• Revenue: $834 million, up 17% year-over-year and 4% from Q1.
• Non-GAAP EPS: $2.61, a record high.
• Optical Communications Revenue: $647 million, up 14% year-over-year and 3% from Q1.
• Datacom Revenue: $299 million, up 4% year-over-year, down 9% from Q1.
• Telecom Revenue: $348 million, up 24% year-over-year and 17% from Q1.
• Non-Optical Communication Revenue: $186 million, up 29% year-over-year and 5% sequentially.
• Gross Margin: 12.4%, down from 12.7% in Q1.
• Operating Income: $88 million, with an operating margin of 10.6%.
• Cash and Short-term Investments: $935 million, up $26 million from Q1.
• Operating Cash Flow: $116 million.
• Free Cash Flow: $94 million.
• Share Repurchases: 292,000 shares acquired for $69 million, with $131 million remaining under authorization.
• Q3 Revenue Guidance: $850 million to $870 million.
• Q3 EPS Guidance: $2.55 to $2.63 per diluted share.

• Warning! GuruFocus has detected 3 Warning Sign with RMBS.

Release Date: February 03, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Fabrinet (NYSE:FN) reported record revenue of $834 million for Q2 2025, a 17% increase year-over-year and 4% sequential growth.
• The company achieved a record non-GAAP earnings per share of $2.61, exceeding expectations.
• Telecom revenue increased by 24% year-over-year and 17% sequentially, driven by demand for data center interconnect products.
• Automotive revenue grew by 32% year-over-year, indicating strong performance in non-optical communications.
• Fabrinet (NYSE:FN) announced the construction of a new 2 million square foot facility to support future growth, reflecting confidence in long-term demand.

Negative Points

• Datacom revenue experienced a 9% sequential decline due to a major customer transitioning to next-generation products.
• Gross margin decreased slightly to 12.4% from 12.7% in the previous quarter, impacted by foreign exchange headwinds.
• The company anticipates a slight decrease in datacom revenue in Q3 due to ongoing product transitions.
• Fabrinet (NYSE:FN) expects continued foreign exchange pressure on gross margins in the third quarter.
• The ramp-up of next-generation 1.6 terabit products is dependent on customer launch timing, creating uncertainty in datacom growth.

Q & A Highlights

Q: When should we expect to see record revenue in telecom, and what visibility do you have within this segment? A: Seamus Grady, CEO: Telecom revenue was down due to industry inventory digestion, but it's now strengthening with new program wins and demand for DCI and ZR products. While exact timing for record revenue is uncertain, we expect continued strength in telecom, offsetting datacom softness.

Q: Is the growth in your silicon photonics business driven by high-speed transceivers or coherent ZR for DCI and telecom applications? A: Seamus Grady, CEO: Growth is primarily driven by coherent ZR transceivers for DCI applications. We've been building silicon photonics products for a decade, positioning us well as the industry shifts towards these technologies.

Q: What is driving your confidence in the timing of the next-generation datacom product ramp? A: Seamus Grady, CEO: The timing depends on our customer's launch schedule. We expect a ramp about one quarter before the customer ships to their clients. We have good visibility and are prepared to support the customer when they're ready.

Q: Are tariffs impacting your business, and do they present an opportunity for Fabrinet to gain market share? A: Seamus Grady, CEO: We haven't seen tariffs imposed on China affecting us negatively. If anything, tariffs could be a potential positive if customers decide to move production to our locations. It's an opportunity, but the impact is uncertain and likely months away.

Q: With momentum in ZR and DCI, are you seeing a transition to 800 ZR, or is 400 ZR still dominant in 2025? A: Seamus Grady, CEO: 400 ZR remains strong and was 10% of our total revenue in Q2. We have qualified and shipped some 800 ZR, but 400 ZR continues to be a significant contributor.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.