Fabrinet (FN, Financial) surged 17% to reach record highs following impressive Q4 results and optimistic Q1 guidance. Fabrinet operates in the optical product manufacturing sector, providing advanced optical packaging and electronic manufacturing services (EMS) to original equipment manufacturers across various industries, including automotive, medical, and cloud computing. Key competitors include Jabil (JBL, Financial), Flex (FLEX, Financial), and Sanmina (SANM, Financial). One of Fabrinet's largest customers is NVIDIA (NVDA, Financial), which contributed about 12.5% of total sales last year. Despite economic concerns, Fabrinet's robust Q4 performance alleviated these fears.
- Q4 adjusted EPS rose 30.3% year-over-year to $2.41, and revenue increased 14.8% to $753.26 million, marking the fourth consecutive quarter of record-breaking top and bottom lines. This growth highlights management's focus on cost-efficiency.
- Demand varied across segments. Non-optical Communications revenue grew by 2% year-over-year, driven by the automotive sector. Optical Communications revenue surged 19% year-over-year, with datacom revenue within this segment skyrocketing 63% year-over-year. AI demand was a key driver, evidenced by a 54% increase in revenue for 800 gig and faster products, compared to a 4% rise for products below 800 gig.
- Telecom revenue, part of Optical Communications, declined by 1%, a smaller drop than expected due to steady growth from data center interconnect products. For the year, telecom revenue fell over 20%, reflecting industry-wide inventory adjustments. However, Fabrinet expects new telecom system wins to contribute significantly to revenue in the second half of 2025.
- Q1 guidance is strong, with projected adjusted EPS of $2.33-2.40 and revenue of $760-780 million, both indicating solid year-over-year growth. Fabrinet also announced an additional $139 million for share buybacks, raising its total authorization to $200 million, double the size at the start of FY24.
Fabrinet's Q4 performance, particularly in its datacom business, is bolstered by robust AI demand. The company plans to build a new 2.0 million square-foot facility at its Chonburi campus in FY25, following the rapid occupancy of its 1.0 million square-foot facility opened two years ago. Fabrinet is also exploring opportunities with new customers beyond NVIDIA to capitalize on the growing AI demand. Given these factors, Fabrinet appears to be a compelling option for long-term investors.
