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Fabrinet bounces back on AI-driven datacoms demand

22 Aug 2023

Stock of optical packaging firm hit new high as it beats expectations on both sales and earnings.

The stock price of Thailand-headquartered Fabrinet has soared to a record high, after the contract manufacturer of optical components posted a solid increase in sales and earnings in its most recent financial quarter.

For the three months ending June 30, the firm delivered a pre-tax income of $67 million on sales of $656 million - with both figures better than it had forecast and up more than 10 per cent on the same period last year.

It meant that for the NYSE-listed company’s latest full fiscal year, which also ended in June, sales were up 17 per cent to $2.65 billion, while pre-tax income jumped 26 per cent, to $261 million.

And following release of the latest figures, Fabrinet’s stock price rose in value by nearly 30 per cent in pre-market trading, to stand at an all-time high of just under $150.

AI boost for datacom
That surge in value appeared to be a response to the Fabrinet team’s outlook for the September quarter, for which sales and earnings are expected to remain at a similar level.

That was in stark contrast to recent forecasts from optical transceiver firms Coherent and Lumentum, who both indicated a sharp downturn in sales as their customers look to use up components that they have purchased previously, rather than buy new ones.

Fabrinet’s CEO Seamus Grady said: “During the quarter we saw very strong growth in datacom revenue, driven by new AI [artificial intelligence] products, which more than offset anticipated headwinds from inventory adjustments at some customers.”

Those words echoed similar commentary from the CEOs of both Coherent and Lumentum last week about a sudden surge in demand relating to AI, while other areas of the optical communications business have taken a dive.

“Our strong fourth quarter results helped produce record performances for revenue, profitability and cash flow in fiscal 2023,” observed Grady. “As we look to the first quarter of fiscal 2024, we are optimistic that new datacom programs can continue to offset inventory absorption in the industry, and that we can extend our track record of strong execution.”

Key customers
Speaking in a conference call with investors, he explained that the firm’s telecom-related revenue had decreased significantly in the latest quarter, as a result of the aforementioned “inventory digestion” by Fabrinet’s customers and further along the industry chain.

However, the CEO said that that decline in telecom revenue was offset by record revenue growth in datacom.

“In fact, datacom revenue more than doubled from a year ago and grew more than 50 per cent sequentially,” Grady noted. “This datacom growth was primarily driven by an 800G AI data center transceiver program for one of our customers.”

The latest figures from Fabrinet showed that Cisco was its biggest customer in the year ending June 30, accounting for 16 per cent of sales revenues. Lumentum was next, at 15 per cent, with Nvidia and Infinera close behind.

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