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Fabrinet (FN)·Q2 2025 Earnings Summary

Executive Summary

  • Record Q2 FY2025 revenue of $833.6M and GAAP EPS $2.38; non-GAAP EPS $2.61, both above company guidance; Q/Q revenue +3.7% and Y/Y +17.0% .
  • Telecom outperformed (driven by DCI and early systems wins), while datacom moderated ahead of next-gen ramp; management guided another record revenue quarter for Q3 ($850–$870M) with non-GAAP EPS $2.55–$2.63 and GAAP EPS $2.32–$2.40 .
  • Building 10 (2M sq ft) broke ground, adding ~$2.4B annual revenue capacity when fully utilized; near-term CapEx to rise ~$20M over the next 6–8 quarters .
  • Share repurchase authorization expanded by $100M to $534.3M; Q2 buybacks totaled 292K shares at ~$235 for $69M, signaling confidence and capital return .

What Went Well and What Went Wrong

  • What Went Well

    • “Record quarter for both revenue and profitability” with non-GAAP EPS $2.61; momentum expected to continue into Q3 and beyond .
    • Telecom strength (+24% Y/Y, +17% Q/Q) driven by DCI and early systems wins; 400ZR reached ~10% of total revenue in Q2 .
    • Strong non-optical performance: automotive +32% Y/Y, industrial lasers +24% Y/Y; operating leverage offset FX headwinds to keep operating margin ~10.6% .

  • What Went Wrong

    • Datacom softness sequentially (-9% within optical) as a major customer transitioned to next-gen products; management expects near-term moderation before next-gen ramp later CY2025 .
    • FX headwinds pressured gross margin (GAAP 12.1% vs 12.7% in Q1); effective GAAP tax rate elevated to 8.7% due to discrete items .
    • Component tightness: EMLs remain in short supply, a potential constraint into the 800G/1.6T cycle .

Financial Results

MetricQ2 FY2024Q4 FY2024Q1 FY2025Q2 FY2025
Revenue ($USD Millions)$712.7 $753.3 $804.2 $833.6
GAAP EPS ($)$1.89 $2.22 $2.13 $2.38
Non-GAAP EPS ($)$2.08 $2.41 $2.39 $2.61
Gross Margin % (GAAP)12.4% 12.3% 12.3% 12.1%
Gross Margin % (Non-GAAP)12.6% 12.5% 12.7% 12.4%
Operating Margin % (GAAP)9.7% 9.7% 9.6% 9.5%
Operating Margin % (Non-GAAP)10.7% 10.7% 10.7% 10.6%

Segment and mix

Segment / Mix KPI ($USD Millions unless noted)Q4 FY2024Q1 FY2025Q2 FY2025
Optical Communications Revenue$596 $626 $647
• Datacom$350 $329 $299
• Telecom$282 $297 $348
Non-Optical Communications Revenue$157 $178 $186
800G and faster$259 $257 $257
Below 800G$223 $262 $277
Non-speed-rated (ROADMs, amplifiers, etc.)$114 $107 $140
400ZR contribution~10% of optical rev ~10% of optical rev ~10% of total rev

KPIs and Cash Flow

KPIQ4 FY2024Q1 FY2025Q2 FY2025
Operating Cash Flow ($M)$83.1 $83.2 $115.9
Free Cash Flow ($M)$70.4 $62.9 $94.0
CapEx ($M)$12.7 $20.3 $21.9
Cash & Short-term Investments ($M)$858.6 $908.9 $934.6
Diluted Shares (thousands)36,533 36,408 36,402
Share Repurchases21K sh, $3.5M, ~$170 avg px None 292K sh, $69M, ~$235 avg px

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ3 FY2025N/A (no prior Q3 guide)$850M–$870M N/A
GAAP EPSQ3 FY2025N/A$2.32–$2.40 (36.3M diluted sh) N/A
Non-GAAP EPSQ3 FY2025N/A$2.55–$2.63 (36.3M diluted sh) N/A
Gross MarginQ3 FY2025N/AFX pressure to persist; offset via operating leverage N/A
Tax RateFY2025Mid-single digits expectation Mid-single digits reiterated (Q2 discrete items elevated Q2 GAAP to 8.7%) Maintained
Segment ColorQ3 FY2025Q2 guide: telecom up; datacom flat-to-slightly up Datacom down slightly; telecom strong sequential growth; auto up Mixed shift vs Q2
Capital AllocationOngoing$434.3M authorization (Aug-2024) Authorization increased to $534.3M (+$100M) Raised

Note: Q2 FY2025 actuals exceeded Q1-issued Q2 guidance (Revenue $800–$820M; non-GAAP EPS $2.44–$2.52) with $833.6M and $2.61 respectively .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2024, Q1 FY2025)Current Period (Q2 FY2025)Trend
AI/datacom next-gen (1.6T)Preparing capacity; timing tied to customer launches; 800G to persist Datacom moderated near-term; next-gen ramp expected later CY2025; prepared to ramp rapidly Near-term down; medium-term up
Telecom & DCI/ZRTelecom stabilizing; wins including Ciena to ramp FY2026; 400ZR ~10% of optical rev; 800ZR already shipping Telecom +24% Y/Y, +17% Q/Q; 400ZR ~10% of total revenue; more growth anticipated Q3 Improving
Supply chain/componentsCustomer qualifying multiple sources; expect fewer constraints EML supply tight; potential constraint in early cycle Risk elevated
Tariffs/macroN/A specific priorNo tariffs impacting China-made items for them; potential share gain if customers migrate production; timeline months/quarters Potential tailwind
Capacity expansionDecision to build 2M sq ft Building 10; ~18-month build Ground broken; ~$2.4B annual capacity potential; CapEx to rise ~$20M over 6–8 quarters Executing
Automotive & industrial lasersAuto >$100M in Q1; EV charging share gains; industrial lasers strongest in 2 years Auto +32% Y/Y; lasers +24% Y/Y; sequentially up Strengthening
FX and marginsFY2025 margins to face FX; operating leverage offsets FX headwinds persisted; non-GAAP OI ~10.6% Managed

Management Commentary

  • “Our telecom performance was very strong and benefited from both increasing demand for datacenter interconnect products as well as early progress from recent systems wins… we continue to anticipate more rapid growth as next-generation products ramp production” — Seamus Grady .
  • “Optical Communications revenue was $647 million… datacom $299M… telecom $348M… 400 ZR products… reached 10% of total revenue in the quarter” — Csaba Sverha .
  • “We broke ground on Building 10… 2 million square foot facility… about a $2.4 billion capacity addition” — Seamus Grady .
  • “Effective GAAP tax rate was elevated in the quarter at 8.7% due to discrete items. We continue to expect an effective tax rate in the mid-single digits for the fiscal year” — Csaba Sverha .
  • “We repurchased 292,000 shares… average price of $235 per share for a total… $69 million… Board authorized an additional $100 million” — Csaba Sverha .

Q&A Highlights

  • Telecom trajectory and visibility: Strength driven by DCI/ZR and early systems wins; additional systems wins still not fully reflected; Ciena meaningful from late CY2025 into FY2026 .
  • Datacom timing and pricing: Next-gen ramp tied to customer schedule; steep ramp expected; ASP uplift vs 800G muted given cost focus and redesign .
  • ZR evolution: 400ZR dominant in 2025; 800ZR qualified and shipping; 400ZR ~10% of Q2 total revenue .
  • Tariffs: No direct negative impact observed; possible share gains if customers re-shore/shift; benefits would materialize over months/quarters .
  • Capacity & CapEx cadence: Building 10 lead time ~18 months; CapEx uplift ~$20M over 6–8 quarters as construction progresses .

Estimates Context

  • S&P Global Wall Street consensus for FN EPS and revenue was unavailable at time of request due to SPGI rate limits; as a result, we cannot quantify beats/misses vs consensus. Values would ordinarily be retrieved from S&P Global.
  • Company results exceeded its own Q2 guidance ranges (Revenue $800–$820M vs actual $833.6M; non-GAAP EPS $2.44–$2.52 vs actual $2.61) indicating internal beat strength even without consensus comparison .

Key Takeaways for Investors

  • Q2 delivered record revenue/EPS above guidance; Q3 guide implies another record top line ($850–$870M) with resilient margins despite FX headwinds — supportive near-term setup .
  • Telecom recovery is real and accelerating (DCI/ZR, early systems wins), offsetting datacom transition softness and de-risking the near-term mix .
  • Datacom next-gen (1.6T) remains a mid/late-2025 catalyst; management prepared for a steep ramp contingent on customer launch timing .
  • Building 10 materially expands capacity (~$2.4B potential), signaling confidence; expect CapEx tailwind to FCF in medium term but strategic leverage longer term .
  • Capital return remains active: $100M authorization increase; Q2 repurchases $69M at ~$235, providing downside support while growth investments proceed .
  • Watch EML supply tightness and FX headwinds; management expects operating leverage to offset margin pressure, but components/FX could add volatility .
  • Potential tariff-driven share shifts could benefit FN over months/quarters as customers reassess manufacturing locations .