Release Date: August 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fabrinet (FN, Financial) reported record fourth-quarter revenue of $753 million, exceeding guidance and representing a 15% year-over-year increase.
- Non-GAAP earnings per share (EPS) for Q4 were $2.41, also above guidance and marking the fourth consecutive quarter of record EPS.
- For the full fiscal year 2024, revenue reached $2.9 billion, a 9% increase from fiscal 2023, with non-GAAP EPS growing 16% to $8.88.
- Datacom revenue grew over 120% year-over-year, driven by strong demand for 800-gig products for AI and related applications.
- Fabrinet (FN) announced plans to break ground on a new 2 million square foot facility (Building 10) at their Chonburi campus, indicating confidence in future growth.
Negative Points
- Telecom revenue declined more than 20% for the year due to ongoing inventory digestion across the industry.
- Gross margin for Q4 was 12.5%, a 10-basis point decline from Q3, and full-year gross margins were down 40 basis points from fiscal 2023.
- Operating margin for the fiscal year decreased by 20 basis points to 10.6%, reflecting some operational challenges.
- The company anticipates a foreign exchange revaluation loss in Q1 of fiscal 2025 due to recent strength in the Thai Baht.
- Two customers, NVIDIA and Cisco, contributed 48% of total revenue, indicating a high dependency on a few key clients.
Q & A Highlights
Q: Curious if you could talk about the timing around 1.6T and whether you think that could start to -- or whether that's beginning to mid-July as early as your September quarter? And how are you thinking about 400 gig and 800 gig demand going forward?
A: We can't talk about the specific timeline for our customers' product before they do. However, we believe 800 gig will be around for a while and will not be cannibalized by 1.6T. We are working hard with our customers on 1.6T, but the timing of the announcement is up to them. We are ensuring we are ready from a capacity perspective.
Q: As we think about the portfolio and what's driving the conviction to break ground on Building 10, is this all related to further confidence in terms of the datacom business?
A: It's really our overall conviction about the business, not just one segment. Building 9 filled up faster than anticipated, and Building 10 is a good use of our cash. The upside opportunity is significant, and the downside risk is very small.
Q: Does your September quarter outlook imply that you are seeing a broadening of your datacom customer base for 800 gig as several hyperscalers are beginning to deploy broadly 800 networking switches?
A: We don't comment on our customers' product launches. However, we are working on a number of opportunities outside of NVIDIA, including other GPU companies, merchant transceiver opportunities, and hyperscalers. Our outlook is a function of continued strength in the datacom business and indications of demand recovery in telecom.
Q: Could you discuss the breadth of customer adoption and growth of coherent ZR optics using telecom and DCI? And is the decision to expand Building 10 driven by the outlook within the telecom programs or the datacom opportunity?
A: It's driven by both. We see continued strength in datacom and some recovery in telecom, along with new wins. We have had success with new complete network systems business and are ensuring we have ample capacity for future opportunities.
Q: Are any of the three categories of AI-related growth factors outside of NVIDIA anywhere near the possibility of an announcement?
A: We generally don't announce anything until there's something to announce. We are working hard on opportunities with other GPU companies, merchant transceiver opportunities, and hyperscalers. We are optimistic but have nothing to announce at this point.
Q: Do you expect the systems business to pick up faster than the overall telecom component business?
A: Yes, we think the systems business will grow faster than the component business. We haven't broken it out yet, but we may do so in the future as we add to our customer portfolio.
Q: Is it correct to assume that everything you make for the customer is a multi-mode transceiver?
A: No, we make all kinds of transceivers, including single-mode and multi-mode.
Q: Can you clarify the timing of Building 10 breaking ground and being up and running?
A: We have made the decision to break ground on Building 10 in this fiscal year. It will take approximately 1.5 years to complete once we break ground.
Q: Is it fair to say that the Ciena win will take some time to ramp up?
A: Yes, the ramp will begin in early calendar 2025, with significant contributions expected in fiscal 2026.
Q: Are there any other green shoots in the telecom side of the world besides the Ciena win and ZR commentary?
A: We believe our traditional telecom business is stabilizing, and DCI continues to be a good growth driver, especially 400ZR and 800ZR.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
