Fabrinet smashes sales record as data center demand accelerates

Fabrinet, the Thailand-based provider of advanced optical packaging and manufacturing services, has posted annual sales of $4.64 billion for the year ending June 26, up 36 per cent on what was already a record-breaking total a year ago.

The latest total was reached after the NYSE-listed company beat its sales guidance for the June trading quarter, with revenues of $1.32 billion well ahead of the $1.25 billion-$1.29 billion range indicated in May.

That translated to the bottom line, with Fabrinet able to deliver an annual pre-tax income of $555 million, up from $355 million a year ago.

Broad demand

Long-time CEO Seamus Grady attributed the surging sales to multiple growth drivers and something of a diversification among Fabrinet’s major customers.

“What is most noticeable to us is that this performance did not come from any one product category or customer, but from increasing demand trends across numerous customers in multiple markets, particularly evident at customers addressing the data center market, as well as those serving the communications infrastructure market,” he told an investor call discussing the results.

One notable development was that sales to Nvidia - by far Fabrinet’s leading customer in both years prior to the latest report - dropped significantly year-on-year, accounting for $750 million of the annual total, or about 16 per cent of the total. That figure is down from 35 per cent and 28 per cent in the past two years.

In contrast, sales to Cisco Systems, Nokia, and Amazon’s Web Services division have surged, with Grady confident that the current momentum would continue through the next few quarters.

Fabrinet has been busily adding capacity to meet the increased demand and a wider range of photonic interconnect technologies beyond optical transceivers, and outlined how those additions might ultimately support annual sales in the region of $14 billion.

Capacity additions

A large chunk of that additional capacity is due to come on line early next year with the completion of the “Building 10” facility in Chonburi, with its 2 million square feet of floorspace capable of supporting more than $3 billion in additional sales.

Beyond that, said the CEO, there was room to build two more factories in Chonburi, each of about 1.2 million square feet and with a revenue capacity of around $2 billion.

Asked about emerging customer demand for technologies like near-packaged optics (NPO) and optical circuit switches (OCS) to be used inside AI data centers, Grady said:

“NPO technology sits somewhere between pluggable modules and co-packaged optics (CPO). We have built tens of millions of pluggable modules over the years, so we have clearly demonstrated that expertise.

“We are working on CPO today with a handful of customers, and we are already building devices, albeit not yet at full-scale volumes. We feel we are very well positioned to be the leader in manufacturing and packaging NPO devices. 

“For decades, our core strength has been transforming advanced photonics components into reliable high volume systems. That is our sweet spot. NPO, I think, probably represents a more near-term opportunity than CPO, from what we have seen with our customers.

“[OCS] is right in our wheelhouse. The manufacturing technology is very similar to products that we are already making for our customers, so we already feel like we have a bit of a head start.”

China transceiver ban problematic

The CEO also commented on the potential impact that any impending ban on imports of transceivers made in China might have, observing:

“We don't manufacture for any Chinese providers and we're of course more focused on Western providers. So, in theory, that could be a positive, as long as materials and components are available.

“[But] it's not a done deal and there's a lot to be unpacked before that actually comes to fruition. A lot of the transceivers that go into these data centers [now] are coming from China. If you just put a ban on [those] transceivers the whole industry grinds to a halt, besides whether it's good or bad for Fabrinet. We'll see what happens.”

Looking ahead, Grady and his executive team predicted that sales in the September quarter would likely end up somewhere around $1.4 billion, with the potential for annual sales to accelerate further.

“The thing that's particularly satisfying for us is the trust that the customers are placing in us,” he said. “They're trusting us with their most important products, their leading-edge products, and we're on a ramp with several of these customers - that is just amazing.”

• Despite the optimistic outlook Fabrinet’s stock price slumped in value by 20 per cent in early trading on August 18 - a day that began with substantial falls across the AI data center infrastructure ecosystem.