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Coherent bullish on AI and laser welding opportunities

07 Feb 2024

Photonics giant expects optical transceivers for AI and industrial lasers to underpin rapid sales growth.

The stock price of the highly diversified photonics company Coherent has risen in value by close to 20 per cent after the company reported revenues of $1.13 billion for the quarter ending December 31.

Although that sales figure was down more than 17 per cent year-on-year, investors appeared to react positively to a bullish outlook - particularly regarding demand for the US firm’s high-speed optical transceivers used in AI.

But CEO Chuck Mattera and his executive team also pointed to myriad applications for industrial lasers that will underpin future business, highlighting opportunities in laser welding of electric vehicle batteries and in lithography, as well as transfer processes in future generations of TVs based on micro-LEDs.

“We’re aiming to drive a paradigm shift when it comes to laser welding,” said Mattera in response to one analyst query during an investor call to discuss the latest results, while Chris Dorman - executive VP of the firm’s lasers division - said he was “very excited” about future prospects for microLED TVs, where Coherent sells lasers used to transfer emitters from semiconductor wafers to displays.

"This is a very high level of engagement now, and a market that will be growing over the next three-to-five years," Dorman told the call.

AI momentum maintained
In a letter to shareholders outlining the latest company developments, Coherent said that although macroeconomic uncertainty was still a significant issue, the firm had seen “signs of improving demand trends” during the December quarter, and now expected quarterly sales to rise over the coming six months.

A key reason for that is continued demand for high-speed optical datacom transceivers destined for emerging applications in AI.

“We enjoyed a third straight quarter of strong orders for our AI-related datacom transceivers,” stated the letter, with revenues from 800 Gb/s transceivers doubling from the September quarter to exceed the $100 million mark.

CEO Mattera, who expects that quarterly number to rise consecutively in the next two quarters, added that key customers were also now seeking even faster transceivers operating at 1.6 Tb/s, and related components.

“In response to customer demand, we continue to make progress toward expected commercial launch of our 1.6 Tb/s transceivers and components in the first quarter of fiscal 2025,” stated the firm, whose current financial year ends in June.

Fab consolidation
Coherent executives also point out that demand for AI applications is having a positive knock-on effect on demand for the firm’s lasers, which are widely used in semiconductor manufacturing tools needed to make the chips that enable AI technologies.

“We emerged from the [December] quarter with greater confidence and excitement regarding a return to stronger growth and meaningfully enhanced profitability,” stated the shareholder letter, with Mattera telling the investor call that the firm was continuing to implement efficiency savings across the business in an effort to improve operating margins.

“We’re on a roll but we’re far from done,” the CEO said. Central to that effort will be the consolidation of the firm’s compound semiconductor wafer fab and device manufacturing facilities - with plans to close half of those sites.

“We will consolidate into our most modern facilities with a stable baseline of operational excellence and will drive better utilization of our assets while reducing our costs and improving our new product introduction and technology innovation cycle times,” stated the shareholder letter.

Coherent currently operates several gallium arsenide and indium phosphide wafer fabrication facilities that produce photonic devices, alongside its silicon carbide business that is aimed at electronic applications.

Sites such as the firm’s major facility in Sherman, Texas, are key to producing the high-speed vertical-cavity surface-emitting lasers (VCSELs) upon which the high-speed optical transceivers in such demand for AI depend.

OLED adoption
Sales into optical networking applications remain the firm’s largest business segment, accounting for $524 million in revenues during the December quarter. Lasers is the second-largest segment, with sales of $354 million - down 5 per cent year-on-year, but up from the prior three-month period.

“Encouragingly, we are starting to see improvement in our [excimer] laser services revenue, primarily driven by increasing fab utilization and depleted inventory in our display capital equipment market segment,” reported the firm.

“We are beginning to see activity for Gen 6 and Gen 8 fabs in connection with OLED adoption in laptop computers and tablets.”

• Following the latest update Coherent’s stock price initially rose in value by around 20 per cent on the Nasdaq, to trade at close to $58. The uptick means that the company’s market capitalization now stands at around $10 billion - the highest figure seen since the mid-2022 merger between II-VI and the original Coherent laser business.

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