Fabrinet Q3 2025 Earnings Report

Fabrinet EPS Results

• Actual EPS: $2.52
• Consensus EPS: $2.47
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: $2.39

Fabrinet Revenue Results

• Actual Revenue: $871.80 million
• Expected Revenue: $857.12 million
• Beat/Miss: Beat by +$14.68 million
• YoY Revenue Growth: +19.20%

Fabrinet Announcement Details

• Quarter: Q3 2025
• Date: 5/5/2025
• Time: After Market Closes
• Conference Call Date: Monday, May 5, 2025
• Conference Call Time: 5:00PM ET

Fabrinet (NYSE:FN) provides optical packaging and precision optical, electro-mechanical, and electronic manufacturing services in North America, the Asia-Pacific, and Europe. The company offers a range of advanced optical and electro-mechanical capabilities in the manufacturing process, including process design and engineering, supply chain management, manufacturing, printed circuit board assembly, advanced packaging, integration, final assembly, and testing. Its products include switching products, including reconfigurable optical add-drop multiplexers, optical amplifiers, modulators, and other optical components and modules that enable network managers to route voice, video, and data communications traffic through fiber optic cables at various wavelengths, speeds, and over various distances. The company's products also comprise tunable lasers, transceivers, and transponders; and active optical cables, which provide high-speed interconnect capabilities for data centers and computing clusters, as well as Infiniband, Ethernet, fiber channel, and optical backplane connectivity. In addition, it provides solid state, diode-pumped, gas, and fiber lasers used in semiconductor processing, biotechnology and medical device, metrology, and material processing industries; and differential pressure, micro-gyro, fuel, and other sensors used in automobiles, as well as non-contact temperature measurement sensors for the medical industry. Further, the company designs and fabricates application-specific crystals, lenses, prisms, mirrors, laser components, and substrates; and other custom and standard borosilicate, clear fused quartz, and synthetic fused silica glass products. It serves original equipment manufacturers of optical communication components, modules and sub-systems, industrial lasers, automotive components, medical devices, and sensors. The company was incorporated in 1999 and is based in Grand Cayman, the Cayman Islands.

Fabrinet Q3 2025 Earnings Call Transcript

Key Takeaways

• Fabrinet delivered $872 million in Q3 revenue (up 19% YoY, 5% QoQ) and $2.52 non‐GAAP EPS, both exceeding company guidance.
• Optical communications telecom revenue surged 42% YoY and 17% QoQ, more than offsetting an 18% YoY datacom decline as the 1.6 T product ramp remains ahead.
• Non‐optical communications growth was led by automotive (+76% YoY) and industrial lasers (+33% YoY).
• Fabrinet signed its first direct agreement with Amazon Web Services—including a warrant for up to 1% of the company—expected to contribute revenue starting in FY 2026.
• For Q4, the company guides revenue of $860–900 million and EPS of $2.55–2.70, anticipating temporary margin headwinds from new product ramps but remaining confident in long‐term growth.

Presentation

[Operator]

Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the Third Quarter of Fiscal Year twenty twenty five. At this time, all participants are in a listen only mode. Later, will conduct a question and answer session, and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded.

[Operator]

I would now like to turn the call over to your host, Garo Tomajanian, Vice President of Investor Relations.

[Garo Toomajanian, VP - IR & Corporate Development at Fabrinet]

Thank you, operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss FibroNet's financial and operating results for the third quarter of fiscal year twenty twenty five, which ended 03/28/2025. With me on the call today are Seamus Grady, Chief Executive Officer and Chavez Ferra, Chief Financial Officer. This call is being webcast, and a replay will be available on the Investors section of our website located at investor.fabranet.com. During this call, we will present both GAAP and non GAAP financial measures.

[Garo Toomajanian, VP - IR & Corporate Development at Fabrinet]

Please refer to the Investors section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non GAAP reconciliation, as well as additional details of our revenue breakdown. In addition, today's discussion will contain forward looking statements about the future financial performance of the company. Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular, the section captioned Risk Factors in our Form 10 Q filed on 02/04/2025.

[Garo Toomajanian, VP - IR & Corporate Development at Fabrinet]

We will begin the call with remarks from Seamus and Chava, followed by time for questions. I would now like to turn the call over to Fabrinet's CEO, Seamus Grady. Seamus?

[Seamus Grady, CEO at Fabrinet]

Thank you, Garo. Good afternoon, and thanks to everyone joining us today. We had a very strong third quarter with revenue of $872,000,000 which was above our guidance range. Our execution in the quarter was also strong, and we generated non GAAP earnings per share of $2.52 which was also above our guidance range. Looking more closely at our strong quarterly results, we saw continued growth in optical communications.

[Seamus Grady, CEO at Fabrinet]

Telecom revenue was particularly exceptional and more than offset an anticipated decline in datacom revenue. Our telecom growth, which was up 42 from a year ago and 17% from Q2, was driven by a combination of contributions from recent system wins, continued 400 ZR momentum for data center interconnect applications and a strengthening telecom market. We're confident that our strong telecom trends will extend into the fourth quarter. With respect to datacom, we continue to see near term softness due to a product transition at a large customer. However, we remain optimistic about a return to datacom growth as demand for 1.6 t devices increases and with the steepest part of the 1.6 T ramp yet to come.

[Seamus Grady, CEO at Fabrinet]

In nonoptical communications revenue, automotive again saw strong growth with revenue up 76% from a year ago and 24% from Q2. Our industrial laser revenue also increased both year over year and sequentially. Looking ahead, while we expect continued year over year growth in non optical communications in the fourth quarter, we anticipate that sequential growth may moderate particularly in the automotive segment where we have experienced outsized growth over the past few quarters. During the quarter, we also announced a new commercial relationship with Amazon Web Services. This is our first direct relationship with the leading hyperscaler where we will be providing Amazon with advanced manufacturing services in a multiyear agreement.

[Seamus Grady, CEO at Fabrinet]

Our agreement with Amazon reinforces our longer term optimism and further aligns our interests through a warrant purchase agreement for up to 1% of our outstanding shares. We expect our Amazon partnership to provide an additional boost to revenue starting in fiscal year twenty twenty six. Our long term confidence is also reflected in our share repurchase activity with over $100,000,000 worth of Fabrinet shares repurchased so far this fiscal year. In addition, our expansion plans remain on track with Building 10 construction underway to meet our longer term capacity needs. Looking ahead, we continue to be very excited about our future.

[Seamus Grady, CEO at Fabrinet]

We expect to see our consistent track record of year over year revenue growth extend into the fourth quarter with a corresponding increase in profitability. Most importantly, we remain confident in our proven ability to execute extremely well as we have demonstrated throughout our company history. Now I'll turn the call over to Csaba for more financial details on our third quarter results and our guidance for the fourth quarter of fiscal twenty twenty five. Csaba?

[Csaba Sverha, CFO at Fabrinet]

Thank you, Seamus, and good afternoon, everyone. We had a strong third quarter with revenue and non GAAP net income per share that were above our guidance ranges. Revenue in the third quarter was $872,000,000 an increase of 19% from a year ago and 5% from Q2. This includes the impact of $4,000,000 in contra revenue from the upfront vesting of a portion of the warrant with Amazon. We expect that future vesting events will not result in meaningful impacts in our quarterly financial results.

[Csaba Sverha, CFO at Fabrinet]

Non GAAP EPS was 2.52 exceeding our guidance range with contra revenue impact flowing to the bottom line. Details of our revenue breakdown are included in the investor presentation on our website, so I will keep my comments focused on noteworthy highlights. For the third quarter, optical communications revenue was $657,000,000 up 11% from a year ago and 2% from Q2. Within optical communications, Datacom revenue was $251,000,000 or 38% of optical communications revenue, a decrease of 18% from a year ago and 16% from Q2, mainly due to product transitions at a large customer, as well as normal demand fluctuations at other customers. Telecom revenue was $4.00 $6,000,000 or 62% of optical communications revenue.

[Csaba Sverha, CFO at Fabrinet]

Another significant increase with revenue up 42% from a year ago and 17% from Q2. This exceptional telecom performance was again driven by a powerful combination of strong data center interconnect demand, recent system wins, and improving trends for traditional telecom products. Looking at optical communications revenue by data rate, revenue from 800 gig and faster products was $236,000,000 down 8% both from a year ago and sequentially. Note that we don't break out revenue by specific speeds. However, I will comment that while 800 gig revenue declined in the quarter, we are seeing increasing 1.6 revenue and believe that the steepest part of the 1.6 ramp is yet to come.

[Csaba Sverha, CFO at Fabrinet]

Revenue from products below 800 gig was $284,000,000 an increase of 27% from a year ago and 3% from Q2. Growth in this speed category is being driven primarily by 400 ZR products for data center interconnect applications with ZR products again representing 10% of total revenue. Revenue from optical communications products that are non speed rated was $137,000,000 up 21% from Q2. Non optical communications revenue was $215,000,000 up a strong 53% from a year ago and 15% sequentially. Automotive revenue was the biggest driver of this growth with revenue of $129,000,000 up 76% from a year ago and 24% from Q2.

[Csaba Sverha, CFO at Fabrinet]

Industrial laser revenue of $40,000,000 increased 33% from a year ago and 8% from Q2. Other revenue of $45,000,000 was flat sequentially. As I discussed the details of our P and L, expense and profitability metrics will be on a non GAAP basis, unless otherwise noted. Gross margin in the third quarter was 12%, but would have been consistent with Q2 levels if not for the contra revenue impact. Operating expenses were flat sequentially at $16,000,000 Operating income reached a new record of $89,000,000 representing an operating margin of 10.2%, which would also have been consistent with the prior quarter, similar to our gross margin.

[Csaba Sverha, CFO at Fabrinet]

Our strong balance sheet continued to produce high interest income of $10,000,000 in Q3, which was partially offset by a foreign exchange revaluation loss of $3,000,000 Effective GAAP tax rate was 5.8% and we continue to expect an effective tax rate in the mid single digits for the fiscal year. Non GAAP net income was $91,000,000 or $2.52 per diluted share, which was above our guidance range. Turning to our balance sheet, we ended the third quarter with cash and short term investments of $951,000,000 up $16,000,000 from the end of the second quarter. Operating cash flow in the quarter was $74,000,000 CapEx was $29,000,000 resulting a free cash flow of $46,000,000 in the third quarter. We remained active in our share repurchase program during the third quarter, buying back 162,000 shares at an average price of $214 per share for a total cash outlay of $35,000,000 Over the past two quarters, we have repurchased just over $103,000,000 with approximately $197,000,000 remaining under our current authorization at the end of the quarter.

[Csaba Sverha, CFO at Fabrinet]

Now, I will turn to our guidance for the fourth quarter of fiscal year twenty twenty five. While global tariffs have been in the headlines, we have not seen any material impacts to date. Given our FOB Favournet shipping terms, tariffs are typically handled by customers and so far we have not observed any meaningful changes in demand. As a result, we remain highly optimistic about our business outlook, supported by several growth drivers. These include contributions from recent telecom system wins, the transition and ramp of 1.6 datacom products, rising demand for data center interconnect solutions and improving dynamics across traditional telecom markets.

[Csaba Sverha, CFO at Fabrinet]

In non optical communications, we expect continued year over year growth overall, although we may face some near term headwinds in the automotive segment, where we have seen outside growth over the past few quarters. Nevertheless, we believe the long term fundamentals across our non optical portfolio remains strong. For the fourth quarter, we are guiding total revenue between $860,000,000 and $900,000,000 This broader range mainly reflects the doubling of our revenue since we last set a $20,000,000 guidance range, and also a prudent acknowledgement of the current global macroeconomic environment, including tariff risks and other external uncertainties. We expect earnings per diluted share to be between $2.55 and $2.7 While the significant number of new product ramps underway may present some short term margin headwinds, we view these initiatives as strong catalysts for future growth. These programs are positioning us exceptionally well as we head into fiscal twenty twenty six, reinforcing our confidence in the long term trajectory of our business.

[Csaba Sverha, CFO at Fabrinet]

Operator, we are now ready to open the call for questions.

[Operator]

Our first question comes from Karl Ackerman with BNP Paribas.

[Karl Ackerman, Managing Director - Equity Research at BNP Paribas]

Yes. Thank you, gentlemen. Two questions, if I may. For my first question, wanted to focus on Datacom. So Datacom fell about $15,000,000 sequentially, but your total 800 gig sales fell only about 20,000,000.

[Karl Ackerman, Managing Director - Equity Research at BNP Paribas]

Does that mean the decline in Datacom fell within 400 gig and below port speeds? Or does that mean that the program wins within telecom are 800 gig and above and that's supporting or at least offsetting some of the decline of 800 gig products in datacom?

[Csaba Sverha, CFO at Fabrinet]

So, hi, Karl. This is Cheval. Let me take that question. So it's the later. So we are seeing some strong growth, particularly in the DCI, which falls under the below 800 gig segment.

[Csaba Sverha, CFO at Fabrinet]

So that perhaps explains why we are seeing declining datacom, but not as much as of a decline that you would expect in 800 gig. And also, we still have 400 gig programs in Datacom segment as well. So it's a combination of both strong DCI as well as Datacom still had 400 gig, which is tapering off now.

[Karl Ackerman, Managing Director - Equity Research at BNP Paribas]

Got it. Thank you. Thank you for that. And then just secondly on margins, I was hoping you could address some of the maybe some reasons for the lower gross margins this quarter. And specifically wondering how much perhaps the warrant and or the Thai baht influenced margins gross margin this quarter.

[Karl Ackerman, Managing Director - Equity Research at BNP Paribas]

And it appears that your outlook seems to account for a slight improvement in gross margins in June. I just wanted to clarify that. Thank you.

[Csaba Sverha, CFO at Fabrinet]

So let me take the warrant first. So we did have an impact of about $4,000,000 in our gross margin in our fiscal Q3. So with that, our gross margin had impact of about 40 basis points. Without a warrant, it would have been consistent both on gross margin and operating margin for Q3. The exchange rate headwinds was already baked in our guidance.

[Csaba Sverha, CFO at Fabrinet]

It was not very meaningful. Now shifting to our Q4 forecast and guidance. Our guidance, although we are not guiding gross margin, implies that we will encounter some short term headwinds from product ramps, which are typically would be absorbed in our results. However, this time in Q4, we are ramping quite a few significant recent wins, and we have some start up costs, which are preparing us for a strong 2026. So we anticipate some margin headwinds in Q4, but not any significant numbers.

[Csaba Sverha, CFO at Fabrinet]

With regards to exchange rate, we anticipate somewhat flat environment going into Q4. So again, in summary, we had a onetime, I would say, impact from Amazon, doing a 40 basis point in our Q3 results. We don't anticipate that to reoccur going forward. However, we do anticipate some short term compression because of the new ramps that are leading us to fiscal twenty twenty six.

[Karl Ackerman, Managing Director - Equity Research at BNP Paribas]

Got it. Thank you.

[Csaba Sverha, CFO at Fabrinet]

You're welcome.

[Operator]

Our next question comes from Samik Chatterjee with JPMorgan.

[Samik Chatterjee, Executive Director at JP Morgan]

Hi. Thanks for taking my question. I guess if I can start off on the, you know, datacom revenue as well, and your datacom revenue declined quarter over quarter, so did 800 gig, as well. And you talked about the product transition for the customer driving that decline. Maybe if you can just flesh that out for us a bit more in terms of is that customer, really, transition driven by that the customer has a lot of inventory and hence you're waiting for that to clear out, before we see a more return to normal demand patterns?

[Samik Chatterjee, Executive Director at JP Morgan]

Or is this more share allocation shifting between different suppliers when it comes to 800 gig? And, you mentioned the 1.6 t ramp is still in front of you. Maybe if you can just outline how much of that ramp should we expect in the, June, which what is embedded in your guide on that front? I have a quick follow-up after that. Thank you.

[Seamus Grady, CEO at Fabrinet]

Thanks, Samik. Yeah. The 1.6 t ramp is really in front of us. You know, we've we've built some qualification builds. We've we have we have built shipped some 1.6 t product, but really the bulk of the ramp is in front of us.

[Seamus Grady, CEO at Fabrinet]

You know, exactly why that might be, that's again a question probably more for our customer than for us. They don't necessarily share with us all of the puts and takes, but, you know, we don't believe we've lost any market share or anything like that. It's, we believe, a function of, you know, the product that uses 1.6 t. I think the customer said that that product will really ramp and launch in the second half of the year. So we're we're gearing up to support the customer in whatever whatever time line they need from us.

[Seamus Grady, CEO at Fabrinet]

So we have shipped some, but the big, you know, the big 1.6 c ramp is really in front of us.

[Samik Chatterjee, Executive Director at JP Morgan]

And on the 800 gig, Sheamus?

[Seamus Grady, CEO at Fabrinet]

Sorry. What was the question on 800 gig?

[Samik Chatterjee, Executive Director at JP Morgan]

On 800 gig, is

[Samik Chatterjee, Executive Director at JP Morgan]

this product transition for the the the decline that you're seeing, is that more a function of the customer having inventory of 800 gig, or are they allocating share between the different suppliers when it comes to 800 gig that is driving the decline?

[Seamus Grady, CEO at Fabrinet]

Yeah. I think it's more likely more likely share than than inventory. I think in our case, you know, because we were gearing up to ramp 1.6, we have been putting capacity in place and in some cases, you know, converting capacity. The capacity is somewhat fungible, I would say, but not completely. So we have been converting capacity to gear up to produce 1.6.

[Seamus Grady, CEO at Fabrinet]

And once you've once you've transitioned that capacity over to 1.6, you don't really want to be transitioning back to 800 gig. So we you know, from our point of view, if we look out to FY '26, we'd really be tapering off 800 gig and ramping ramping 1.6.

[Samik Chatterjee, Executive Director at JP Morgan]

Got it. Got it. And maybe I can just sneak one in, your engagement with Amazon Web Services, which you announced. Obviously, it's a different nature of a customer than what you've traditionally worked with. So maybe just, outline for us, how should we think about the margin opportunity as well as what is the nature of the advanced manufacturing that you're supporting the customer on?

[Samik Chatterjee, Executive Director at JP Morgan]

Does it include transceivers? And what is the magnitude of the opportunity that you see with the customer? Thank you.

[Seamus Grady, CEO at Fabrinet]

So, you know, we expect the relationship to begin with a particular product family and and to expand from there over time. You know, nothing is excluded in our agreement with with Amazon or in our warrants arrangement with Amazon. There there's nothing nothing specified and also nothing excluded. So, you know, we're excited to get going again with one product family and we'll be working hard. We're already engaged, I would say, two particular products, two product types that we're ramping and we're working hard on others.

[Seamus Grady, CEO at Fabrinet]

So multiple multiple products, within that within that customer. But, again, the qualification bills are really going on at the moment, and the revenue is ahead of us. The revenue is in FY '26. The revenue will ramp in FY '26. Does it does it there will be a little bit of revenue this quarter, but as Caba mentioned earlier, it's it's one of many qualification builds, startup costs we'll we'll have this quarter where we're getting ready to get going, but the majority of the ramp is in front of us.

[Samik Chatterjee, Executive Director at JP Morgan]

Thank you. Thanks for taking my questions.

[Seamus Grady, CEO at Fabrinet]

No problem. Thank you, Samik.

[Operator]

Our next question comes from Mike Genovese with Rosenblatt Securities.

[Mike Genovese, Senior Research Analyst at Rosenblatt Securities]

Great. Thanks very much. Obviously, telecom is has been very positive here for a few quarters. I guess, just the visibility going forward, how long do you expect telecom can continue to sequentially grow for into the future?

[Seamus Grady, CEO at Fabrinet]

I think for us, you know, we have some pretty strong growth factors going on in telecom, you know, in quarter. Our telecom revenue, in the quarter just ended was $4.00 $6,000,000 which is a high point for us. The previous high point was $4.00 5,000,000 all the way back in Q1 of twenty twenty three, so almost two years ago. And then as we all know, over the last couple of years, we've been going through inventory digestion and everything else that was going on, but we're now back to growth, so $4.00 6 in Q4. And we think we have some several growth vectors there that will, you know, should overwhelm for the future.

[Seamus Grady, CEO at Fabrinet]

We have the Sienna wind, which is really yet to ramp. And also the ZR business, the DCI business in general, 400 ZR, 800 ZR beginning to ramp. So several growth factors there for us that we feel we feel good about. You know, I I think, overall, I would say, you know, that the telecom business obviously remains very important for us, and we seem to have this pattern of if one part of our business is soft because we've always said we have this counter cyclicality. You know, previously, when our telecom business was quite soft, our datacom business showed particular strength.

[Seamus Grady, CEO at Fabrinet]

And now with our datacom business, I wouldn't call it soft. I'd call it, you know, we're we're waiting to really ramp a couple of programs that we've won. But our telecom business, yeah, Mike, it has been particularly strong. We we see that, you know, we think it's set to continue.

[Mike Genovese, Senior Research Analyst at Rosenblatt Securities]

Great. Thanks for that. I guess then just following up on the Datacom side, since you're laying out this exactly what you just spoke about, sort of in between 800 and ramping and 1.6 with the customer, Is is there anything more you can tell us just from externally as observers, which products from the customer we should be looking for to be more tied to your opportunity versus the products that they've, you know, shipped so far in the past? Is there is there any help you can give us there?

[Seamus Grady, CEO at Fabrinet]

I'm sorry.

[Seamus Grady, CEO at Fabrinet]

So go ahead.

[Mike Genovese, Senior Research Analyst at Rosenblatt Securities]

I'm sorry. Did you hear the question?

[Mike Genovese, Senior Research Analyst at Rosenblatt Securities]

Can you hear me?

[Seamus Grady, CEO at Fabrinet]

I did. Can you hear me okay?

[Mike Genovese, Senior Research Analyst at Rosenblatt Securities]

Now it's okay.

[Seamus Grady, CEO at Fabrinet]

Yeah. I think my sound was gone from sorry. Yeah. Mike, the our understanding is that the 1.6 terabit transceivers that we produce, will be used for the customer's Blackwell Ultra product. And that's really as as much as we know the exact timing of, you know, when they're ready to to to launch that.

[Seamus Grady, CEO at Fabrinet]

That's that's a question for them, but we're we're ready to support them whenever they're they're ready to go.

[Mike Genovese, Senior Research Analyst at Rosenblatt Securities]

Okay. Perfect. And then just last quick follow-up for me. On the Amazon, the new stuff that we're talking about related to the warrant, will that be counted in the datacom, assume?

[Seamus Grady, CEO at Fabrinet]

The datacom

[Seamus Grady, CEO at Fabrinet]

We're looking at that currently. You know, the revenue at the moment is probably in the other category. It's quite small at the moment, because it's just qualification, bills. But, you know, at the end of the year, we will probably revise how we categorize the revenue to make it more meaningful and more helpful for people such as yourselves. So we may add a category, and we may provide a little bit further granularity on some of the other product revenues that we have.

[Seamus Grady, CEO at Fabrinet]

But for now, I think, unless Chaba wants to correct me, I think it's in the other category at the moment. And then in the future, we would expect to have would be in a couple of categories, we believe.

[Mike Genovese, Senior Research Analyst at Rosenblatt Securities]

Okay. Thanks again. Pass it on.

[Seamus Grady, CEO at Fabrinet]

Thank you.

[Operator]

Our next question comes from Steven Fox with Fox Advisors.

[Steven Fox, Founder & CEO at Fox Advisors, LLC]

Hi, good afternoon. I had a couple of questions too. I guess first off, maybe a little bit more color on sort of the not that it's a huge headwind, but the headwind for as you ramp all these programs. You mentioned some sizable programs ramping now, 1.6, it sounds like Amazon and ZR. How do we think about sort of the extent of these drags and maybe when they turn into sort of more of a incremental tailwind or do we assume that there's other ramps behind them that sort of keep the margins at these levels?

[Steven Fox, Founder & CEO at Fox Advisors, LLC]

And then I had a follow-up.

[Seamus Grady, CEO at Fabrinet]

Yeah. I think, you know, overall, Steven, you know, the long term growth drivers we we look at and that we use to make the long term decisions for our business, they they remain very much intact. At the midpoint of our guidance for Q4, if it comes to pass, if we were to come in at the midpoint of our guidance for Q4, that will put us at about an 18% growth for the year, which is really, you know, we think industry leading. Any short term headwinds due to program ramps and start up costs are very temporary in nature. Typically, Steven, when we bring on a new product, the quarter in which you bring on that product will have, as Chaba call them, startup costs, but that's very short lived.

[Seamus Grady, CEO at Fabrinet]

That tends to go away as soon as we start ramping. So like I say, the long term growth drivers remain intact. We're looking at about 18% year on year growth at the midpoint of our Q4 guidance. And maybe more importantly, the new wins that we've talked about for the last while are now really all starting to contribute. And in fact, the ramp for all of them are in front of us and and will take place in FY twenty six, you know, the 1.6 terabit ramp.

[Seamus Grady, CEO at Fabrinet]

The Sienna win, we've always talked about that as an FY twenty six ramp. And the Amazon business, you know, we're doing the qualification builds on that, but that will ramp in FY twenty six as well. So we're looking forward to a strong FY twenty six. The telecom business is back to growth. And, you know, like I said, we had record telecom revenue of $4.00 $6,000,000 in the quarter, and it looks like the growth drivers for telecom are quite sustainable.

[Seamus Grady, CEO at Fabrinet]

So our long term drivers remain intact and any short term headwinds that we're seeing to our margin because of start up costs are very short lived typically.

[Steven Fox, Founder & CEO at Fox Advisors, LLC]

Great. That's super helpful. And then just as a follow-up, I was just wondering, the Amazon business that you've won, does that preclude you from going after other cloud players or maybe or the opposite, help you go after other cloud customers who may be pursuing similar type of supply chain strategies as Amazon when it comes to the services you provide? Thanks.

[Seamus Grady, CEO at Fabrinet]

Yeah. We think it should help us to go after other cloud providers. We, you know, as you know, Steve, we don't have any of our own products. We manufacture our customers' products. And, you know, we are in conversations with other hyperscalers as well.

[Seamus Grady, CEO at Fabrinet]

None of our customer relationships are exclusive, and in fact, our success with Amazon could be a, you know, a proof point for other potential similar customers. So we'll working hard on

[Seamus Grady, CEO at Fabrinet]

that over the next while.

[Steven Fox, Founder & CEO at Fox Advisors, LLC]

Great. Thank you.

[Seamus Grady, CEO at Fabrinet]

Thanks, Steve.

[Operator]

Our next question comes from George Wang with Barclays.

[George Wang, Vice President at Barclays Investment Bank]

Hey, guys. Thanks for taking my question. So firstly, just Seamus, can you talk about overall ASP trends for the industry and the kind of especially from your standpoint in terms of 800 gig and the kind of 1.6? Earlier you talked about maybe because of you know, abandonment supply kind of, you know, incremental supply for the 1.6 T, you know, you have less of a 1.5 times multiplier for the ASP. And this kind of generally speaking, of, you know, can you also address in terms of the merchant supplies kind of initially for the 1.6 t?

[George Wang, Vice President at Barclays Investment Bank]

Kind of how how are you comparing versus, you know, in the old cycle, the 800 g in the past?

[Seamus Grady, CEO at Fabrinet]

Unfortunately, George, you seem to have asked me two questions, neither of which I'm able to answer. And ASP trends, you know, the customer's ASP, we don't have any particular visibility on. The pricing trends of the merchant transceivers, we don't have any particular visibility on. We know what our price trend is like with our customer, and it's generally not something we comment in any great detail on other than to say, I think we said in the past, that the price uplift from our point of view for what, you know, what we sell a 1.6 T transceiver for as compared to what we would have sold an 800 gig transceiver is less than you might imagine. You know, we've worked very hard with the customer to bring costs down, to drive yields up and to make sure that we're very cost competitive.

[Seamus Grady, CEO at Fabrinet]

So, you know, we feel we have a very cost competitive solution for our customers, but really beyond that, when it comes to broader ASP trends and ASP trends for the merchant suppliers, we don't have any particular view on that, George.

[George Wang, Vice President at Barclays Investment Bank]

Okay. Great. Just quickly, if I can squeeze in, Seamus. Just in terms of kind of outsourcing trends, you know, potential upside from, your sort of co petition kind of partners, including Coherent and Lumentum with the new leadership. Like any refresher view in terms of getting more business from them in terms of of outsourcing as they might outsource more for you kind of from a more OEM kind of standpoint?

[George Wang, Vice President at Barclays Investment Bank]

Just any thoughts on potentially kind of getting more share there?

[Seamus Grady, CEO at Fabrinet]

Yeah, I mean, work hard with all our customers to convince them to outsource more with including the two that you mentioned, but it would be premature for me to kind of comment on the progress with us. But certainly, we would very much like to do more manufacturing for both of those companies and all of the other companies. But, again, nothing particularly to talk about in a public forum, George.

[George Wang, Vice President at Barclays Investment Bank]

Great. I'll go back to the queue. Thank you.

[Seamus Grady, CEO at Fabrinet]

Thank you, George.

[Operator]

Our next question comes from Ryan Kuntz with Needham.

[Ryan Koontz, Senior Analyst at Needham & Company]

Great. Thanks. I want to drill into tariffs, if I could, little bit, Seamus, and your thoughts there. I mean, there's been chatter about attempts by commerce to close loopholes for the Chinese setting up facilities outside of in other countries. I wondered if what you can share that you what your thoughts are about how this might be resolved for US companies that have set up, facilities in in foreign countries.

[Ryan Koontz, Senior Analyst at Needham & Company]

Any anything you could share there?

[Seamus Grady, CEO at Fabrinet]

Not not particularly. We haven't seen, you know, any great impact from our customers, I think, since Liberation Day. I think, our customers, we're just waiting to see what the future holds. You know, the way we look at the business, again, as I mentioned earlier, the long term drivers remain intact, and any of the kind of disruption that is likely to be caused by tariffs, we haven't seen any particular impact yet. You know, our customers are responsible for the tariffs, you know, because we ship our product FOB, our factory in Thailand.

[Seamus Grady, CEO at Fabrinet]

So generally, the customers are responsible for tariffs. But, you know, while the situation is very fluid, the customer demand we're seeing for optical communications appears to be holding.

[Ryan Koontz, Senior Analyst at Needham & Company]

Great. And just a quick update on Building 10, if you could, in terms of where you are, your milestones, and any rough idea what you might think you might have a begin some early production there?

[Seamus Grady, CEO at Fabrinet]

I'm sorry. Could you repeat the question?

[Ryan Koontz, Senior Analyst at Needham & Company]

On Building 10, any milestones you can say you're approaching or any new targets on when you might see your first, production from the new capacity?

[Seamus Grady, CEO at Fabrinet]

Yeah. I think we're we're on track.

[Seamus Grady, CEO at Fabrinet]

I would say, you know, we we started, we we broke ground in in January, and we said it's about an eighteen month, timeline to fully completed. We could start to produce before that, but it's about an eighteen month timeline. We're on track, I would say, very much on track. We haven't, in any way slowed down our progress on Building 10. I mean, fact, if anything, you know, we were talking last week about maybe looking at options to see if we could, if if the need arose, if we could move a little bit quicker to get Building 10 up and running.

[Seamus Grady, CEO at Fabrinet]

But, no, we're we're very much, committed to expanding our capacity, and we think we'll we'll need all of us.

[Ryan Koontz, Senior Analyst at Needham & Company]

Great to hear. That's all I've got. Thank you.

[Seamus Grady, CEO at Fabrinet]

Thank you. Thank you, Our

[Operator]

next question comes from Tim Sabago with Northland. Tim, your line is open.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

Hey. Good great. Good afternoon. Can you guys hear me?

[Seamus Grady, CEO at Fabrinet]

Yes. Hi, Tim. We can hear you. Okay.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

Yep. Sorry about that.

[Seamus Grady, CEO at Fabrinet]

No problem.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

We're going to try to take another crack at qualifying quantifying the Amazon opportunity. And and here's how I'll go about it. I mean, you've got, you know, peers slash competitors, you know, with agreements talking about revenues of 400,000,000 a year. Now something like that would make Amazon around a 10% customer for you guys. And it seems like they ought to have that potential.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

And I don't know if you said it or not, but it seems like Sienna does as well. I mean, do you think Amazon could get to that level with you guys? And I guess for both of these ramps, I don't know if this is a concept that applies anymore given the opportunity you have, but how long do you think you take to get fully ramped there?

[Seamus Grady, CEO at Fabrinet]

So I think, you know, as with with all of our customers, Tim, the commercial arrangements between us and Amazon prohibits us from discussing any of those kind of details. But your question was, could it get to that level? I think it could. We'll be working very hard to make sure we start off with one or two product families that we'll be making and that we expand that to others. So, we we don't necessarily see there let's say there's a revenue, there's a revenue that's tied to the warrants.

[Seamus Grady, CEO at Fabrinet]

We don't see that as a target. We see it as more of a minimum that we'll be we'll be going for and a platform upon which to build. So that's yeah. We're we're we're quite excited about that. We we again, we think we'll do a great job for Amazon.

[Seamus Grady, CEO at Fabrinet]

We're already doing a great job for them, and we're really looking forward to expanding that relationship. Did did you have a question about Sienna as well?

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

It's basically the same question, I guess.

[Seamus Grady, CEO at Fabrinet]

Okay. Well, I think, you know, I think you and others have done a done a pretty good job backing into the number. And if you look at the kind of trajectory that the customer has had previously with new product launches and then the kind of the revenue level that they're able to get to and what that might mean when strip out their gross margin, You know, we have a, let's say, forecast that we have from the customer, but we only guide one quarter at a time, but we're very optimistic about it, Tim. It is and it is in front of us. We're just beginning to get qualified and just beginning to ramp.

[Seamus Grady, CEO at Fabrinet]

So, yeah, there's few very big ones that we think will all ramp in FY twenty six. Like we said, the 1.6 t ramp, the Sienna business, and then the Amazon, the Amazon new business wins, all of which will ramp in FY twenty six.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

Great. And and that kinda takes me to my my second question. With regard to you you mentioned Dan is in very early days. But in terms of the very strong telecom growth, you saw in the quarter, you cited several factor, a couple of factors, a few, I guess, to be precise. ZR strengthening telecom, which I'll take your non speed rated business increase there as a proxy for that to some degree.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

And then new wins. And I assume that maybe those are wins other than the ramps that you're talking about, or that we were just talking about. So as you look at that $60,000,000 sequential increase, I kind of am inclined to think that the new wins and strengthening telecom or the balance of that, you know, or sorry, or most of that, but I'd like to hear any comments about how you would kind of rank the drivers for the March in terms of telecom version. Well, I think if you look at

[Seamus Grady, CEO at Fabrinet]

the growth in telecom in the March, you know, ZR has been growing nicely for us. That's that's a, you know, a good

[Seamus Grady, CEO at Fabrinet]

a good chunk of it.

[Seamus Grady, CEO at Fabrinet]

The non speed rated products are back to growth again, and then the new wins are really just in qualification type volumes. They're not particularly meaningful, in the revenue, in the March. So that growth is really yet to come.

[Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets]

Okay. Thanks for

[Seamus Grady, CEO at Fabrinet]

Thank you, Tim.

[Operator]

That concludes today's question and answer session. I'd like to turn the call back to Seamus Grady for closing remarks.

[Seamus Grady, CEO at Fabrinet]

Thank you for joining our call today. We had a strong third quarter with results that exceeded our revenue guidance and many positive trends in our business. We're excited about closing out another record year with revenue growth of 18% at the midpoint of our guidance, and we're even more excited about FY 2026 with new programs further contributing to our growth. We look forward to speaking with you in the future and to seeing those of you who will be attending the JPMorgan Conference next week. Thank you, and goodbye.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Garo Toomajanian, VP - IR & Corporate Development
• Seamus Grady, CEO

Analysts

• Csaba Sverha, CFO at Fabrinet
• Karl Ackerman, Managing Director - Equity Research at BNP Paribas
• Samik Chatterjee, Executive Director at JP Morgan
• Mike Genovese, Senior Research Analyst at Rosenblatt Securities
• Steven Fox, Founder & CEO at Fox Advisors, LLC
• George Wang, Vice President at Barclays Investment Bank
• Ryan Koontz, Senior Analyst at Needham & Company
• Tim Savageaux, MD & Senior Research Analyst at Northland Capital Markets