Q4 2024 Earnings Summary
- Diversified Datacom Growth: Executives highlighted sustaining robust 800 gig revenue growth with plans to broaden the customer base beyond key players like NVIDIA by pursuing other GPU companies, merchant transceivers, and hyperscale opportunities, indicating a diversified and growing datacom segment.
- Telecom Recovery and DCI Strength: The Q&A underscored that the traditional telecom business is stabilizing, with a notable rebound in DCI demand, including strong performance in 400ZR and 800ZR products, which supports an improving revenue profile in telecom.
- Proactive Capacity Expansion: Management confirmed plans to break ground on a 2 million square foot facility (Building 10) within fiscal year 2025, a decision driven by current capacity utilization trends and low downside risk, signaling confidence in future demand and long-term growth.
- Continued weakness in the telecom segment: The Q&A highlighted ongoing telecom challenges, including a 23% year-on-year decline and issues attributed to inventory digestion. This persistent weakness in telecom may continue to pressure overall revenue growth.
- High customer concentration risk in datacom: The discussion around 800 gig transceiver revenue points to a heavy reliance on one large customer, which could expose the company to significant revenue volatility if that customer’s demand were to weaken.
- Risks from significant capital expansion: The decision to build a 2 million square foot facility (Building 10) involves substantial capital expenditure and a long ramp-up period (approximately 18 months). If demand—especially in the challenging telecom segment—fails to materialize as anticipated, it may lead to underutilized capacity and margin pressure.
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Datacom Growth
Q: 800G revenue diversifying base?
A: Management noted that 800G products remain the key revenue driver. While NVIDIA leads, they are actively expanding into other GPU companies and hyperscalers, ensuring a sustainable and diversified datacom growth story. -
Telecom Outlook
Q: Any green shoots in telecom?
A: They indicated traditional telecom is beginning to stabilize, with modest recovery aided by DCI growth in 400ZR/800ZR products, suggesting a cautious yet positive outlook. -
Pricing Dynamics
Q: Will pricing pressure slow growth?
A: Management emphasized historical revenue growth around 15% and earnings growth near 24%, with competitive cost and quality dynamics mitigating pricing pressures to keep growth on track. -
Capacity Expansion
Q: Why build a new facility?
A: The decision to expand with a 2 million sq ft facility is based on overall business conviction in both datacom and telecom segments, delivering significant long-term revenue potential with minimal downside risk. -
Sienna Win
Q: How fast will Sienna ramp?
A: The Sienna win is expected to ramp gradually, beginning in early calendar 2025, reflecting a deliberate and steady buildup rather than an immediate revenue jump. -
1.6 Transceiver Timing
Q: When might 1.6 launch?
A: Although the team is working closely on the 1.6 transceivers, the product timing depends on customer schedules and will not cannibalize ongoing 800G and 400G demand. -
Systems Business
Q: Will systems grow faster?
A: Management sees potential for the systems business to outpace traditional components, although distinguishing between market recovery and inventory adjustments remains complex. -
Product Mix
Q: Only make multi-mode transceivers?
A: They clarified that they manufacture a full range of transceivers, including both single-mode and multi-mode, catering broadly to customer requirements. -
Competitive Positioning
Q: How do your products compare?
A: The company focuses on meeting customer needs through various design options, leaving direct competitive comparisons to market preferences and customer evaluations. -
Modem Details
Q: Do modems include pluggable options?
A: They confirmed a broad-based relationship in their modem business but refrained from disclosing specifics regarding pluggable components, emphasizing a comprehensive product offering instead.
Research analysts covering Fabrinet.