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Fabrinet (FN) is trading lower despite beating expectations in its Q4 (Jun) report last night. Adjusted EPS of $4.10 was nicely above expectations, while revenue growth continued to accelerate, increasing 44.6% yr/yr to $1.32 bln. FN also guided Q1 nicely above expectations, with EPS of $4.10-4.25 and revenue of $1.375-1.425 bln. It also reorganized its revenue reporting into Data Center, Communications Infrastructure, and Automotive, Industrial and Other to better reflect the end markets it serves.

• Data Center: Includes optical and interconnect products used in data-center networking, DCI, HPC and other AI infrastructure applications. Revenue increased 68% yr/yr and 13% sequentially to $669 mln. DCI was the largest contributor to growth, with HPC also making a substantial contribution. FN expects momentum to continue into FY27, helped by new transceiver wins.
• Communications Infrastructure: Includes optical and networking products used in telecom and enterprise networks. Revenue increased 40% yr/yr to $413 mln, with broad growth across telecom systems, satellite communications and telecom components. FN remains optimistic on the longer-term outlook and expects continued strength in FY27.
• Automotive, Industrial and Other: Revenue increased 8% yr/yr and 9% sequentially to $234 mln, with the sequential improvement primarily driven by EV charging infrastructure products. Under FN's prior reporting categories, Automotive revenue increased to $135.3 mln from $115.5 mln in Q3, while Industrial Laser increased to $49.0 mln from $44.2 mln.
• Margins: Adjusted gross margin improved 10 bps sequentially to 12.2%, although it declined 30 bps yr/yr. FN continued to demonstrate operating leverage, with operating expenses representing just 1.3% of revenue, producing an adjusted operating margin of 10.9%, its highest level in three years.
• Outlook: FN said it is more confident than ever in its longer-term outlook, with Q1 Data Center growth expected across transceivers, DCI and HPC from both established programs and newer wins. A hyperscaler-direct transceiver program begins ramping this quarter, followed by a merchant program in the December quarter and others in early 2027. Customer visibility extends through the end of 2027 and beyond, and given the current demand environment, management said FN could see another year of accelerating growth in FY27.

Briefing.com Analyst Insight

FN's Q4 results continue to demonstrate a robust demand environment, with growth accelerating and increasingly supported by multiple programs and customers. Data Center remains particularly strong, with DCI, HPC and upcoming hyperscaler and merchant transceiver ramps providing several avenues for continued growth into FY27. At the same time, customer visibility extending through 2027 and significant capacity coming online leave FN well positioned to support these ramps, with management notably saying it could see another year of accelerating growth in FY27. Gross margin was a modest offset, with gross margin down 30 bps yr/yr, although operating leverage remained strong as revenue continued to scale. Shares had made a strong move into the report, likely raising the bar, while the new reporting structure may also make near-term comparisons less straightforward. Overall, however, the underlying demand environment appears to remain quite strong despite the negative stock reaction.