InP output triples as Coherent sales bounce on AI demand

Coherent, the hugely diversified provider of lasers, optical components and electronic materials, has reported its highest-ever quarterly sales figure - largely the result of demand for optical transceivers in artificial intelligence data center applications.

At $1.43 billion, revenues in the three months ending December 31 were up 27 per cent year-on-year, and up 6 per cent on the September 2024 quarter.

The latest figure was above the guidance range that CEO Jim Anderson and colleagues provided in November, with Coherent's stock price jumping in value by 12 per cent in pre-market trading after the latest announcement.

Anderson also reported stronger profit margins, with the company swinging to pre-tax earnings of $128 million, compared with the loss of $37 million posted a year ago.

Transceiver ramps
The CEO told investors that AI data center demand had driven a 79 per cent increase in datacom-related sales, with more customers now ramping 800 Gb/s deployments, and the next generation of 1.6 Tb/s products still on course to start a production ramp later this year.

"Even as we focus on the 1.6 Tb/s ramp, we are investing and innovating for the future," Anderson said during an investor call discussing the latest results. "We are both developing our 3.2 Tb/s transceivers and investing in the key ingredient technologies that [underpin] our transceiver road map and that can support a variety of form factors of optical data transmission."

The CEO also pointed out that Coherent's indium phosphide (InP) device output, which is centered around the firm's giant wafer fabrication facility in Sherman, Texas, had tripled year-on-year in the latest quarter.

"This enabled rapid year-over-year growth in our 800 Gb/s transceiver products, some of which are EML [externally modulated laser]-based, and some of which are based on continuous-wave (CW) lasers combined with our silicon photonics solution," Anderson said.

InP capacity boost
Armed with $33 million in CHIPS Act funding that was confirmed in December, Coherent's InP capacity will continue to grow in support of what is expected to be long-term sustained demand for the data center market.

Anderson said that, as well as investing heavily in laser development, including 200 Gb/s vertical-cavity surface-emitting lasers (VCSELs), and high-power CW lasers for silicon photonics, the company was working on supporting technologies including optical lens arrays, garnet crystals, isolators, micro-optics, thermal management solutions, and a new "optical circuit switch" platform that will be aimed at data centers.

"This platform enables significant expansion in our data center addressable market, and I'm very pleased to announce that in [the December quarter] we received our first customer order for this differentiated new platform," Anderson revealed.

"Unlike other mechanical MEMS-based solutions, our platform uses field-proven digital liquid crystal technology that provides tremendous advantages to our customers."

Asked about the potential impact of the DeepSeek AI development that shook technology stocks in late January, the CEO said:

"We've seen no significant changes in our customers' outlook, both in terms of the orders that they're placing or the long-term forecast that they have been providing to us."

And echoing comments made by the ASML CEO Christophe Fouquet last week, Anderson added that in the longer term any technology - whether DeepSeek or anything else - making AI cheaper and more pervasive would be a positive development. "We view that as a long-term positive market trend," he said.

Excimers for OLEDs
While AI-related transceiver sales dominate the discussion right now, Coherent's laser division also posted a 6 per cent year-on-year increase in sales, partly the result of a stronger pull from the industrial sector.

Anderson pointed to demand for the company's giant excimer laser systems, used to anneal organic LED display units, as one key reason for that, with the technology finally now migrating from smart phone screens to larger applications in laptops as larger OLED fabs come on stream.

"That represents a dramatic expansion in the total surface area of OLED screens, and it's our excimer lasers that are a key enabling factor of the manufacturing of high-quality OLED screens," noted the CEO. "We're seeing really good growth there."

The company also reported the first sales of its new "EDGE" fiber laser platform, which was launched at last October's EuroBLECH trade show in Hanover, Germany.

• Looking ahead, Anderson and his team said that sales in the current quarter would come in at somewhere between $1.39 billion and $1.48 billion. That outlook and the generally positive commentary appeared to go down well with investors, who sent the company's stock up more than 10 per cent in trading immediately following the results announcement.

Now trading at just over $100 on the NYSE, Coherent's stock has recovered much of the value lost in the immediate aftermath of the DeepSeek AI development, which prompted a fall of 20 per cent.