume production of a next-generation system program for a major customer. As anticipated, DataCom revenue was down from a year ago but increased double digits sequentially as we enter a meaningful growth phase for 1.6T products. With demand still increasing, we are very optimistic about DataCom growth trends for fiscal 2026.

In the near term, this surge in demand has created some temporary component supply challenges, which we are working closely with a major customer to overcome. Within Non-Optical Communications, Automotive performed better than expected for the quarter, with only a slight sequential decline, while Industrial Laser revenue remained stable. Looking ahead, multiple simultaneous growth drivers give us strong optimism for fiscal 2026. These include the launch of a new Telecom system, continued growth in DCI, increasing demand for 1.6T transceivers, and the ramp of a prominent high-performance compute program. We remain confident in our ability to maintain excellent execution while continuing to grow both revenue and earnings. In summary, we are pleased with our outstanding performance in Q4 and throughout fiscal 2025. More importantly, we enter fiscal 2026 in a very strong position, reinforcing our optimism for the future as we further solidify our leadership position in the marketplace.

We look forward to carrying this momentum into a strong Q1. I'll now turn the call over to Csaba for more financial details on our fourth quarter results and our outlook for the first quarter of fiscal 2026. Csaba.

Speaker 1

Thank you, Seamus, and good afternoon, everyone. We had a very strong fourth quarter, achieving new quarterly records for both revenue and non-GAAP net income. Revenue in the fourth quarter was $910 million, above our guidance range, and an increase of 21% from a year ago and 4% from Q3. Non-GAAP EPS was $2.65, a new quarterly record. This result includes the impact of a $4 million or $0.10 per share FX revaluation loss. Looking at revenue performance by category, in the fourth quarter, Optical Communications revenue was $689 million, up 15% from a year ago and 5% from Q3. Within Optical Communications, Telecom revenue reached a robust $412 million, up 46% from a year ago and 1% from Q3. This performance reflects growing demand driven primarily by continued strength in Data Center Interconnect (DCI) products.

For the first time, we are reporting DCI revenue, which reached $107 million in the fourth quarter, representing 12% of overall revenue. To provide investors better insight into this important growth area, we have included historical DCI revenue data in the investor presentation available on our website. DataCom revenue of $277 million was down 12% from a year ago, but swung to a strong growth of 10% sequentially, driven by very strong demand for new, higher data rate products. In Optical Communications, revenue from 800 gig and faster products was $313 million, up 21% year over year and 32% sequentially, driven primarily by the ramp of new 1.6T DataCom products. Importantly, we have now begun volume shipments of 1.6T transceivers, a major milestone, and expect demand trends to continue ramping in fiscal 2026.

In contrast, revenue from products below 800 gig was $233 million, up 4% from a year ago, but down 18% from Q3, reflecting the industry's transition to next-generation products. Revenue from Optical Communications products that are non-speed rated was $143 million, up 4% from Q3. We expect strong revenue momentum from 800 gig and faster products to continue, while revenue from lower speed products is expected to decline gradually as the industry transitions towards higher data rates. As a result, beginning next quarter, we will no longer report revenue by data rate. Similarly, starting in Q1, we will discontinue the breakout of silicon photonics revenue as the vast majority of it is now captured under DCI. Non-Optical Communications revenue was $221 million, representing a healthy 41% increase year over year and 3% sequential gain.

Automotive revenue came in better than expected at $128 million, experiencing a modest quarterly decline following several quarters of rapid growth. Industrial Laser revenue was stable at $40 million. Other revenue was $53 million, up 38% year over year and 20% from Q3, with a sequential increase primarily reflecting the absence of a non-cash contra-revenue item recorded in Q3. 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 fourth quarter was better than anticipated at 12.5%, with operational efficiencies offsetting a smaller than expected impact from large project ramps. Operating expenses remain below 2% of revenue, resulting in record operating income of $97 million, or an operating margin of 10.7%, a 50 basis point improvement from Q3. Interest income was $8 million in Q4.

As I mentioned, we also incurred a foreign exchange revaluation loss of $4 million. Effective GAAP tax rate was 6.5%. Non-GAAP net income was $96 million, or $2.65 per diluted share. For the full fiscal year, revenue was a record $3.4 billion, up 19% from fiscal 2024. Non-GAAP EPS was $10.17 for the year, which includes the impact of an $0.11 headwind from non-cash contra-revenue and a $0.26 impact from FX revaluation losses. Looking at customer concentration, in fiscal 2025, we had two customers who represented more than 10% of our total revenue, with Nvidia at 28% and Cisco at 18% of revenue. Our top 10 customers made up 86% of total revenue for the year, consistent with last year. Turning to our balance sheet highlights, we ended the year with cash and short-term investments of $934 million, down $16 million from the end of Q3.

Operating cash flow in the quarter was $55 million. Capital expenditures rose to $50 million, primarily driven by Building 10 construction costs and investments to support new program ramps, resulting in fourth quarter free cash flow of $5 million. As Seamus mentioned, we are actively evaluating options to accelerate the construction of Building 10 in response to growing customer demand. If we move forward, quarterly capital expenditures could temporarily increase from current levels. With our very strong balance sheet, we believe we have ample cash to support our top capital allocation priorities, which are, first, investing in our future growth and, second, returning value to shareholders through our buyback programs. In the fourth quarter, we remained active in our share repurchase program. We repurchased 108,000 shares at an average price of $206 per share for a total cash outlay of $22 million.

For fiscal year 2025, we repurchased $126 million worth of Fabrinet shares, which is the most we have ever spent on repurchases in a single fiscal year. We entered fiscal 2026 with $174 million available for repurchases. Now, turning to our guidance for the first quarter of fiscal year 2026, we remain very well positioned to extend our track record of excellent growth and execution. In Telecom, we expect our very strong revenue growth trends to extend into the first fiscal quarter, driven particularly by ramping system programs. In DataCom, we are excited to see growing demand, especially for next-generation products. However, the surging demand has resulted in near-term supply constraints for some critical components, and as a result, we expect to see a sequential dip in DataCom revenue in Q1. We are working with our customers and suppliers to resolve these supply issues, which we expect to be temporary.

In Non-Optical Communications, we anticipate strong growth, driven primarily by a new high-performance compute (HPC) program. Since this new revenue stream does not align with our current disclosure categories, beginning in Q1, we will be introducing a new revenue category called HPC. In Automotive, we expect the near-term softness experienced in Q4 to continue into Q1, but we remain optimistic about a return to more normalized growth trends. Industrial Laser revenue should be relatively flat. Taking all of this together, we anticipate healthy year-over-year and sequential growth in the first quarter, with total revenue in the range of $910 million to $950 million. From a profitability perspective, please keep in mind that our annual merit increases take effect in Q1, creating seasonal margin pressure of about 10% to 20 basis points that we typically recover through efficiency gains over the course of the year.

In addition, Q1 margins will be impacted by temporary inefficiencies from new product ramps, which are expected to subside as these programs advance through their early production stages. With that in mind, we remain optimistic that we can achieve gross margins within our mid-12% target range while continuing to generate operating leverage that supports steady improvement in operating margins over time. We expect earnings per diluted share to be between $2.75 and $2.90. In summary, this is an exciting time at Fabrinet. We delivered a very strong fourth quarter and an outstanding fiscal year. With multiple new programs fueling our long-term growth trajectory and our strong competitive position, we are highly optimistic about Q1 and the new fiscal year ahead. Operator, we are now ready to open the call for questions.

Speaker 2

As a reminder, to ask a question, you will need to press *11 on your telephone. To remove yourself from the queue, you may press *11 again. Please limit yourself to one question and one follow-up to allow everyone the opportunity to participate. Please stand by while we compile the Q&A roster. Our first question comes from the line of Karl Ackerman of BNP Paribas. Please go ahead, Karl.

Yes, thank you, gentlemen. Congrats on the quarter. I have a clarification question and a follow-up, if I may. The clarification question is the dip in DataCom revenue that you expect in September, does that exclude or include contributions from the new HPC segment?

Speaker 0

Hi, Karl. Thanks for the question. The new high-performance compute program is not in our DataCom number in Q1. It will be in a new category that we report in the quarter called HPC or high-performance compute. HPC will not be in DataCom; it will be in its own category. In Q4, it was in other, as it just got off the ground, but in Q1, it will be in its own category.

Got it. Thank you for that. Seamus, you suggested in the past, I feel like are interested and certainly have the opportunity to perhaps have an EMS partner manufacture transceivers. I know you've been shipping manufacturing capacity away from 800 gig toward 1.6T. Should we assume that any future hyperscaler transceiver opportunities would be on 1.6 terabit port speeds, or do you still see a very long runway of growth on 800 gig? Thank you.

No, I think it depends on really whether we're talking about our main customer or the market generally. For our main customer, it would be predominantly 1.6 terabit, but for the DataCom customers generally, it will be both 800 gig and 1.6 terabit. We don't see much going on below 800 gig. For the DataCom opportunities, if you like, in total that we're pursuing, we usually work with our customers on the current plus the next two generations of products. In addition to our leading DataCom customer, we have other longstanding DataCom customers that we're working with who are designing their own products for 800 gig, 1.6 terabit, and also CPO products. We're also pursuing engagements with a number of merchant transceiver suppliers, as well as, as you mentioned, hyperscale direct.

We have four, if you like, four distinct growth vectors in the DataCom space: our largest DataCom customer, other DataCom customers who are designing their own products, merchant transceiver manufacturers, and hyperscalers direct. We're actively pursuing all four of those growth vectors.

Very good. Thank you.

You're welcome.

Speaker 2

Thank you. Our next question comes from the line of Tim Savageaux of Northland Capital Markets. Please go ahead, Tim.

Hi. Good afternoon, and congrats on the results.

Speaker 0

Thank you, Tim.

It's a higher-level question, perhaps. I think maybe it was the close of last quarter's call. Seamus, you talked about, I guess, the potential for accelerating growth in fiscal 2026 off of, you know, obviously, what was a pretty strong 2025 growing 19%. I guess the question is, you know, any more precision on that? Now that we're three months later, do you still feel like that's the case? Does perhaps the component issues change that? I'd just love to get your view on that previous statement.

Yeah, I think we enter fiscal year 2026 very optimistic about the year ahead. As you say, we had an excellent FY2025. We grew 19%. We grew 19% in the year where our largest customer, our business with our largest customer, was down on a dollar-for-dollar basis. That, I would say, makes us very optimistic, Tim, about the year ahead. We guide one quarter at a time, so we're not going to give full-year guidance, but I think our cause for optimism remains. The DataCom business is coming back and the demand is outstripping supply right now. That's a temporary issue, but we have very strong demand for 1.6 terabit products right now. We have a number of other DataCom products in the works, as I just mentioned. The strong Telecom trends continue, driven primarily by DCI.

We have a number of new customer wins, of course, that we've talked about previously, but overall, I think we entered the year with a very positive outlook for the year ahead.

Got it. I guess that's evident to some degree in your comments about maybe accelerating the Building 10 capacity expansion. I'm trying to figure out what you're exactly trying to communicate here. Have you pulled the trigger on something? Are you very close to, or as you said, you know, evaluating options, how might we see that move forward and over what timeframe?

Yeah, so the decision to pull Building 10 in to get a portion of the building completed maybe one or two quarters ahead of the original schedule, we really communicated that because it will impact our CapEx. Obviously, we'll have to spend a little bit more to pull in completion of a portion of the building. It's a combination of a few things. It's a combination of the business opportunities that we just talked about that we're addressing right now in Telecom, DataCom, and high-performance compute, as well as some other potential new opportunities. We really want to be able to occupy some of the space in Building 10 before the total building is completed. Meanwhile, we have flexibility.

We can accommodate all the demand that we're seeing, but we do want to be able to occupy a few hundred thousand square feet of Building 10 probably three to six months ahead of originally contemplated.

Great. The last one from me. I wonder if you can talk about whether your new Telecom system win contributed in a material way in Q4.

It contributed. I mean, we're really just getting going. We've always said it will ramp in FY2026, so we're just really getting started with that. It will ramp as we go throughout the year. It did contribute, but it's really as we go through the year that we start to see that program ramp. It's going very well. We're very happy with the relationship. I think the customer is happy, and we're very happy with how it's going and how the ramp schedule is going. The bulk of that ramp is still in front of us.

Great. Thanks very much.

Thank you, Tim.

Speaker 2

Thank you. Our next question comes from the line of Samik Chatterjee of JPMorgan. Please go ahead, Samik.

Hey, guys. Thanks for the questions. This is Joe Curtis on for Samik. Maybe for my first one, in a similar vein to the prior question on kind of the growth prospects for the company heading into next year, just given these multiple customer ramps across various and different products, some of them being kind of newer to the portfolio, anything we should keep in mind relative to the gross margin and OpEx trends going forward? Anything one-off or different from what we're used to in terms of the historical profile for Fabrinet? Just trying to be mindful that there's a lot of iron in the fire here. If there's anything that we should be considering, I have a follow-up.

Speaker 1

Hi, Joe. This is Shelley Sohn. I take that question. With regards to profitability, obviously, our aim is to maintain our gross margin target range in the mid-12%. As you would anticipate, some of these large new programs would put some temporary pressure on the gross margins. However, we do anticipate that these headwinds to be temporary and subside over time. We did call out a small headwind in our Q1 guide because that's a seasonal quarter for us with merit increases as well as these program ramps are coming through. However, we don't anticipate any structural changes in our portfolio or margin profile. Our aim is to maintain our existing gross margin range.

On the OpEx side, I have a follow-up.

OpEx, we have been very careful about spending on operating expenses, and we have been very cautious about adding cost, and we will maintain that discipline. As you see, our track record, we have been able to deliver operating leverage year over year, we continue that path. We don't anticipate to add any significant OpEx other than the usual merit increases throughout the year. That should continue to drive operating leverage as the top line grows.

Very clear. Maybe just as my follow-up, 800 gig trends, you mentioned 1.6 being kind of the primary driver of growth sequentially. Curious, how much of a gating factor was the supply constraints that you highlighted? As you think about the ramp going forward, any color on how you're thinking about the magnitude of the impacts from these bottlenecks and when we potentially could see them easing? Maybe just quickly, any color of whether that's what components those are, lasers, DSPs, anything else that you guys are seeing that's kind of the concentration of the supply constraints?

Speaker 0

Yeah, it's really a handful of components that are causing us to have some component constraints. As we saw this past quarter and into this quarter and beyond, we think now it's a surge in demand for 1.6 terabit transceivers and in particular, 200 gig per lane EML-based products. We are seeing some supply constraints, mainly for specific components. It's a small number of components. It's not broad-based. It's unique to really one component or one or two components for one product for our customer or for one customer. Because of these constraints, we're anticipating that the DataCom revenue will be down. We've called that out in our prepared remarks. We think it's short-lived. We're pretty confident we're pursuing multiple paths with our customer and with the supply base to help remedy the constraints in order to meet the strong demand. We believe the supply issues will be temporary.

They will take a little bit of time to fully resolve, maybe one or two quarters. We do think it's a short-lived problem, but it's one we have to deal with right now. The good news is the demand is very strong. The current demand is strong and well above the supply availability. It's not unusual when you get a new product like this, a kind of a leading-edge product with leading-edge technology and a big spike, coupled with a big spike in demand. That's not unusual to have these temporary supply constraints. We'll work through that.

Thank you, gentlemen.

Thank you, Joe.

Thank you, sir.

Speaker 2

Thank you. Our next question comes from the line of Steven Fox of Fox Advisors. Please go ahead, Steven.

Hi, good afternoon. I think I'm still a little confused on the gross margins. Can we back up and just talk about the fiscal fourth quarter margins for a second? You did better than you thought you would on efficiencies, but I would assume you had some of the product ramps going on. I guess you avoided the component shortages in the quarter and weren't expanding on Building 10 yet faster than previously thought. If you could just break that down, why didn't you see some of these headwinds and how else you got efficiencies in Q4 besides, you know, better sales? Thanks. I had a follow-up.

Speaker 1

Let me clarify. First of all, Steve, Building 10 expenses are not in the numbers. Building 10 is a future event. We do not see any gross margin headwinds from Building 10 context. That's number one. Secondly, obviously, as these programs are ramping, we do have certain inefficiencies that are baked in our outlook. However, the existing program, existing business continues to execute very well, and we had a very strong execution. On the flip side, that resulted in a better-than-expected gross margin in our Q4. Again, we do anticipate that these product ramps will put some pressure on the near-term gross margins. Going into Q1, we expect mild headwinds. Q4 was strong, and it's not particularly because of Building 10. It's just a very strong execution on the legacy business and, obviously, starting off with the new programs.

Speaker 0

If I can just add maybe to Csaba's comments there, Stephen, the ramp costs that we had assumed going into the quarter, we came in a little bit better than we had planned. We have a few quarters, I think, now of fairly strong ramps going on simultaneously. We are going to have to carry these ramp costs. When we start a new program, some of these big programs, it takes a little bit of time to get ramped up to full efficiency. We do carry some startup costs or NPI costs when we start these programs. In Q4, we just did a little bit better on efficiencies. Our operations team did an excellent job, sorry, an excellent job to execute to make sure that we came in a little bit better than anticipated in Q4.

Just one other minor detail on all that, and that's very helpful, is that you didn't experience any component constraints to speak of in Q4. Is that correct?

Not any huge constraints. We have, again, as we called out there, a couple of constraints going into Q1. There was some in Q4, but the big hit really is in Q1. We were able to get what we needed in Q4, but we are constrained in Q1, yes.

Speaker 1

Typically, Stephen, we don't have margin impacts from component shortages. We are always able to juggle the capacity to make sure that component constraints don't create near-term impact. The good thing about component constraints is we have a fairly good visibility on supply, so we are able to adjust capacity. There is no concern of headwinds from component constraints when it comes to gross margins.

Great. Thanks for explaining all that. Just as a follow-up, can you a little bit more on the Data Center Interconnect business? I thought you also had talked about some new customers for the new fiscal year. I know you only got a quarter at a time, but can you give us a sense for the momentum? You were up 45% year over year in the quarter. Any way to think about how the momentum directionally continues for the new fiscal year? Any other clues you can provide there? Thanks.

Speaker 0

Yeah, maybe I'll let Csaba put a bit more detail around it. In general, Stephen, our DCI business has been very strong. We've captured a number of customers there. They're all ramping, and we're able to keep up with the demand. The demand seems to be strong, it's robust, and it looks to be durable. It is increasing over time. I think as these big data center clusters get rolled out, these big AI workloads get shared around between data centers, the need for DCI is increasing, if anything. We see DCI demand continue to be very strong for some time to come.

Speaker 1

Some clarification there, Steve, as well. DCI is a distinct category, as you called out. We wanted to give that additional color to the investors. It's part of our Telecom business, but we wanted to call it out as it's a significant growth driver as you look ahead. There is one more thing that's going on in DCI. Obviously, the bulk of that growth came in the fiscal year from 400ZR products. We started to see transition to 800 gig products as well, but it's not at the expense of 400ZR at this stage. There is that growth driver going on there. To clarify your question about the new programs, we did not talk about particular DCI programs as a new category going forward. DCI, we have already captured the customers who we have been shipping, and we anticipate the growth to come from those customers.

The new system wins will be in the Telecom space, not the DCI. The high-performance compute (HPC) program is going to be a distinct, its own segment and another DCI category.

Great. That's all super helpful. Thank you very much.

Speaker 0

Thank you, Steve.

Speaker 2

Thank you. Our next question comes from the line of George Nader of Wolfe Research. Your question, please, George.

Hi, guys. Thanks very much. Can you just remind us the triggers on vesting of the Amazon warrants and recognition of contra revenue? I know that it was $4 million last quarter. I think none here in the June quarter. Can I assume that you did not generate revenue with Amazon this quarter? Is that the right read-through?

Speaker 1

Hi, George. Basically, the first vesting was prior to signing the contract. Upon signing the contract, we vested 10% in Q3. That was one condition of the vesting. The rest of the shares will vest over revenue and over time. The fact that you haven't seen anything in Q4 has to do with the fact that there is a threshold to be met in terms of revenue shipments. It doesn't mean that we haven't shipped anything. Future vesting will be subject to revenue and volume shipments throughout the year.

Got it. Any, I guess we're all curious about how big that Amazon business can be over time. Obviously, you're breaking it out into its own category. I get that certainly. Is this hundreds of millions of opportunities? Is this in the billions? How do you kind of think about the scale of what you can do here?

Speaker 0

As we look at the opportunity, it's certainly a significant opportunity for us. It could be significant. We believe it could be significant this fiscal year. We're not sizing the overall revenue with the customer there or the high-performance compute deal we have with them. The business will start to ramp in Q1. We did ship a little bit in Q4, but it will start to ramp in Q1. That is contributing to our strong anticipated sequential growth. Keep in mind that our shipping—I'm sorry. Calendar Q1 is just the beginning for us, though, with Amazon Web Services. We think there could be more to come. We have one opportunity there, the high-performance compute opportunity. We're working hard to see if we can gain some momentum in other categories there. Longer-term, high-performance compute represents a significant new TAM expansion opportunity for us.

That's why we've decided to classify it as its own category. We'll be disclosing in our Q1, we'll be disclosing HPC as its own category. We'll also be disclosing, as Csaba Sverha mentioned, or we'll be starting to disclose Data Center Interconnect (DCI) products as its own category.

Got it. I'm sorry, just to be clear, the ramp is in your fiscal Q1 or in calendar Q1 of 2026?

Fiscal Q1. We've already started. We've already started. We've shipped some revenue in Q4. That's just the, you know, getting off the ground. That's why we have the, if you like, we've called that the startup cost, because, you know, as you can imagine, when you start up, you don't start at cruising speed. We start up, we get the lines debugged, we get the efficiencies up, we make sure the yields are good. The customer comes and qualifies the production line, and then we start ramping. That work has been largely completed now, and we're just beginning to ramp properly this quarter. Fiscal Q1.

Thank you.

Thank you. Thank you, George.

Speaker 2

Thank you. Our next question comes from the line of Ryan Coons of Needham & Company. Please go ahead, Ryan.

Super, thanks. I'm going to ask also about DataCom, maybe a different angle here if we could. Certainly understand the ramp going on for your large customer at 1.6T. That's self-evident. You've talked about, I think, 800 remaining strong. Obviously, there are other customers involved in the mix there. Seamus, how would you characterize your visibility for 800 demand right now as you look at, you know, this next fiscal year? I think there's been some investor concern that, you know, that might dry up with your large customer shifting over.

Speaker 0

Thanks. Our visibility is quite good. I mean, our main focus is on the next-generation products, the 1.6 terabit, but we have visibility on 800 gig as well. Our visibility is quite good. Like I say, in both areas, it's supply constrained as opposed to demand constrained right now.

Got it. Helpful. You guys had some pretty decent auto numbers, auto segment. Any view of how you think that unravels in 2026?

I think, you know, steady. We think steady. I don't think it's going to have the same kind of growth trajectory as, let's say, high-performance compute or DataCom or even Telecom. It's probably more steady growth as we gain market share. Again, bear in mind, our Automotive business is more on the infrastructure side, the EV charging side of the business. We're not as exposed to consumer sentiment as maybe other companies who are producing for Automotive companies. We think Automotive will be steady, but maybe not grow quite as fast as DataCom or Telecom or the others.

That's great. One last one, if I could sneak it in, it was around tariffs. Any dialogue with tariffs that you'd be willing to share in terms of how your discussions are going with customers?

Yeah, it's an interesting one. For us, we haven't seen any meaningful impact to date from the tariffs. First, bear in mind, our shipping terms with our customers dictate that the receiver or the customer is responsible for the tariffs. We don't bear the cost of the tariffs. The products we make, both in the Optical Communications space and the Non-Optical Communications space, those categories are not necessarily shipped directly to the U.S., as they may be shipped to Asia or Europe or elsewhere to another contract manufacturer for higher-level assemblies. In many cases, the products we make don't ship directly into the U.S. Thus far, we have not seen any significant impact from tariffs, thankfully.

Super helpful. Thanks for that.

Thank you.

Speaker 2

Thank you. Our next question comes from the line of Michael Genovese of Rosenblatt Securities. Please go ahead, Mike.

Thank you. Seamus, I'm wondering, do you have any of your 800 gig customers moving to 200G per lane lasers, or is 800 gig still a 100G per lane market?

Speaker 0

The focus for us is on 200 gig per lane, 800 gig products. That's where the bulk of the growth is, on 200 gig per lane, 800 gig products.

When you talk about supply constraints, is it in both for the current quarter? Is it in both 800 gig products and 1.6 terabit products, or is it more in 1.6 terabit products than in 800 gig products?

It's affecting both. It's both 800 gig and 1.6 terabit, yes.

When we talk about being sequentially down in the quarter, that sounds like it could happen at more than one customer. That would be something that would happen at multiple customers because potentially 200G per lane EMLs are in short supply. Is that a right read?

Yes and no. I think there's a number of opportunities we're working on with customers, but they're not producing meaningful revenue in the current quarter, even though we're working on several opportunities. The big impact is with our main customer on the 200 gig per lane, which impacts both 800 gig and 1.6. There are other customers we're working with on both 800 gig and 1.6, actually, but they're not meaningful in terms of revenue in the current quarter.

Okay. Perfect. I'll pass it on. Thank you.

Thank you, Mike.

Speaker 2

Thank you. Once again, to ask a question, please press *11 on your telephone. Again, that's *11 to ask a question. We are now from Tim Savageaux of Northland Capital Markets. Please go ahead, Tim.

Yeah, thanks for the follow-up. Just a couple of quick ones. One, you know, could you take a shot at quantifying the impact of the component shortages on DataCom? I assume without that, they'd be up. Would that be up significantly? I don't know if there was a number on that one. Also, obviously, 800 gig and above grew quite sharply in the quarter, but not as sharply as DataCom. Sorry, DataCom didn't grow that sharply. It looks like you had a big kickup in 800 gig and above Telecom. It was kind of what I was asking with Sienna before. If I'm reading the numbers right, I wonder what might be driving that. That's it for me.

Speaker 0

Yeah, I think on the impact of the component shortage in DataCom, we're not going to quantify that, Tim, but it's, I'll put it this way. It's meaningful enough for us to call it out. We would be up fairly significantly were it not for that issue. We're not going to quantify it, but it's a substantial enough headwind for us this quarter. On the 800 gig and above, that's a mix of, as you rightly point out, both DataCom and Telecom. Good growth in the DataCom business, the 800 gig and above, but also primarily DCI and other products in the 800 gig Telecom category. It's on the chart if you want to add anything to that.

Speaker 1

No, I think that's the color we can provide in there. Obviously, we are seeing some in Data Center Interconnect products. It's below 800 gig, Tim. 400ZR was very strong in the Data Center Interconnect segment. Potentially, that's a reason for not going as fast as DataCom.

Speaker 0

Okay, thanks a lot.

Thank you, Tim.

Speaker 2

Thank you. I would now like to turn the conference back to Seamus Grady for closing remarks, sir.

Speaker 0

I thank you for joining our call today. We're very pleased with our strong fourth quarter results, culminating in another record year for the company. As we look to the first quarter and fiscal 2026, we're very excited about the opportunities that lie ahead and believe we are better positioned than ever to extend our strong track record of growth and execution. We look forward to speaking with you in the future and to seeing those of you who will be attending the Wolf Research Conference in September. Goodbye.

Speaker 2

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