Conference Transcript - FN 2026-03-17

Garo Timajanian, Head of Investor Relations

Good afternoon, and welcome to Fabronet's first investor Q&A session at OFC 2026. I'm Garo Timajanian, head of investor relations at Fabronet, where you're joined today by Fabronet's chairman and CEO, Seamus Grady, and Fabronet's CFO, Chavez Vera. We're also joined by Samick Chatterjee of J.P. Morgan, who will be kicking things off for us. Before we begin, let me inform you that we will be making forward-looking statements during our presentation that are based on assumptions and beliefs as of today. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied today. In particular, those described in the risk factors section of our most recent 10Q filed with the SEC. You should not rely on our forward-looking statements as predictions of future events. We undertake no obligation to revise these statements in light of new information or future events, except as required by law. This session is being webcast, and a replay of the session will be available after the completion on Fabrinet's IR website at investor.fabrinet.com. Now let me turn things over to Samik to kick things off, and then we'll be taking questions from the audience.

Speaker 20

Thank you. Thanks to the Fabrinet team for the opportunity here. so I'll kick it off with a couple of questions and we do want to make this interactive so when you open it up please ask your questions and thank you thank you for the time so maybe I'll start off with a much more broader question a question that comes up often from investors is sustainability of your growth rate you reported 36% year over your growth rate in the last quarter obviously a lot of discussions about sort of what's driving that but sustainability given, I think partly because you also guide one quarter at a time, so there's always sort of questions about sustainability of that growth, so maybe share your thoughts around that, the drivers of the growth, how sustainable do you think those drivers are, how should we think about that?

Seamus Grady, CEO

Yeah, we think they're sustainable, yeah, this is probably a time that we wish we guided further out than one quarter at a time, but we guide one quarter at a time. Our growth, you know, I think the best predictor of the future is sometimes, you know, what have we demonstrated in the past? If you look over a 10-year period, our compound annual growth rate is 16% over a 10-year period. In FY25, we grew 19%, and last quarter we grew 36%. This quarter, at the midpoint of the guidance, we would be up 35%. So the growth is quite strong, and we believe sustainable. There's a few drivers for that. Our telecom business is probably the largest category that saw growth up 59% from a year ago, last quarter, largely driven by DCI growth, which was very strong for us, but also non-DCI growth in our systems business, which is growing very strongly for us. Also, high-performance compute was a very strong category for us. High-performance compute is a new category for us. We haven't had that category in the past. and we grew from 15 million in Q1 to 86 million in Q2. December was our Q2. So a very strong growth and our main customer there is AWS and we're focused on continuing to grow that business and grow it by performing and executing and doing a good job for our customer. So they're probably the two biggest areas of growth. Our datacom business was flat, largely driven by supply constraints of an EML, but aside from that, the demand remains quite strong, actually, in Datacom, even though our revenue was flat. So, you know, several growth drivers, we have several other ones as well. I'm sure you'll hear about lots of them here at the show, but we're certainly very excited, I think, about the prospects in front of us, and they're on several fronts. You know, we're getting visibility, I would say, from customers that's, you know, multi-year visibility, and that doesn't mean we're getting multi-year orders. But we're getting visibility, the customers are sharing with us their demand and their plans over the next few years, which is really helpful for us as it allows us to make sure we have capacity lined up to support the customer's demand. So it seems to be sustainable, certainly very robust, the demand is very robust and it seems to be sustainable.

Speaker 20

Maybe just getting into a bit more details in terms of the last quarter, your DCI growth sequentially was much smaller than what we've been used to anything going on specifically there that would you you would call out or again how you're thinking about sort of that rebounding and the sustainability of strong growth

Seamus Grady, CEO

on the DCI side yes the DCI we started to break out DCI as a separate it's in our telecom number but we felt it would be more helpful for people such as the people in the room here if we if we broke out DCI separately because while it's in the telecom number it's obviously driven by what's going on in the datacom world. And the growth for us there has been just tremendous. It's mostly, not exclusively, mostly 400 ZR and 800 ZR. We have significant share in that business, we think, as a contract manufacturer. We support several customers, but three of them seem to have the majority of the market share, and we're supporting them. We're the sole source for all of the companies that we supply in ZR and you know we certainly think we have we have a majority of the of the share there you know year over year growth has been great while quarter of a quarter growth was a little bit flat primarily because of product transitions as customers transition from let's say 400 ZR to 800 ZR you know the new product hasn't fully ramped yet the previous product is beginning to taper off so that was really a one quarter I I would call it an aberration as the customers go through a product transition. But overall, you know, DCI has been exceptionally strong for us. And we think it's a really good solution to the power problem that, you know, as the hyperscalers roll out these distributed clusters, DCI or ZR is a really good solution to allow them to maximize their output.

Speaker 20

Got it. Okay. Let me open it up. Please, anyone with a question, just raise your hand and Garo has a mic.

Garo Timajanian, Head of Investor Relations

Could you please state your name and firm name?

Keja Sun, Analyst — Ballyasny

Keja Sun with Ballyasny. Maybe I'll just open it up with, you know, people are talking a lot about the new growth drivers as we look forward to two to three years in OCS and CPO. Can you talk about your place in these new areas of growth?

Seamus Grady, CEO

So, again, our place will be as a contract manufacturer. You know, we don't participate in the ODM market. We don't have our own products, and we never will. I would call it a pure-play contract manufacturer. We're very adamant about that, that we won't be in the product business, which is a little bit different to some of our competitors, but that's the path that we've chosen. So our role will be as a contract manufacturer. We think we're the leading contract manufacturer in the space. And for us, what we really look at, whether it's CPO or OCS or whatever the newer technologies might be, what we look at is what are the underlying technologies, the manufacturing process technologies that underpin these processes. And, you know, we try to make sure working a few years ahead of the products becoming mainstream to make sure that we're putting the process capabilities in place. So we've been working, you know, diligently on that for the last several years. And we really feel we have the capabilities to be the leader in the contract manufacturing space, supporting the leading companies producing those products. So we're pretty excited about both. We think they both, you know, represent, you know, new opportunities for us, but also really strong growth. The demand seems to be very strong. OCS, certainly, there's very strong demand for it. Co-packaged optics, it is newer, but, you know, it has NVIDIA very much behind it. So we think they're both, we're very excited about both. We think they're really good opportunities for us.

Speaker 9

Christian, say, from Adage. Could you specify maybe what are some of those process capabilities that you're investing in and growing for these new technologies?

Seamus Grady, CEO

I could, but I won't. Thank you. You'll have to come and work first to find that out. Because sometimes we're developing the process technologies as the customer is designing the products. And we work very well with our customers when they develop a new product or a new concept. Sometimes we're working two or three years ahead of it ever being discussed here at OFC. We're working on those technologies in the background quietly to build the capability and to make sure we have not just the capability, but also the capability at scale so that we can produce it in volume with a predictable yield that allows us to be cost-competitive. So, you know, several of the products we make for our customers today, we do a lot more than I would say most contract manufacturers. We do a lot of packaging at the wafer level and at the die level. which is quite unusual for a contract manufacturer, I think. By way of example, if you look at our manufacturing space, 70%, 70% of our manufacturing space is cleanroom space, which is quite unusual for a contract manufacturer. Most contract manufacturers have probably of the order of 10%, something like that, cleanroom space. But we have 70% cleanroom space. So we do a lot more, I would say, packaging, precision packaging for our customers than most other contract manufacturers. And those capabilities we've developed over several years. We've been doing it for well over a decade. So as the industry begins to scale, if you go back 19 years ago, there was insufficient volume in optical for it to be attractive for the packaging companies. Now, of course, everybody wants to do it now, but we've been doing it for a long time. So really that capability that we have, we feel is pretty unique. the packaging capability that we provide for customers. So, again, we do more than just product assembly. We typically make, we do the packaging, and we often make the components that go into the product so that when we're building the finished product, you know, we're producing, usually in a handful of components, maybe, you know, upwards of 60%, 70% of the BOM content we're producing in-house. So it means we're a valuable supplier to our customers, but it also means, you know, it makes the business quite sticky. And we're also able to help the customer eliminate the margin stack that they would have to pay if they were using four or five suppliers to do what we can do. So it's a very compelling proposition for the customers and also for us.

Speaker 8

Hi, Ravi Putnam, Hawkridge. Your customers are pretty open about their, like, margins and how they're taking up price. and you see it in their sort of financial performance. Just curious if you've reconsidered how you price to those customers to sort of take part in this, you know, margin upswing we're seeing across the board.

Seamus Grady, CEO

Well, I mean, you know, being a contract manufacturer is quite different to being a product company. When you're a product company, it's really about supply and demand. When things are in short supply, you can increase your prices. We can't really do that. If anything, we do things the other way around. As we grow the business with the customers, our pricing typically improves, so we want to make it more attractive for them to do business with us. I'm familiar with what you're referring to, but it's not something that we will be doing. We're very competitive. We want to remain very competitive. As we grow the business, we'll be using that increase in business and improved efficiency to make sure that our price is even more competitive for our customers. That's a bit counterintuitive, but that's how you do it as a contract manufacturer. If you start to increase prices as a contract manufacturer just because you can, you'll get punished by the customers. So we tend to be very competitive and make sure we stay that way.

Speaker 17

Hi, Seamus. Thank you for hosting this. Chris Rollins, Susquehanna. Yeah, just back to the OCS opportunity, it seems like market projections are doubling for the TAM every quarter or so. and you know some of the key guys there talking about engaging more and more contract manufacturers which I think you're in a very good position to address a lot of that. So I guess first of all could you talk about maybe how some of the economics work here like who do they do all of the equipment to put this stuff together you know fund all of the CapEx and then just hire you as a contract manufacturer how do those economics work and then um if you could talk about you know where you would put this capacity do you have the capacity to address what seems like

Seamus Grady, CEO

a ever-growing market so the yeah the economics especially around the capex it really depends on it's on a case-by-case basis by by customer in some cases by product in a general sense we you You know, we obviously build the factories, and we are responsible for the capex of the, if you like, standard equipment or generic equipment that can be used across any customer. We typically ask the customer to pay for any unique equipment. So if it's product-specific or unique equipment, such as test equipment and the like, we ask the customer to pay for it. So, you know, I don't think that's that dramatically different to any other contract manufacturer. It's just that in our case, there seems to be a lot more customized and unique equipment because of what we do. You know, how we're adding capacity, if you look at our footprint today, our run rate today is about 4.6, 4.8 billion, something like that. But our capacity is about 5.5 billion. That includes, there's a little bit of space we're converting in our Pinehurst campus that's almost finished. I'm including that. So our capacity today is about 5.5 billion. We're building our new building in Chonbury Building 10, which when it's finished will be 2 million square feet with capacity for about an additional, call it 2.65, I'm sorry, 300, sorry, about 3 billion. That's coming in two phases. We're opening about 250,000 square feet of that in July of this year and then the balance will be open by the end of the year. So between our current capacity and what we're building in Building 10, that would get us up to a capacity of about 8.5 billion. We can build another two factories on the land that we own in Johnbury, each with capacity for about an additional 1.5 each. So 8.5 plus 3 would be 11.5. So we have ample capacity for the next several years. We're also looking for additional land, and we'll buy it if we can find suitable land that's close to our current campus. And really, we're doing everything we can to position the company for not just the growth that's in front of us for the next several years, but also to position the company for the next 15, 20 years. We feel Thailand is a very good place to do business. It's been a very successful location for us, and we plan to continue to expand our business there. So ample capacity to grow.

Speaker 17

And how quickly could you bring that up for OCS in particular?

Seamus Grady, CEO

Well, I mean, if you look at Building 10, you know, like I said, 250,000 square feet of it, you know, which would give us capacity for $350,000, $400 million of revenue. and then the balance of building 10 would give us capacity for another 2.65 so 3 billion between all of building 10 you know certainly that could go into building 10 i mean it's it's i i would say because of the visibility we're getting from customers we're quite comfortable that we're able to add capacity ahead of the the customer's needs and that we keep ahead our role is to keep ahead of the customers our mission is to make sure we keep ahead of the demand coming from the customers you know the business that we're in is we're a service company we're not a product company on you know unlike a lot of the other players at the at the exhibition here we're a service company and one of the most important services we provide to the customers is that flexibility that upside flexibility that when they know they have a big demand coming they can rely on us to to ramp because this is all we do all we do is manufacturing we don't have our own products so we don't have any distractions and and you know we're very focused on making sure we keep ahead of the customers need so we'll be doing

Speaker 20

that over the next several years if I can just follow up on that you've you you talked about this sort of incremental capacity coming online so up to eight and a half billion of revenue capacity that you'd have so as we now look forward with some of these new opportunities and how should we think about in the sort of segments that you report what are the major growth drivers like what are the primary good drivers to get you to that level is OCS one of them, is sort of HPC one of them, like how should we think about what are the major growth drivers versus maybe what takes a bit of a backseat?

Seamus Grady, CEO

I don't think anything takes a backseat. I think they're all very important to us. They're all very positive growth drivers. If you look at the growth drivers in our business, obviously our telecom business is very strong. We think that's going to continue both in terms of the system business growth but also the DCI business. So we think telecom is going to be very strong. At Datacom, you know, the business has been, I would say, flat because we've had one customer and we've been, sorry, our major customer has been constrained because of laser supply. But we're working to secure a few additional sources of growth, one being, we call them merchant transceiver manufacturers or other OEMs who make transceivers, and also hyperscale direct. If the hyperscalers, you know, have their own design that they want us to produce, we're happy to do that. So we're working on both of those. And then the newer opportunities and technologies, you know, I've learned over the years that the new technologies, they rarely appear overnight. They take time. You know, CPO will take time. OCS will take time. But we're very excited about them because, again, we believe we have unique capabilities in the country manufacturing industry to support those opportunities. So, you know, we think OCS represents a really positive development. So does co-packaged optics. And then high-performance compute, again, for us, a new category. We didn't have high-performance compute as a category, you know, a couple of quarters ago. And then we had 15 million in Q1 and 85 or 86 million in Q2. And it's continuing to grow. And we think that that's just a starting point. We think there's other opportunities to grow that business with AWS, but also with other hyperscalers. So really all elements of the business seem to be quite strong right now. And the demand looks to be very robust for a sustainable period of time.

Speaker 20

Any other questions? Garo, behind you. Behind you, Garo.

Pierre, Analyst — Ballyasne

Hi, Pierre at Ballyasne. How are you? So regarding the HPC vertical that you were just referencing, which has been very successful, how should we be thinking about your existing customer and your ability for you to effectively launch new products with that same customer versus ramping new customers, and what would you be doing for these new customers?

Seamus Grady, CEO

So with our current customer, you know, we're a contract manufacturer, so they use ODMs typically. We're not an ODM. We don't have our own products. So where the customer owns the design and they need someone to produce it, we're happy to produce it. So that's what we're doing is we're producing as a contract manufacturer. And that's the model that we would, you know, we would employ with both with in terms of growing the business with this customer and also with other hyperscale customers into high performance compute. But, you know, high performance compute products, you know, they as time goes by, they are going to need more and more networking and interconnect in addition to the to the compute business. So we think it's a very good fit for us. They're complex products are difficult to produce. and we think they're a very good fit for our capabilities so we're pretty excited about HPC as a category and we think there's a lot of opportunity there

Speaker 20

for us maybe I'll follow up on that you talked about additional opportunities with other hyperskillers on that front and maybe a two-part question generally how you've talked about the primary customer on the HPC side we sort of had you getting to about 200 million a quarter roughly at a certain point of time is that sort of still your expectation or have you seen sort of your pool or your share expand with the customer beyond that, and then as you're looking and talking to other hyperscalers, are you generally, is the size of the opportunity similar, or are you seeing sort of bigger or smaller opportunities as you talk to other hyperscalers on the HPC side?

Seamus Grady, CEO

I think for our, you know, our current customer, which is AWS, yeah, we think it will continue to grow, and, you know, the magnitude you talked about is probably about right. It won't grow in a straight line because when the customer launches new products you know the growth doesn't happen in a straight line so right now we're in the middle of ramping a new product. New products are great because they're the future and you know once you have the new product you have it for the next several years but in the quarter in which you introduce a new product you always have to kind of tolerate that volatility where the old product tapers off the new product gets launched so notwithstanding that yeah we think that that business has a lot of potential and can certainly ramp to a much higher number than we've had in the past you know other opportunities other potential hyperscale customers it's early days yes we haven't really engaged that deeply with with the other opportunities so I think we have you know we've been a little bit of work to do to get to the point where we have other non AWS HBC customers but we're working on that and on the transceiver

Speaker 20

opportunity with the customer as well like when we start to think about sizing it and as you sort of go through your discussions with them is the opportunity similar to what your HPC business with them will look like or is it potentially larger and how do you think about sort of being single source versus multi-sourced on that front

Seamus Grady, CEO

as well? So we think that you know let's say transceiver direct business has a lot of potential because the volumes that some of these hyperscale customers are sourcing are just huge And if they were to have their own product, again, very important, we won't have a product. It's not our product. We're just a country manufacturer. But if they have their own product that we can produce for them, then it's really a case of them deciding what percentage of the demand they allocate to their own design. But in terms of potential, it's huge. You know, even if they were just to allocate, you know, 10%, 15% of the total volume to their own product, it would be very significant. And so I think it has a lot of potential, but at the same time, you know, it has to work and it has to operate in their network and be compatible with everything else they have going on in their network. So there's a lot of, you know, interoperability testing that has to be done before we're at the point where we're ready to wrap that. Any questions?

Tim Savage-O, Analyst — Northampton

It's Tim Savage-O from Northampton. Okay, afternoon. Well, your once and potentially future 10% customer at Lumensum talked about engaging with seven contract manufacturers this morning, which is, you know, a decently large number. I wonder if you have any thoughts on that from a competitive standpoint, and then more specifically and awkwardly about the OCS opportunity. I think you've made that wavelength selective switch that the whole platform's based on. This should position you fairly well for that opportunity.

Seamus Grady, CEO

Thanks. Yeah, we think so. I think if you look at their OCS product, you're exactly right. The WSS technology that kind of underpins that is something we've been doing for a very long time. You know, I believe even though they had moved some business in-house in the past, I think we're still their biggest contract manufacturer. And we're really looking forward to growing that relationship. I think, you know, our relationship with Lamentum is, I'd say, it's the best it's ever been. It was never bad, even when they were moving business back in-house. We always had a great relationship with them. We just didn't agree with what they were doing, but that was their decision, not ours. You know, I think there's a lot of opportunity there with Lamentum, and really there's a lot of synergies between the two companies. You know, we're both in Bangkok. There's a long and very successful history there. And like I said, the relationship is very good at every level, at the working level, but also at the most senior levels within our two companies. So we think there's a lot of kind of strategic alignment there, and we'll be looking to expand our relationship and our business with Lamentum over the next few years. But every piece of business we have, we have to earn it. Nothing comes because of a great relationship. We have to earn the business. But I would say we're excited about that, and OCS in particular, it looks like a really compelling product. We'd love to be in that supply chain. So if you're talking to Michael, please put in a good word for us. I forgot to wish everyone a happy St. Patrick's Day, by the way. Any other questions?

Speaker 19

Hi, one question from Fidelity. Two questions. One on the AWS. The $200 million a quarter run rate, is that sort of fully ramped, beyond which growth is based on your volume growth at your customers? And the second part, just maybe an update, how long do you see the supply chain constraints lasting? Are they getting better or are they getting worse on the later front?

Seamus Grady, CEO

Yeah, on the AW, on the high performance compute business, you know, it could be less than 200, it could be more than 200. It really depends on, you know, we have to continue to perform. So far we've done a very good job, we believe, or we've been told by the customer, they're very happy with what we're doing. But then we leave it to the customer to decide, you know, how they split the share between us and the other supplier. You know, like I said, there's no guarantees, but as you may know, we do have a warrant that we've signed with AWS. So they have an incentive to give us more business. The more business they give us, the better for us, but also the better for AWS. But again, we have to earn that business, and we're very focused on just executing. Execution is the best strategy, but it has a lot of potential. Your second question?

Speaker 20

Supply chain constraints.

Seamus Grady, CEO

Supply chain constraints. Yeah, I mean, the biggest supply chain constraint we've been dealing with is on the EML side. and specifically the 200-gig per-lane EML constraint that we've had with our main customer, NVIDIA. It is improving, you know, and the products that we make for NVIDIA, they have approved a second source now for the laser, which is Lamentum. But that's just beginning to get going this quarter. So I think that's probably another, you know, we may see an improvement in the June quarter. We may see an improvement in supply in the June quarter, but it's more likely probably out into the September quarter because it just takes time to get everything ramped up. But it is improving, and the demand is still very robust. I mean, the demand hasn't gone away. If anything, the demand has been increasing, actually. So that's, I think, the big ramp for us and 200 gig per lane. You know, 1.6 and 800 gig is still largely in front of us.

George Notter, Analyst — Wolfe Research

Hey, George Notter at Wolf Research. Thanks very much. I guess I was just curious about just the bigger picture in the environment. um it seems like everyone's got this just gigantic you know imperative to scale as fast as they possibly can you've got a lot of companies that have you know historically been doing internal manufacturing in the space um it just seems like everybody needs help and it seems like in many respects you're the answer but do you see that in terms of your conversations with people around the industry the pipeline that's developing around your business like give us a sense for sort of the tenor of conversations you're having with folks and is my

Seamus Grady, CEO

assertion the right assertion? Thanks. We do see that you know we've spent decades developing the capability when optical wasn't sexy and it was low volume we were very committed to it so we've we've spent a long time building up the capability and it's hard to you know for competitors it's difficult to compete with that that expertise that we've we've developed so we you know the tone of the conversations with customers is very interesting you know for me I've been in the industry a long time and usually the biggest struggle you have in contract manufacturing is you know figuring out where the demand is going to come from you know and it could be next quarter or next year but right now it's it's the opposite the customers are giving us you know two and three years visibility I don't that's not to say they're giving us two and three years orders but they're giving us visibility so we're able to see see, okay, what's coming down the track over the next few years? And they're asking us to help them and put the capacity in place, which we're very happy to do. We're in the very fortunate position because of how we kind of capitalise the business and how we build out our capacity. It's a very low-risk decision for us to continue to add capacity. Let me give you an example of the economics of Building 10, for example. So I mentioned that Building 10, it will be 2 million square feet when it's fully built. It will have capacity for, it depends on the mix, and the mix is actually going in our favor over the last while, but call it $3 billion of revenue capacity when we build Building 10. The CapEx is about $130 million, maybe $132, depending on what the FX is doing on any given day, but call it $130 million. Well, at full run rate, And about five months' worth of operating margin pays for the factory. So the upside potential is gigantic. The downside risk, again, because of the way we capitalise, we have a very strong balance sheet. We build these factories using our own cash. We don't have any debt. If something were to happen that the industry were to decide that it doesn't need Building 10 and we had to sit on it, the gross margin headwind would be 15 basis points, which is, it's not nothing, but it's negligible. So the downside risk is very small, and the upside potential is tremendous. And we're very conscious of, yes, we want to, of course, capture the business, capitalise on the upside, but we've also been around long enough to know that sometimes there's a downside risk, and we don't want to get caught with the downside risk. So how we capitalise and plan for the growth is really important the second thing that's very important is we we keep our costs under very tight control so you know opex our opex is 1.5 percent of revenue which is very small even even for contract manufacturers it's very small our fixed cost runs at about five percent to revenue so five percent fixed cost 1.5 percent opex you know so we we have we believe a very you know successful financial model that allows us to, again, capitalize on the upside, capture the business that's there, execute very well. But if something were to happen on the downside, we feel kind of we're not overstretched. We'll never overextend ourselves. We'll never overstretch ourselves because we've all been around long enough to know what happens if you do that. So we feel quite good about those prospects. And, you know, the tone of the conversations with customers is very encouraging, you know, And it's very heartening for me to hear customers tell us how happy they are with the job that our team does, with the execution on the business that we have with them today. When you're growing at 36% year on year, sometimes growth is not always easy. It doesn't always happen in a straight line. But it's really encouraging for me to talk to fellow CEOs and for them to be very complimentary about the work we're doing and the job we're doing executing. That's the most important thing. All the strategy in the world doesn't matter if you're not executing. So we're executing very well for the customers. We're saving them a lot of money and making a little bit ourselves in the process. So it's a winning formula, we think.

Jeff Hobson, Analyst — Needham

Hi, Jeff Hobson from Needham. So you talked a little bit about multi-year forecasts from customers, and maybe the typical order visibility is much shorter than that, maybe a quarter or two. are you seeing that change for people putting in orders in that timeline extending at all

Seamus Grady, CEO

as people lock in allocation or supply you know really the customer orders in our business is really governed by what whatever is the longest lead time component so typically we'll have it depends on the customer but we might have 13 weeks rolling orders and then we may have we may place orders for longer lead time components outside of that, but not for everything. So if there's one device that has a six-month lead time, you know, that doesn't mean we get orders for the finished product out six months. We just get, you know, let's say three months rolling of demand. And we'll, of course, have forecasts beyond that that we'll use to position inventory. But the visibility we're getting is very encouraging, you know, even if it's, you know, It's a little bit different in our case because, again, we don't have a foundry, so we're not having to ramp up, you know, huge foundries or anything like that. But we are getting very, very good visibility, and I would say that firm period is, you know, it's probably stronger than it's been in a long time as customers commit to the future. Get to you next time.

Joseph Santos, Analyst — Putnam

Hi, Joseph Santos from Putnam.

Speaker 16

So just another way to kind of frame visibility

Joseph Santos, Analyst — Putnam

and the way customers might be committing to you or changing the way they're committing to you, given their forecasts for their businesses. As you think about ramping up Building 10, are you seeing a different cadence of kind of commitment from them to try to take up that capacity and invest in that facility earlier than you normally would?

Seamus Grady, CEO

I would say, you know, the customers know how we operate. We tend to be, you know, quite flexible with the customers. You know, they give us an indication of what they need. We make sure we have the capacity in place. But we're not going to put a gun to the customer's head and say, well, you told us you'd need 300,000 square feet. You only need 200,000. We'll send you a bill. We're much more flexible than that. Usually we're working all the time to, with the best of it in the world, we'll size what we think the customer wants. Then we start to produce. And if they need more, we'll give them more. If they need less, we'll cut back on the space and they'll save money. So it's quite fluid, actually, how we do it day to day, and we're adjusting all the time. And it's a kind of a self-governing process, because if the customer wants more space just in case they might need it, well, it's going to be expensive, because we have to charge them for that space, and that space we could be using to produce something else. So it becomes kind of self-limiting. The customer will allocate whatever space they need, but they then pay for that space. It also works really well from an IP protection point of view. each customer is physically separated from the next. So there's no overspill of IP between customers.

Corey Johnson, Analyst — Epistrophe

Corey Johnson from Epistrophe. I'm not asking for your 2030 guidance, but I was surprised this morning when Lumentum talked about this thing's really going to take off in 2030. They kind of talked about growing capacity and growing into a next stage of growth. And I wonder if you're crystal ball when you try to imagine where we are in five years, who knows how many. I mean, are we still going to be building data centers at this pace or is it at an increasing pace?

Seamus Grady, CEO

2030, that's a long way in the future. It's a long way. It's a long way. You know... For the grandkids listening. Yeah, I think it's, you know, again, the caveat, we're just contract manufacturing guys. But, you know, it seems to me, if you look at the massive expansion explosion in compute that's been going on for the last couple of years, it almost feels like the industry forgot about the networking and the interconnect well all this compute has to be attached together has to be connected together the data centers have to be built in a distributed way because of the power envelopes that they have to operate within so the best way you can manage that is with dci 400zr 800zr so there's massive demand for that but then interconnect generally to connect all the compute together it almost feels like there's there's a catch-up going on, that the optical industry, the component industry, the optical industry hasn't really been ready for these kind of volumes. And so there is a kind of a transformation going on, I think, in the industry that it is, you know, we are getting this transition to photonics and optics. Certainly as far ahead as we can see, it looks to be very strong and very robust. And I think the thing that's different this time around versus the dreaded, that which we shall not mention the dot-com is you know we're these are real companies these are real companies there's no you know fly-by-night companies these are all very real very credible companies very well capitalized and the supply base including ourselves and and the other companies in the industry who are customers of ours you know they have sometimes scars on their back so they're they're careful about how they expand and how they add capacity if you look at lamentum and coherent the two billion investment that they're each getting from from nvidia i think that's excellent i think that's that's really good for those companies and it's really good for for the industry hopefully it'll be good for us as well because we supply both coherent and lamenting so i'm probably not answering your question but certainly we we see the demand being very robust for a very long time it's going to take the industry a long time to catch up and and and fulfill all this demand especially at the pace at which the compute performance is is growing i mean it's just staggering the the the compute power and all the networking and interconnect it's going to be needed to support that so we we think it's we think it's a we believe it's sustainable now 2030 I don't know we'll see it's not that far away 2030 three and a half years

Speaker 20

Shamus one of the questions I've got on that front from investors is coherent momentum fabric all are pretty strong partners to in video and investors have been asking would in media eventually have to invest in fabric as well to help you with capacity what are the sort of differences between sort of how you see the investment with Coherent and Lamentum versus your business model and why or why not I mean we would

Seamus Grady, CEO

not refuse an investment we're we're you know I think our business is a little bit different if you look at Coherent and Lamentum you know for them to put fab capacity in place it's a much bigger you know capital outlay then you know we build factories and then we build other people's products in those factories that's essentially what we do and a lot of the capex that goes into the factory some we fund some of the customer funds you know not to not to be running down what we do but I think what Lamentum and Coherent do is very different because they're developing products which have you know R&D cycles are very long then to properly capitalize those in their foundries takes a very long time and a huge amount capital. So, you know, to me, it makes sense in the case of coherent elementum. I'm not sure. I don't think it makes sense in the case of Fabronette, but if you want to ask Jensen to send over a check, we'll...

George Notter, Analyst — Wolfe Research

All right. Thanks. Do you have a guess as to what the mix of your business comes from cloud providers? Obviously, they're not always the end customer, but what do you think that mix would be just in your mind's eye?

Seamus Grady, CEO

It's a good question. I think I would say probably the vast majority of it. You know, it seems like it's not that long ago that we used to get asked questions at meetings like this of did we see AT&T's capital budget for next year and what do we think Now that seems like a kind of a funny question almost. I mean, you know, obviously everything in the data center and data com spend is driven by the hyperscalers and a lot of what's going into the in our in our telecom spend is is being driven by hyperscalers so i don't know what the exact percentage is but it's it's a big number

George Notter, Analyst — Wolfe Research

it's the vast majority of it i think and then anything um do you see anything new or different or changing in terms of you know inventories and your relationships with customers in terms of procuring components putting it on your balance sheet putting on the customer's balance sheets Like, anything changing there with all this new demand?

Seamus Grady, CEO

Not really. I mean, the way we operate with the customers in terms of who carries the inventory, that's pretty well predicated. That's determined. I mean, sometimes we get asked from time to time by maybe newer customers sometimes if we carry more inventory. I mean, we do whatever the customer wants, but as we always say, we're an excellent manufacturer, but we're an absolutely terrible bank. So our inventory carrying charges are generally terrible. They're not competitive. We're not a good bank. So it wouldn't be an efficient way for the customer to carry inventory, to have it on our balance sheet, so we tend to stay away from that. The other thing we do, sometimes the customer will have a very expensive component and we'll allow them to consign it. Sometimes it's important to the customer that their contract manufacturer doesn't take too big of a margin on a high-value component. So sometimes we'll say to the customer, okay, you can just consign it and we'll pass that through. So we're very flexible. You know, we'll do whatever the customer really wants us to do. That's one of the services we provide, flexibility.

Speaker 20

Shemesh, maybe if I can ask a question on CPO. Maybe NVIDIA sort of what's your, if you can just clarify sort of how should we think about how sort of what's the role Fabrent has and maybe compare it to when initially in some of the remarks you made, you said you tend to sort of insert 60, 70% of the bomb. So particularly with these sort of newer solutions on the CPO side, where is that tracking? initially, and then where do you see the opportunity beyond NVIDIA? Are you seeing more customers in that pipeline engaging with you on CPO?

Seamus Grady, CEO

Yeah, we have three customer engagements on CPO, one of which is NVIDIA. CPO, I think if you go back, I don't know, seven or eight years ago, CPO was two to three years away. And then if you go back five years ago, it was 18 months to two years away. If you go back three years ago, it was one to two years away. Now it's like a year to 18 months away or maybe six months to a year away. It's still new, and everything has to line up, and everything has to operate and work. We're very excited about CPO because of, again, the technology that underpins it is incredibly difficult, incredibly difficult to do. So that's really where we're focused, is making sure we have the capabilities to support what the customer needs from us. You know, how big could CPO be? I think it depends on what we do in CPO. You know, if you like, our role historically has been we haven't really been in the, let's say, the switch business with NVIDIA. We've been a transceiver manufacturer. So I think it really depends on, you know, where we can grow that business, whether it's just in the pure CPO packaging space and maybe LSFPs or if there's a role for us outside of that.

Speaker 20

So when, like, we all were in presentations today and most companies like Coherent Momentum are talking about material CPO revenue second half of this year and ramping forward into second half 27, but it doesn't sound like that's sort of in your order book today from what you have visibility into that's not necessarily where NVIDIA's orders have sort of already come in, given that you obviously have much shorter order duration as well.

Seamus Grady, CEO

Yeah, I think that would be fair. I mean, you know, we don't guide beyond one quarter of time, and we're going to continue that, although there's times I wish we did guide more than one quarter. But, yeah, I guess we'll talk about that next quarter. You know, we generally don't guide by category either, so we'll talk about whenever we have CPO revenue, we'll talk about it looking back rather than trying to guide it going forward because it's very difficult for us to guide that.

Speaker 20

Maybe just one for shop. Maybe we'll end with that one, if you're okay.

Peter Law, Analyst — Analog Management

Thanks. Peter Law, Analog Management. So a follow-up to Sonic's question and your answer. A few years ago, when you moved from making just components for telecom to making systems in telecom, there was sort of an order of magnitude jump in the bomb that you could address. Is CPO a similar opportunity, where you're moving from just components in datacom to the system?

Seamus Grady, CEO

It is, if we're able to move up the stack, which is really what we do. It sounds easy, but it's not easy. We focus down deep in the stack. We do the packaging. We do the difficult stuff, and then we move up. So CPO would be similar if we're successful, if we're able to move up to the switching part of CPO.

Peter Law, Analyst — Analog Management

How would you be successful to move up?

Seamus Grady, CEO

By executing on what we're being asked to do in the beginning. That's the best. Again, the best strategy is execution in our business. We find if you execute, you know, in a really excellent way for the customer, and we're very predictable in terms of delivery quality, you know, really fast responsiveness, great NPI services, and we do all that at a competitive cost, the business tends to grow. So that's really our formula is just execute really well.

Speaker 25

camera Gary from Holocene advisors just following up on that question could you potentially see yourself integrating in terms of like for example a CPO switch would you ever you know go as high as doing like the whole switch manufacturing the whole like networking switch if it's a CPU if the customer wants us to do

Seamus Grady, CEO

that of course yeah I mean the most the most difficult work that we do is is the stuff that we don't ever ship it as a finished product we use it to produce the finished products. It's the packaging, you know, the precision packaging, the photonics packaging that we do. That's the most difficult thing that we do. We don't necessarily talk about it externally. We don't really advertise those services because if you think about it, we don't do it as a standalone service. We don't do packaging and then sell package devices. We do the packaging so that we can use those devices to make the product for the customers. But yeah, we're happy to go up as high in the stack as the customer wants system. Great, we'll wrap it up.

Garo Timajanian, Head of Investor Relations

Oh, sorry. No, thank you. Thanks, everybody, for joining us. Our next Q&A session will be beginning at the top of the hour at 4 p.m. Pacific. Thank you.

Seamus Grady, CEO

Thanks very much, everyone. Thank you very much.

Garo Timajanian, Head of Investor Relations

Good afternoon, everybody, and welcome to Fabronet's second investor Q&A session at OFC 2026. I'm Garo Timajanian, head of investor relations at Fabronet. We're joined today by Fabronet's chairman and CEO, Seamus Grady, and by Fabronet's We're also joined by Tim Long of Barclays, who will kick things off for us. Before we begin, however, let me inform you that we will be making forward-looking statements during our presentation that are based on assumptions and beliefs as of today. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied today, in particular those described in the risk factors section of our most recent 10Q files with the SEC. You should not rely on forward-looking statements as predictions of future events. We undertake no obligation to revise these statements in light of new information or future events, except as required by law. This session is being webcast, and a replay of this session will be available after the completion on Fabronet's IR website at investor.fabronet.com. Now let me turn the meeting over to Tim to kick things off.

Tim Long, Analyst — Barclays

Thank you. Thank you, Gary. Well, this is large. Thanks, guys. Let's start off. Obviously, last quarter was really, really strong for Fabronet. I want to kind of go through some of the pieces. If we could start on kind of the telecom and DCI businesses, maybe in two parts. I think, you know, looking at the DCI piece of it, it's obviously been a huge driver over the last year or two, and you guys started breaking it out, but a little bit lower sequential last quarter than what we've seen. So if you could touch on that. And then, you know, the non-DCI piece in that line was really strong. So maybe, you know, touch on the moving parts for both of those pieces of the telecom-related business. Sure. Thanks, Tim.

Seamus Grady, CEO

yeah the DCI business for us you know has been growing very nicely over the last several years telecom overall was up 59% last quarter but DCI was a little bit flat last quarter because a couple of our customers are going through product transitions from 400 ZR to 800 ZR but the business overall continues to grow very nicely for us the non DCI business you know a big part of the growth there is a few different areas one is our our Sienna businesses is just getting ramped to the new win from Siena, the WaveLogic 6 business from Siena. We've also been growing our Cisco business as we've continued to do a very good job for Cisco. They've rewarded us with more business, so that business is growing. And then our telecom component business for products or components we make for some of our customers, components like rodents, tunable lasers and the like, that business is very strong. And then finally, satellite communications, which is in our telecom business. We have a couple of customers in the satellite communications business that's growing nicely as well. So overall, our telecom business is just very strong at the moment.

Tim Long, Analyst — Barclays

Okay, great. Maybe sticking with optical, touching on datacom, it's obviously been really strong over the years. The last several quarters, kind of much more stable from a revenue standpoint. So maybe talk about what's holding that overall Datacom business back from growing a little more aggressively.

Seamus Grady, CEO

Yeah, the Datacom business, you know, we've had some phenomenal growth over the last couple of years in Datacom. This past couple of quarters has been somewhat flat. Our major customer in Datacom is NVIDIA. The demand remains quite strong, but we've been supply constrained because of EML shortages. That is beginning to improve. We had one supplier for EMLs. There's now a second supplier approved for us to use. Lamentum is also approved now. But we're just getting ramped with EMLs from Lamentum. So we think it should improve in the June quarter and in particular in the September quarter. But like I said, the demand remains very robust, but we've been constrained on EML supply.

Tim Long, Analyst — Barclays

Yeah, you mentioned NVIDIA is a big part of it. Maybe talk a little bit about opportunities outside of NVIDIA. Obviously, there's a lot of other players looking to maybe vertically integrate into it. So talk to us about how you see opportunities outside NVIDIA there.

Seamus Grady, CEO

Yeah, we have a couple of avenues for growth and data come outside of NVIDIA. One is what I would call merchant transceiver manufacturers, or OEMs, who want to supply into the data center. There's a couple of opportunities we're pursuing there. And then secondly, hyperscale direct. So we're working on a couple of products with one of our customers where they would own the IP and we would produce the product. So not ODM business, still contract manufacturing, but where the hyperscaler would own the design and we would produce for them. So a couple of projects that we're pretty excited about, none of which we can talk about today. We generally don't talk about them until they've actually happened. But they're both proceeding at a good pace, and we're happy with the progress there.

Tim Long, Analyst — Barclays

Yeah, just to follow up on that, maybe just, I know you don't want to get too much in detail, but what does the lead time of, you know, that engagement tend to look like, and to what extent can your, you know, the rest of your business, whether it's NVIDIA or others, act as a reference design to maybe accelerate that time frame?

Seamus Grady, CEO

Yeah, I mean, each customer has to have its own design, but the timeline is typically, you know, best case a year, usually a year to 18 months from when we engage with a new opportunity. And we're, you know, we're a good distance into that timeline with a couple of these opportunities. So I think we're well down the path, but, you know, again, it's about an 18-month timeline, usually from when the customer has a real need until we're actually ready to ship something.

Tim Long, Analyst — Barclays

I'll ask another one here, and then we'll open it up and go back and forth. So, you know, a lot of talk, obviously, about CPO. Would love to get your view on that technology, Fabronet's position, how, you know, what you think that could mean to the company over the medium and longer term.

Seamus Grady, CEO

Yeah, I think we're very excited about CPO as a technology, you know, especially with really NVIDIA being behind it now. you know cpo has been talked about for a very long time it seems like it was you know two to three years away for about 10 years and then it's a year to 18 months away maybe for the last three or four years um but now with nvidia behind it it's it's now real it's real products there this real technology uh that's that's come to come to play um so we're pretty excited about about cpo you know our our role in the cpo kind of ecosystem uh we're a contract manufacturer so we've we've been figuring out you know over the last several years okay what are the manufacturing technologies that we need to have under our belts to be to be the leader in the CPO and the part of the of the CPO ecosystem where we participate so we're pretty excited about it you know and we think it represents really good growth opportunities for us both both down the stack into the packaging but also vertically up at more of the system level so we think we think there's some maybe time expansion opportunities for us that comes with cpo but it's but it's still early days i think okay is your view ultimately

Tim Long, Analyst — Barclays

that you know it kind of starts with nvidia ecosystem and then gets proven and then more broad or how do you think it it plays out over the next few years yeah i think nvidia seem to

Seamus Grady, CEO

be the leader they seem to be the you know the the company driving it the the hardest um you know i i they're they're probably ahead of what most people are doing So, yeah, I think the NVIDIA kind of ecosystem will, you know, carve out the path, if you like, that others will probably follow.

Speaker 12

James, can you follow up on the EML qualifications and, you know, just talk about, you know, sort of how you can, maybe in terms of what the demand is versus what you can supply, is there kind of a delta we can think about for this year, and are you looking at other EML suppliers or your customers maybe looking to qualify other EML suppliers. And then just a broader question on capacity. You know, kind of maybe walk us through how you're thinking about your own capacity as you think about next year and things like CPO, and now you're working on things like server trays, and just, you know, maybe just high-level capacity needs and how you can bring more capacity on what that might mean to the model.

Seamus Grady, CEO

So for EML, you know, EML supply has been constrained. we've had one approved source for emails up until now and now we have two so that should improve things really our customer works on you know qualify or sorry approving the emails you know typically they'll come to us and say that you know they want us to build some samples using the new EML so we'll build could be a couple hundred it could be a few thousand and then the customer takes away they do their qualification testing and then they come back with a kind of be a RNA so that that process has been going on for a while and we're now at the point again where we have to two sources for the emails you know I think eml eml supplies it is improving but there's also other alternatives there as well the CW laser and silicon silicon photonics so I think the industry needs both it's not one or the other I think it's both so I think ultimately I think there'll be there'll be both the ML and and silicon photonics based products in terms of our own capacity overall you know our our capacity today we have capacity in our in our current footprint we've about 5.5 billion dollars of capacity you know our run rate right now is 4.4.8 roughly 4.8 billion run rate right now so we have you know we have a bit of room to grow we're adding a new building, building 10, which will be, some of it will be online in the middle of this year, calendar year, the rest of it will be towards the end of the year, but that will add capacity for an additional three, roughly $3 billion of revenue, so that would put us at $8.5 billion, and for us that decision is a relatively straightforward decision, you know, we have to keep ahead of the customer's needs with everything that's going on in the industry and all the demand for the services we provide, we have to be way ahead of the customers' needs. For us to add, if you take Building 10 as an example, as I say, the revenue potential is about $3 billion. The CapEx is about $130 million, and we fund that from our own resources. We don't borrow. We have a strong balance sheet. We use our own cash. So the gross margin headwind, if something were to happen that we build Building 10 and we don't fill it with business. The gross margin headwind, if we had to carry it, would be 15 basis points, so it's negligible. On the other side of the coin, the upside potential is approximately five months' worth of operating margin would pay for the building. So the upside potential is enormous. So it's a relatively straightforward decision for us. So we'll just continue to add capacity well ahead of the customer's need. Right now, you can't have too much capacity. We have enough land in our Chanbury campus to build another two factories, each of which would have about 1.5 billion of revenue capacity. So that would put us at, you know, 11.5 billion in capacity in our current footprint. But we're also actively looking for more land as well. So we're pretty excited about the demand that we're seeing and about the visibility we're getting from customers. and we're just very focused on, you know, number one, executing on the business we have, and then number two, making sure we're positioned to capture more business in the future.

Carl Ackerman, Analyst — B&B Carabaugh

Hi, Carl Ackerman from B&B Carabaugh. Thank you for doing this. Follow-up on a question. If we're only recognizing what could be a 15 basis point headwind, why not, and you have $26 worth of cash on the balance sheet today per share, Today, why not lever up and build out building, you know, accelerate building 10, build out building 11 now for that capacity ramp that you seemingly see in front of you, particularly when one of your, one of the laser suppliers highlighted how the optical transceiver TAM is 80 billion. They're going to grow out to 40% in CAGR between now and 2030. So that's a clarification point. Second point is, could you discuss whether you see pluggables being the primary form factor that will address multi-rack scale-up architectures over the next two or three years? Or do you believe that will be predominantly coming from optical I.O. chiplets for multi-rack scale-up? and how does that impact your ability to address that TAM opportunity? Do you see your opportunity? Do you see the ability to invest and grow in that Optical IO chipboard opportunity as we address multi-rack scale-up architectures?

Seamus Grady, CEO

Well, we believe it will be both. It won't be one or the other. We need both. The industry needs CPO, scale-up, pluggables, copper, everything. We don't think it's one or the other. We think the industry needs all of the above. In terms of the capacity, just to clarify, it's 15, 1.5 basis points, not 50. 15 basis points gross margin headwind if we build the building and it stays empty. Yeah, I mean, it's something we obviously look closely at all the time. to see, you know, how quickly we should add capacity. If you go back a few years ago when we opened building 9, it was a million square feet with capacity for probably, I don't know, a billion and a half or something like that. It seemed like at the time it was going to take us a long time to fill that. Now it's almost full, and building 10 will be no different. So we'll be looking closely at what we need to do to, you know, to continue the pace that we're on, whether it's, you know, building 11 or building 11 and building 12. we're also looking at acquiring more land because we really have to position the company not not just for the next you know three or four years but for the next 15 to 20 years that's really what we're about we're trying to make sure we set the company up to be in very very good stead for the next 15 20 years yeah there's very little downside to adding capacity right now that we can see it's again because of the way we we capitalize these these projects it's very cost effective there's really very little headwind if even if it if the factory sits idle for a short period of time and tremendous upside because you know the demand is so strong right now we believe we're uniquely positioned with our capabilities to capture a lot of the a lot of the business that's out there there's a lot of country manufacturers but there's not a lot of country manufacturers who can do what we do so we're very focused on that

Speaker 24

thanks Steve Fox from Fox Advisors since you since we've been talking about TAM expansion i was wondering if you could sort of give us the latest thinking on how hyperscale direct the trends that are driving it and how that plays out and then also like sienna business where i know you're driving you know full system assembly off your own content like the trends you're seeing now and how that could also drive tam expansion yes so so the sienna business first

Seamus Grady, CEO

of all you know really it's it's the it's the approach we take with all our customers where we try to do as much as possible of the content the if you call that if you like the ingredients so starting right at the at the very bottom at the at the wafer level and at the die level we like to do as much packaging as we can and make the components that we then use to assemble the product it's very very compelling approach for our customers and for us for the customers they get a much better price frankly than if they were using four suppliers to do what one one supplier can do um you know they have one one neck to grab um in terms of you know warranty and things like that so it works really well for the customer it works really well for us because it makes the business very sticky you know we become we become very important to our to our customers and the customers tell us that they really like that approach you know they really they really appreciate what we do they really like what we do and it saves them a lot of money um your question Directed hyperscalers, yes. So, yeah, that's something, again, the economics of that are what makes it compelling. You know, the hyperscalers, they buy a lot of transceivers. From our point of view, we will not be an ODM or a product company. So we've had the opportunity in the past to actually own transceiver designs that we could then sell under a Fabernet brand to hyperscalers, and we've chosen not to do that because we want to stay true to our, you know, the customers who got us here, we want to remain loyal to them and make sure we'll never be a product company. So that's very important for us. So as we look at the hyperscale opportunities, we're happy to produce, you know, whatever the hyperscalers want us to produce as long as we don't own the IP, as long as they own the IP or somebody else owns the IP. So that's maybe a small distinction, but for us a very important distinction because when we talk to customers like Sienna, Cisco, Nokia, And also, you know, coherent and lamenting. It's very, very important to them that we're not a product company. We're a contract manufacturer. Other contract manufacturers have gone that route and good luck to them. It's easy working for them. But it's just not something we're going to do. So we'll remain as a contract manufacturer.

Joseph Santos, Analyst — Putnam

Great. Thanks, guys.

Speaker 16

Emile Henry, Jane Goble. Just wanted to go back to the capacity additions because clearly demand exceeds your ability to supply. And just curious, as I think about this, I think you had about $3 million of square feet exiting last year. We're adding $2 million from Building 10. Understandably, we've got Pinehurst also coming to market. The $8.5 billion revenue target that we could get to would imply kind of this $1,700 per square foot of revenue. And is that still the right way to think about it kind of going forward? And A, is that the right math?

Seamus Grady, CEO

So our current square footage, I think, is 3.5 million square feet currently. So roughly 5.5 billion of revenue capacity with 3.5 billion square feet. Demand is not outstripping supply. We're keeping up with demand, but the demand is very strong. And our objective is to make sure we keep the capacity additions ahead of the demand so that we never miss any revenue. You know, we have a very strong track record of supplying our customers what they need and when they need it. If you look at some of the huge ramps we've gone through over the years, we've always managed to get the customer what they need. So, you know, that's our mission, is to make sure we keep ahead of the demand and keep the capacity ads coming.

Speaker 16

And just then remind me of, and you can use Building 9 as a precedent, but remind me kind of the milestones that you've articulated in terms of Building 10. when all of the square footage gets stood up and then how that gets filled and so that if we think about how much square footage you have of how much revenue you could get kind of I know you only got out a quarter of a time but curious kind of when we hit that eight and a half billion dollar run rate because it seems like it would somewhat occur in your fiscal year 28 but just wanted to

Seamus Grady, CEO

yeah so we haven't given any kind of guidance on that and we won't we do only guide one quarter of a time but you know We'll be bringing on Building 10, again, 2 million square feet, about 3 million of capacity. We'll be bringing on 250,000 square feet of that in July, I think, and then the balance by the end of the year. So by the end of this year, Building 10 will be completely finished and ready to be filled up. So like I said, 250,000 square feet in July, we'll probably occupy some of the rest of it as we build it, as we go throughout the year. and then building you know as we talked about a moment ago building 11 and building 12 we'll be looking at we've already revised and changed the plans for what we would build if and when we build building 11 and building 12 we've upsized them versus what they would have been originally they'd be the same footprint on the ground but a taller building with more square footage and more capacity and then like I say we're looking for more land as well to you know see if we can find more land in the in the Chonbury

Speaker 16

area the last one is would it be fair to think that building tent could potentially get filled quicker than what we saw with building nine I think so I

Seamus Grady, CEO

think with if you look at you know if I if I go back I mean who knows what happens in the future but if I go back and I look at in 2017 when we open building eight I remember standing looking at building eight it was five hundred and fifty thousand square feet and I remember thinking that's a big factory how are we going to fill that and then you know a couple of years later it was almost full and we built building nine which was a million square feet and i remember standing looking at building nine thinking wow that's a big factory how are we going to fill that and and building 10 is huge it's it's seven american football fields laid side by side but it's how many stories tall five stories but in fact some of those are mezzanine floors as well so it's it's a it's a gigantic factory you know yeah i think the pace at which we fill it will be will be quicker than let's say per square foot the pace at which we fill we fill building nine because it's a different time now the demand is sorry our growth rate is much higher you know the growth rate is much higher the demand is it's it's a very different time you know we've the demand that we're seeing from the customers is and it's across all of the the kind of the product categories that we support. It's just incredible right now.

Tim Long, Analyst — Barclays

Yeah, maybe I'll jump in. I think the answers are in that little black book, and I'm going to try to get it if I can. What's that over there? I just wanted to touch on the HPC business. So obviously it's been a very good ramp to start, only two quarters, but big upside, and I think you're two out of the four lines or something like that. So talk a little bit about, you know, that as kind of a newer category for FavreNet. It seems like it went incredibly smoothly, but if you could just touch on, you know, how the ramp went, what you think the opportunity is with that program, and then, you know, could this be like the optical domain where there's a lot of other, There's obviously a lot of other HPC programs out there that would now become open for you. So curious kind of what you learned and the opportunity and the current, and then what you think that means for a really big TAM with others.

Seamus Grady, CEO

Yeah, I think, you know, for us, high-performance computer, HPC, it's a new category for us. We had about $15 million of revenue in our fiscal Q1, and then we had $85 million last quarter. And, you know, that business is set to grow. You know, we think it will grow significantly from those levels. And the growth is really coming from gaining market share. You know, we produce a number of, you know, very complex PCBAs for our customer there. And we're producing current products but also the next generation products. So when you go through that transition to the next generation products, sometimes the revenue flattens as you ramp the new product while you taper off the old product. So that's really what's been going on the last quarter or so. But overall, we feel very good about that business. You know, we're doing a very good job for the customer. They tell us they're very happy. And our focus is, again, just executing so that we continue to gain market share. We think that particular customer has very significant potential. But there's also similar opportunities with other hyperscalers and other high-performance compute customers. So we'll be working hard to win those over the next month.

Tim Long, Analyst — Barclays

Is this the type of thing where if you were having a discussion six or nine months ago with a different hyperscaler, you didn't have much to show, now you have a lot more reference?

Seamus Grady, CEO

We do, but we can't bring Google in to look at the Amazon line. So, yes, I mean, it's good that we have the experience, but it's interesting for us. We have to kind of win each customer discreetly. But certainly the capabilities that we have are very compelling. You know, we have a fully automated line, completely automated from start to finish, you know, exceptionally high yields, exceptionally low cost, and really predictable output for the customer. So our focus is very simple. Just execute like crazy for the customer, you know, make it a very compelling proposition for them, and then hopefully they reward us with more business. So that's what we're focused on.

Ryan Carverton, Analyst — Sarah Capital

Hi, Ryan Carverton, Sarah Capital. Thank you for taking this. If I think holistically around the growth rates of other folks in the optical space, whether it's your customers or whether it's your suppliers, the growth rates are pretty astronomical. I mean, they're 30%, 40%, 50%. I think the Lumentum numbers they laid out today was like an 80% CAGR over the next three months and a 60% over the next year and a half. So crazy numbers. But they're all considerably higher, I guess, than your guys' growth rate. And so when I think about the dynamics within the space, like, is there a reason or is there some underpinning that would suggest that the supply chain should be necessarily growing faster than you guys? And I guess an ancillary question to that is that, you know, a number of these customers of yours are also seeing margin benefits as they mix shift from, you know, sort of traditional maybe transceivers to more complex systems. Do you guys see a similar margin boost or margin shift or is there a mixed dynamic that may benefit your gross margins?

Seamus Grady, CEO

So the growth, I mean, we only guide one quarter at a time. So I think some of the companies you mentioned are giving multi-year guidance. We just don't. We guide one quarter at a time. There's times when I wish we were giving multi-year guidance, but we don't. So, you know, that's all I would really say on that. But there's no reason to say. Typically, we target, we task ourselves internally. We want to grow at 2x the rate of growth of the customers of the industries we serve and 3x the rate of growth of the contract manufacturing competitors. Historically, we've been fairly consistently able to do that. Over a 10-year period, our compound annual growth rate was 16% over the last 10 years. In the last fiscal year, fiscal year 25, we grew 19%. Last quarter, we grew 36%. This quarter, at the midpoint of the guidance, we'd be growing 35%. So our growth is on track, I would say, with the customers we're serving, maybe a little bit ahead in some cases. But like I say, we don't give multi-year guidance, but we're looking forward to a very exciting couple of years, that's for sure. In terms of margin expansion, I think the thing that can move the needle in terms of margin expansion is the product mix and also the vertical integration, the depth of what we're doing. As we do more packaging for our customers, it can help the margin. But I would say it would nudge it up rather than kind of wholesale step function increases in margin. Typically, as a contract manufacturer, we don't get to, you know, I know for some of our customers, you know, if demand is strong, they tend to push prices up. We can't do that. That's one way to make sure you upset the customer. So we tend to do the opposite. As the business grows with the customer, we'll reward them with, you know, because if we get efficiency gains, we're able to improve our pricing, actually. So even though our margins are improving, we're actually improving our pricing because of efficiency gains that we're happy to share with the customer, pass on some, maybe keep a little bit. So it's always a balancing act. Of course, when we meet with investors, they want higher margins. When we meet with customers, they want lower margins. So we have to – they don't want lower margins, but they want lower prices. So we have to kind of meet in the middle somewhere.

Tim Long, Analyst — Barclays

Sean, did you have a look?

Sean Lim, Analyst — ThruLine Capital

Hi, I'm Sean Lim from Thulein. Thanks for doing this. Two related questions, both relating to the telco segment, but on the DCI piece, saw a bit of a decal this quarter, I think 30 to 5 million, quarter and quarter. Just curious how you think about the outlook there over the next, throughout the rest of the year, as it relates to wrapping WaveLogic with Sienna, maybe winning the Nokia business as they move into DCI as well. and then on the flip side on the non DCI piece a bit of a sharp excel there any

Seamus Grady, CEO

thoughts on the outlook there yeah they're both really strong for us actually the DCI like I say the kind of the the pause in the in the great growth we had was really just as we go through a couple of product transitions as a couple of customers at the same time transitioning to to 800 ZR but you know now that that's done we should see that start to grow again so zr has really has been really strong for us then our non dci telecom business again has been growing very nicely the the sienna business is ramping we're very in the very early stages of that and we have the majority share of that business in a business that historically we didn't participate at all so it's completely new business for us it's going very well um you know i i met with uh with gary smith last week and uh you know he had a lot of very positive things to say about their experience so far in working with us. So that's the most important thing in our business is make sure we execute well, keep the customer happy, and thankfully we're doing a very good job there. Sienna is just an excellent company to do business with. Very demanding, and we do a lot for them. We do a lot more than just product assembly for Sienna, so we're pretty excited about that. And then, of course, our Cisco business continues to grow nicely. And our, let's say, telecom component business, whether it's rotums or tunable lasers, that's also quite strong. So lots of very strong growth drivers in telecom for us.

Speaker 23

Hey, Hanson here, also from ThruLine Capital. I guess there's a lot of excitement at this conference about this OCS opportunity. Lumentum and Coherent have both been talking extensively about that in their sessions. I guess like from FabriNet standpoint, how do you think about the potential outsourcing opportunities, particularly from Lumentum? I know their management team has been talking about increasingly looking to outsource as their capacity is getting constrained internally.

Seamus Grady, CEO

Yeah, we think we could really help them because if you look at how the product works, there's a lot of similarity between the Lamentum OCS product and what we do for them on the RODM side of their business. Very similar technologies, actually. So we think we could do a good job for them there. We'll be working with them to see if we can convince them. If you're talking to Michael, tell him we're an excellent supplier. But, yeah, I think our relationship with Lamentum is really excellent right now. You know, historically they had been bringing business back in-house. You know, I would say I don't think they're doing that anymore. We've certainly seen our business with them grow over the last while, and we think there's a lot of potential there. But, you know, we would love to be a supplier to Lamentum on the OCS side of the business, again, as a contract manufacturer, producing whatever we can for them. So we'd be very happy to do that for them.

Tim Long, Analyst — Barclays

Speaking of Lamentum and Coherent, we get the question, what does the NVIDIA direct investments mean for a company like Fabinet? I'm just curious what you think about what that means. Obviously, it's showing the importance in locking supply and everything else, but what does the Fabinet take from your view?

Seamus Grady, CEO

We think it's great. You know, if you look at what Lamentum and Coherent will be doing for NVIDIA, we think it's a really, really good demonstration of NVIDIA's commitment to the technology and to the supply base. Lamentum and Coherent are both customers of Fabronet, so, you know, we're hoping we can benefit maybe indirectly from that investment. i think it's i think it's a good thing because if you if you look at the demand from the end customer nvidia it's very very strong and i think for companies like lamenting and coherent it really is a really good way for them to kind of underwrite that investment that if they you know if they make those huge capital investments and something happens that it doesn't pan out whether they're not they're not left holding the you know holding the bag so uh we think it's very good we think it's a really good indication for the industry and we're hoping we

Speaker 16

can we can benefit from it on the HPC opportunity understandably we're going to wrap to run get to our run rate in the next couple of quarters here I think just shot 200 million as I think about the future what does that look like thereafter does it just plateau at that kind of sub 200 million level and I guess a part two of that if we hear other announcements of you winning of these type of opportunities with hyperscalers do you think that it would likely be in a kind of a same vein of ramp and size as we think about those opportunities going forward so just a two-parter on HPC yeah I think the

Seamus Grady, CEO

initial business we have with AWS we think it's a lot of potential and again just be clear the piece that's kind of in scope for us is the contract manufacturing business not the ODM business they use a few ODM's as well where the ODM owns the design that's not something we're we're pursuing we have no interest in that business but the contract manufacturing business is very much in scope for us. So, you know, it looks to have a lot of potential, and I guess the only way we'll find out ultimately how much potential is by executing and continuing to gain share. But we certainly think it's off the order of what you talk about, but it could be bigger, you know. And then similarly with the other hyperscalers, you know, some of these programs are just huge, you know. So it's not everyone who can produce these type products they are complex difficult products and they have sufficient scale that you know we're able to automate them so we can produce them in a very very cost effective way so a lot of potential there a lot of potential there both with aws and with with the others and we're pretty

Tim Long, Analyst — Barclays

excited about it um i had another sorry it wasn't on gyro's list so i hope i still have to still ask you um there's been a lot of um you know your your ems competitors just a lot of full rack discussions right whether it's you know ever since nvidia did the full rack and everyone wants to do a full rack so just talk a little bit about your view on that theme do you need to participate in that or are you better off with the select you know sub components that you guys are very good at or do you think if everyone in the industry is focusing on doing a full rack is that something

Seamus Grady, CEO

that you need to evolve to over time um we're we're fine either way i think you know producing a full rack as long as we're producing a lot of the content yeah that would be interesting for us but just producing a rack with content that's produced by other suppliers that's not interesting for us because that's business that's you know it would be below our corporate average gross margin so it would be diluted for us if we just did right you know full rack assembly where we we don't have the content so that's that's what we're focused on is making sure we have the content and then working our way up it's more difficult more difficult to do it that way but it's a much more sustainable business long term so yeah that that full kind of rack scale business it's it's interesting for us but especially when we have the content sorry it's probably

Speaker 16

the last one for me the I just want to talk about the Pinehurst by the shame sorry you're losing your office apparently there I think I have a new

Seamus Grady, CEO

one though I just found out today I have a new one so I'm going there on

Speaker 16

Saturday so I guess I'll find out excellent that so just remind me I think it's 125,000 square foot that's getting repurposed for yes for revenue generating manufacturing that's coming online or at least being retrofitted by the end of June and under before or before okay so 125,000 feet at 1,700 a foot it's north of 200 million of potential revenue opportunity and I guess between the September, December quarter, how does that get filled? Just so I can think about the model. I know it doesn't come right away, but does it get 100% filled by the end of calendar year 26? Any way for us to think about that would be great, thanks.

Seamus Grady, CEO

I guess we'll talk about that on the next yearning's call. Or the book. Yeah, I mean the capacity of the June, The June, let's say, addition, that's in Chamboree, yeah, sorry. Yeah, the Chamboree, the 250,000 square feet in Chamboree, that's about 350 million of capacity we'll be adding there. And the Pinehurst is a couple hundred million, about 200 million. So we're keeping ahead of the need all the time. You know, and it's really important for the customers that they know they can rely on us because it's, you know, there's a lot of suppliers out there, everybody wants business, but you have to be able to execute and you have to have the capacity. You have to have the capacity in the right place, which we're very fortunate that we seem to have.

Speaker 16

Actually, how business will be?

Seamus Grady, CEO

Yeah, I mean, no, it'll take a while. It'll take a while. We wouldn't want to put a timeline on it.

Speaker 7

We've talked a lot about getting ahead on capacity of your customers. If I think about capability investments that you're making, you've talked about packaging, you've talked about APS. I guess, what are the most important capability investments that you're making right now to stay ahead of your customers for, I'm sure they're talking to you one, two, three years from now?

Seamus Grady, CEO

Yeah, so we're in a very fortunate position that the customers are typically talking with us two or three years before the products launch. So you hear about products today, but the products you're hearing about at OFC today we've been working on them for a couple of years usually so we keep ahead of the customers needs in terms of not just capacity but your exactly right capability and we're always adding process capabilities we generally don't go into too much detail publicly about it because we don't want to signal to our competitors exactly what we're doing so our answer is usually a little bit of this and a little bit of that but the process capabilities that we you know that we need to support the customers we're we're very tuned into what the customers need and we're always way ahead of them in terms of the the capabilities are adding and sometimes we have to you know develop the capabilities in-house sometimes we'll partner with someone or sometimes we might we might you know acquire capabilities but the products of the future you know we're very very focused on winning the next generation products all the time that's the the lifeblood of our business is you know we're always focused on winning the next generation products that we won't be producing for maybe two or three years but we're working very hard on those today then the business is always set up well for the future but yeah capabilities are equally as important without going into too much detail of specifically what they are they're mostly in the column in the packaging space again rack scale assembly is not to make little of it but it's it's not as complex as what we do at the at the wafer level and at the dial level that That packaging is difficult, but we like to invest in that because it sets us up really well for the future kind of time expansion.

Speaker 7

And if I can ask one about a different category, about the hyperscaler direct opportunities. One precondition to that is that the customer has the design capabilities to develop their own IP, develop their own design.

Seamus Grady, CEO

The precondition is that we don't own the IP. Whether the customer has the capability themselves or they hire someone to do it or they're partnered with someone to do it, as long as we don't own the IP, that's the main thing from our point of view.

Speaker 7

Do you sense that the other hyperscalers have those capabilities in-house and already working on it? It's just a matter of time before they're getting there?

Seamus Grady, CEO

I think they all have the capabilities to know exactly what they need and to be able to be very specific about what their transceiver needs are in terms of functional specification, form fit function, power consumption, all that stuff. But designing the transceivers, it's a pretty unique skill set that it's difficult to have. But they're all very good at, they know exactly what they need, and some are maybe further along than others. But, yeah, we have a fairly good sense of what they need in terms of volume and also kind of capabilities, and it's very exciting. I mean, if they were to, you know, if the hyperscalers were to get together and just decide to outsource even 10, 15 percent of their volume to their own design, it would be a huge opportunity for us. So that's why we're pursuing it.

Garo Timajanian, Head of Investor Relations

We've got time for one more. Anybody has another question? All right. Thank you all. Thank you very much. We appreciate your questions and appreciate you joining us today. Thank you.

George Notter, Analyst — Wolfe Research

Thanks so much.