FN Q4 2025: Diversified Growth and HPC Ramp, Warned of Q1 Datacom Dip
- Strong Demand and Diversified Growth: Management highlighted robust sequential revenue growth across key segments, notably in telecom (particularly DCI) and Datacom, along with the ramp-up of the new HPC category to unlock further revenue streams in fiscal Q1, underlining a diversified growth engine.
- Proactive Capacity Expansion: The discussion on accelerating the completion of Building 10 to gain additional capacity demonstrates a proactive strategy to meet rising customer demand, which supports long‐term revenue expansion.
- Resilient Operational Execution: Despite temporary component supply constraints, management’s ability to mitigate these issues and maintain strong margins as seen in Q4 reflects effective operational execution that can drive upside once constraints ease.
- Component supply constraints: Temporary shortages of critical components—especially for 800 gig and 1.6 terabit products—are expected to significantly impact Datacom revenue in the near term, potentially leading to sequential declines as these issues may take one to two quarters to resolve.
- Margin pressure from product ramps and merit increases: The upcoming quarter is anticipated to face mild headwinds on gross margins due to ramp-up costs for new product introductions and seasonal merit increases, which could pressure profitability until efficiencies are fully realized.
- Accelerated Building 10 expansion risks: Efforts to complete part of Building 10 earlier than planned may result in higher short-term capital expenditures, posing execution risk if the anticipated revenue growth does not materialize promptly.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2025 | $860 million to $900 million | N/A | no current guidance |
EPS | Q4 2025 | $2.55 to $2.70 | N/A | no current guidance |
Gross Margin | Q4 2025 | Implied short-term headwinds | N/A | no current guidance |
Global Tariffs Impact | Q4 2025 | No material impacts anticipated | N/A | no current guidance |
Macroeconomic Environment | Q4 2025 | Broader revenue guidance range reflects prudence | N/A | no current guidance |
Revenue | Q1 2026 | N/A | $910,000,000 to $950,000,000 | no prior guidance |
EPS | Q1 2026 | N/A | $2.75 to $2.90 | no prior guidance |
Gross Margins | Q1 2026 | N/A | Anticipated to be within mid-twelve percent target range | no prior guidance |
Operating Margins | Q1 2026 | N/A | Expected to see steady improvement | no prior guidance |
Datacom Revenue | Q1 2026 | N/A | Anticipated sequential dip in Q1 due to supply constraints | no prior guidance |
Non-Optical Communications Revenue | Q1 2026 | N/A | Expected strong growth driven by high-performance computing program | no prior guidance |
Automotive Revenue | Q1 2026 | N/A | Expected to continue near-term softness into Q1 | no prior guidance |
Industrial Laser Revenue | Q1 2026 | N/A | Expected to be relatively flat | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Telecom Growth and Recovery | Discussed across Q1–Q3 with modest growth in Q1 , recovery and sequential improvements in Q2 , and strong revenue growth with DCI and ZR drivers in Q3. | Q4 shows robust telecom revenue growth (46% YoY increase) driven by strong DCI business and new telecom system ramps. | Consistent improvement with evolving recovery and renewed momentum in Q4, indicating a positive long‐term outlook. |
Next-Generation Datacom Product Ramp | Q1 focused on readiness and balance between 800G/400G solutions ; Q2 emphasized preparation, cost competitiveness, and steep volume ramp upon launch ; Q3 mentioned qualification builds and expected FY ‘26 ramp. | Q4 highlights actual volume shipments of 1.6 terabit products with strong demand, though temporary supply constraints are noted. | Progression from planning to volume ramp with demand maturing in Q4, though emerging supply constraints are starting to appear. |
Capacity Expansion and Building 10 | Q1 discussed initial planning and contractor alignment ; Q2 broke ground on a 2 million sq ft facility with an 18‐month timeline ; Q3 reported on-track progress and exploring acceleration options. | Q4 emphasizes accelerated construction with potential early occupancy (three to six months ahead) to meet rising demand. | Evolving from planning to accelerated execution, reflecting a commitment to rapidly expand capacity in response to demand. |
Component Supply Chain Constraints | Q1 noted no significant constraints and ample component sourcing ; Q2 acknowledged EML shortages as a bottleneck ; Q3 had no mention. | Q4 explicitly reports supply constraints for critical components in Datacom (especially for 1.6T transceivers), with temporary dips expected. | Shift from early optimism to increased concern about supply shortages impacting near-term product ramp performance. |
Margin Pressure and Cost Challenges | Q1 detailed margin pressure from a strengthening Thai baht and ramp challenges ; Q2 discussed FX headwinds and cost competitiveness for 1.6T products ; Q3 noted temporary ramp costs and a one-time warrant impact. | Q4 continues to face product ramp-related margin pressures that are managed effectively, with expectations of only mild headwinds in Q1 2026. | Ongoing margin pressures from product ramp costs persist, though these are seen as temporary and expected to improve with scaling. |
Emerging HPC Category Growth | Not mentioned in Q1–Q3 [N/A]. | Q4 introduces HPC as its own revenue category with significant growth potential and a ramp expected in Q1, reflecting TAM expansion. | New topic emergence in Q4, indicating a strategic expansion into a promising market segment. |
Strategic Cloud Partnership (AWS Engagement) | Not mentioned in Q1–Q2; Q3 introduced a new AWS partnership with a multi-year agreement and warrant purchase, marking a first engagement with a hyperscaler. | Q4 reaffirms the strategic importance of AWS as a revenue driver for fiscal 2026, expanding the initial engagement and aligning with HPC growth. | Evolving strategic relationship that started in Q3 and is further ramping up in Q4, indicating growing importance and diversification of the customer base. |
Automotive Segment Growth (EV Charging Infrastructure) | Q1 highlighted strong growth with EV charging infrastructure driving automotive revenue above $100 million, driven by share gain ; Q2 and Q3 mentioned overall automotive growth without specific EV charging focus. | Q4 reiterates that the automotive segment, centered on EV charging infrastructure, is expected to grow steadily, though at a slower pace than telecom/datacom. | Consistent growth in the EV charging space is maintained, with strong emphasis in Q1 and reiterated in Q4, though its pace is steadier than other segments. |
Customer Concentration and Transition Risks | Q1 did not mention it explicitly; Q2 referenced customer transitions affecting datacom ; Q3 discussed product transitions with new customer dynamics without explicit concentration risk focus. | Q4 explicitly addresses high customer concentration (with NVIDIA and Cisco making up 28% and 18% of revenue, respectively) and notes challenges during customer transitions. | Increased focus on customer concentration in Q4, reflecting growing attention to risks associated with reliance on major customers and managing transitions. |
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Growth Outlook
Q: Is growth accelerating into 2026?
A: Management remains optimistic for fiscal 2026 with strong trends in telecom, datacom, and a new HPC category. They are even considering pulling in part of Building 10’s completion by three to six months, showing a proactive approach to capture demand despite temporary cost increases. -
Supply Impact
Q: How are component shortages affecting revenue?
A: The company noted that component shortages—particularly for key EML-based parts—are significant enough to create a revenue dip in datacom for Q1, though these issues are expected to ease over one to two quarters. -
Margin Outlook
Q: What is the near-term margin outlook?
A: Despite strong legacy performance in Q4, new program ramp-ups and seasonal merit increases are causing temporary headwinds on gross margins, which management expects to recover as efficiencies improve over time. -
Revenue Categories
Q: Does the datacom dip include HPC revenue?
A: No; management clarified that the new HPC revenue is reported separately, so the Q1 dip in datacom revenue does not include contributions from HPC. -
Transceiver Speeds
Q: Will hyperscaler opportunities focus on 1.6T speeds?
A: For their main customer, the emphasis is on 1.6T products, while for the broader datacom market, both 800G and 1.6T products remain in play. -
Q4 Margins
Q: What drove Q4 gross margins higher?
A: Q4 margins benefited from strong execution within the legacy business and efficient ramping of new programs, with minimal impact from Building 10 costs, though future ramps will introduce slight temporary pressures. -
Amazon Triggers
Q: How do Amazon warrant vesting triggers work?
A: The vesting conditions are tied to revenue thresholds and timing; the absence of further vesting in Q4 reflects that the required conditions have not yet been met, even though shipments continue. -
Datacom & Automotive
Q: What is the outlook for 800G and automotive?
A: Visibility on 800G demand remains strong despite shifts toward next-generation products, and automotive business is expected to stay steady, while tariff impacts have been minimal because costs are passed to customers. -
800G Transition
Q: Are customers shifting to 200G/lane 800G products?
A: Yes; the focus is on 200G per lane 800G products, with supply constraints affecting both 800G and 1.6T outputs, primarily impacting their largest datacom customer’s production, although overall revenue impact is isolated to key opportunities.