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 .

Financial Results

Metric	Q3 2024	Q2 2025	Q3 2025
Revenue ($USD Millions)	$731.5	$833.6	$871.8
GAAP Net Income ($USD Millions)	$80.9	$86.6	$81.3
GAAP Diluted EPS ($)	$2.21	$2.38	$2.25
Non‑GAAP Net Income ($USD Millions)	$87.7	$95.1	$91.2
Non‑GAAP Diluted EPS ($)	$2.39	$2.61	$2.52
GAAP Gross Margin (%)	12.4%	12.1%	11.7%
Non‑GAAP Gross Margin (%)	12.6%	12.4%	12.0%
GAAP Operating Margin (%)	9.7%	9.5%	9.0%
Non‑GAAP Operating Margin (%)	10.7%	10.6%	10.2%

Segment and mix

Segment/Mix ($USD Millions)	Q2 2025	Q3 2025
Optical Communications Total	$647	$657
Datacom	$299	$251
Telecom	$348	$406
≥800G Products	$257	$236
<800G Products	$277	$284
Non‑speed‑rated Optical	$140	$137
Non‑Optical Communications	$186	$215

Balance sheet and cash KPIs

KPI	Q2 2025	Q3 2025
Cash + Short‑term Investments ($USD Millions)	$935	$951
Operating Cash Flow ($USD Millions)	$115.9	$74.2
CapEx ($USD Millions)	$21.9	$28.5
Free Cash Flow ($USD Millions)	$94.0	$45.7
Share Repurchase (Shares, Avg Price, $USD Millions)	292k, $235, $69	162k, $214, $35

Estimate comparison

Metric	Q1 2025	Q2 2025	Q3 2025
Consensus Revenue ($USD Millions)	771.1*	813.6*	856.9*
Actual Revenue ($USD Millions)	804.2	833.6	871.8
Consensus Non‑GAAP EPS ($)	2.377*	2.493*	2.473*
Actual Non‑GAAP EPS ($)	2.39	2.61	2.52

Values marked with * retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD Millions)	Q3 FY2025	$850–$870	Actual: $871.8	Beat vs upper end
GAAP Diluted EPS ($)	Q3 FY2025	$2.32–$2.40	Actual: $2.25	Below range
Non‑GAAP Diluted EPS ($)	Q3 FY2025	$2.55–$2.63	Actual: $2.52	Below range; company stated “exceeded guidance”
Revenue ($USD Millions)	Q4 FY2025	—	$860–$900	New
GAAP Diluted EPS ($)	Q4 FY2025	—	$2.32–$2.47	New
Non‑GAAP Diluted EPS ($)	Q4 FY2025	—	$2.55–$2.70	New
Effective GAAP Tax Rate	FY2025	Mid‑single digits (commentary)	Mid‑single digits (reiterated)	Maintained
Margin outlook	Q4 FY2025	—	Short‑term headwinds from multiple product ramps/start‑up costs	New qualitative guidance

Note: Management commentary indicated non‑GAAP EPS exceeded Q3 guidance; however, prior guidance (2.55–2.63) exceeds reported non‑GAAP EPS of $2.52, suggesting a disclosure discrepancy or definitional nuance .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY2025)	Previous Mentions (Q2 FY2025)	Current Period (Q3 FY2025)	Trend
Telecom/DCI momentum	Telecom returned to growth; record revenue; optimism into Q2	Telecom $348M (+24% YoY, +17% QoQ); DCI/400ZR strong; new system wins starting	Telecom $406M (+42% YoY, +17% QoQ); DCI/400ZR at ~10% of total revenue; recent wins to ramp in FY2026	Accelerating
Datacom transition & 1.6T	Broad growth; no specific 1.6T detail	Datacom $299M; 800G flat; below 800G +25% YoY; customer transitioning to next‑gen	Datacom $251M; 800G down; 1.6T ramp largely ahead; tied to customer product timing (e.g., Blackwell Ultra)	Near‑term softness; ramp ahead
AWS hyperscaler partnership	—	—	New AWS multi‑year relationship; warrant up to 1%; qualification builds now; revenue contribution expected FY2026	New growth vector
Tariffs/macro	—	—	No material impacts; tariffs handled by customers under FOB terms; broader range in Q4 guidance for prudence	Monitoring; neutral impact
Capacity expansion (Building 10)	—	New building plans started; higher capex over next quarters	Building 10 on track; ~18‑month timeline; potential to accelerate if needed	Investing for growth
Automotive	Growth across product areas	Non‑optical up >20% YoY; auto up sequentially	Auto $129M (+76% YoY, +24% QoQ); sequential growth expected to moderate in Q4	Strong but normalizing

Management Commentary

“We had a very strong third quarter with revenue of $872 million, which was above our guidance range… non‑GAAP EPS of $2.52, which was also above our guidance range.”
“Telecom revenue was particularly exceptional… driven by recent system wins, continued 400 ZR momentum… We remain optimistic about a return to datacom growth as demand for 1.6T devices increases.”
“We announced a new commercial relationship with Amazon Web Services… providing Amazon with advanced manufacturing services in a multiyear agreement… warrant purchase agreement for up to 1% of our outstanding shares.”
“Gross margin had an impact of about 40 basis points due to the warrant… We anticipate some margin headwinds in Q4 due to start‑up costs from new ramps, preparing us for a strong 2026.”
“For the fourth quarter, we are guiding total revenue between $860 million and $900 million… EPS between $2.55 and $2.70.”

Q&A Highlights

Datacom decline and 800G vs below‑800G mix: CFO clarified declines centered in 800G while DCI/<800G and residual 400G supported mix; main driver is product transition at a large customer .
Margin impacts: One‑time AWS warrant reduced gross margin ~40 bps; FX headwinds minor; Q4 margins to face short‑term compression from multiple ramps/start‑up costs .
1.6T ramp timing: “Bulk of the 1.6T ramp is really in front of us… linked to customer launch timing,” with qualification builds underway; referenced use with “Blackwell Ultra” products .
Telecom growth drivers: ZR/DCI momentum and nonspeed‑rated products returning to growth; new wins in qualification volumes with larger revenue to come .
Tariffs: No meaningful demand impact; FOB terms place tariff responsibility with customers .
Capacity expansion: Building 10 construction on track (~18 months), potential acceleration if needed .

Estimates Context

Q3 FY2025 beat: Revenue $871.8M vs $856.9M consensus; non‑GAAP EPS $2.52 vs $2.47 consensus. Q1 and Q2 also exceeded consensus on both revenue and EPS .
Consensus detail: see table above; estimate counts ranged from 4–8 across quarters; trajectory supports upward revisions for telecom‑exposed programs and DCI/400ZR, with 1.6T ramp likely steepening FY2026 expectations.*

Values retrieved from S&P Global.*

Key Takeaways for Investors

Telecom momentum is the primary growth engine near‑term; DCI/400ZR demand and system wins continue to offset datacom transition softness .
The AWS hyperscaler relationship and warrant signal strategic positioning with large cloud customers; management expects revenue contribution starting FY2026 and views it as a platform for broader hyperscaler penetration .
Watch Q4 margin cadence: management flagged start‑up costs from multiple ramps; any upside to margins would be a positive surprise; FX currently neutral .
Datacom inflection hinges on 1.6T ramp timing at a major customer; confirmation of launch timing and early run‑rate in Q4/Q1 FY2026 are key catalysts .
Cash generation remains solid but moderated in Q3 due to higher capex and lower OCF; balance sheet strong with ~$951M cash+ST investments and ongoing buybacks ($35M in Q3) .
Tariffs currently not impacting demand under FOB terms; prudence reflected in wider Q4 revenue guidance range given macro uncertainties .
Note the discrepancy between stated “EPS exceeded guidance” and prior non‑GAAP EPS guidance (2.55–2.63); monitor future disclosures for clarification and consistency .

Fabrinet (FN)·Q3 2025 Earnings Summary