FN — Fabrinet

Fabrinet (FN) Q2 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Revenue: Achieved a record $1.13 billion, up 36% year-over-year and 16% sequentially.
• Non-GAAP EPS: Set a new record at $3.36, exceeding guidance despite a $3 million FX revaluation loss impacting earnings by 9¢ per share.
• Gross Margin: 12.4%, consistent with the previous year and up 10 basis points from Q1.
• Operating Margin: Increased to 10.9%, up 30 basis points year-over-year.
• Cash and Short-term Investments: $961 million, down $7 million from Q1.
• Free Cash Flow: Outflow of $5 million due to capital expenditures of $52 million for capacity expansion.

2. Strategic Updates and Business Highlights

• Optical Communications: Revenue grew 29% year-over-year, with telecom revenue reaching a record $554 million, up 59% year-over-year.
• High-Performance Computing (HPC): Revenue surged to $86 million, with expectations of continued growth as production lines are qualified.
• Capacity Expansion: Construction of Building 10 (2 million square feet) is on track for completion by the end of 2026, with 250,000 square feet expected to be operational by mid-2026.
• Customer Engagements: Actively pursuing opportunities in co-packaged optics (CPO) and optical circuit switches (OCS) with multiple customers.

3. Forward Guidance and Outlook

• Q3 Revenue Guidance: Expected to be between $1.15 billion and $1.2 billion, reflecting approximately 35% year-over-year growth at the midpoint.
• Non-GAAP EPS Guidance: Projected between $3.45 and $3.60, indicating approximately 40% year-over-year growth at the midpoint.
• Market Trends: Anticipated growth in telecom, datacom, and HPC, with a slight decline expected in automotive revenue.

4. Bad News, Challenges, or Points of Concern

• Foreign Exchange Headwinds: Continued FX pressures expected to persist, with anticipated impacts on gross margins.
• Supply Constraints: Datacom transceivers remain constrained, particularly on leading-edge products, although improvements are expected with new sources for components.
• Automotive Revenue: Slight decline anticipated, which may impact overall growth momentum.

5. Notable Q&A Insights

• HPC Ramp: CEO Seamus Grady indicated that the HPC program is a little more than halfway to full ramp, with expectations of exceeding $150 million in revenue when fully operational.
• Customer Opportunities: Fabrinet is actively pursuing new customers in both telecom and datacom sectors, with a strong pipeline of potential projects.
• CPO and OCS Engagements: The company is engaged with multiple customers in CPO projects, with expectations of revenue growth as these technologies mature.
• Visibility on Demand: Management expressed confidence in visibility for future revenue growth, citing strong demand across various segments and ongoing capacity expansions.

Overall, Fabrinet reported a strong quarter with significant growth across multiple business segments, while also navigating challenges related to supply constraints and foreign exchange impacts. The company remains optimistic about future growth and capacity expansion initiatives.