Earnings Call Transcript - FN Q4 2025

Operator, Operator

Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the Fourth Quarter of Fiscal Year 2025. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Garo Toomajanian, VP of Investor Relations.

Garo Toomajanian, VP of Investor Relations

Thank you, operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the fourth quarter of fiscal year 2025, which ended June 27, 2025. With me on the call today are Seamus Grady, Chief Executive Officer; and Csaba Sverha, Chief Financial Officer. This call is being webcast, and a replay will be available on the Investors section of our website located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the Investors section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation as well as additional details of our revenue breakdown. In addition, today's discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular, the section captioned Risk Factors in our Form 10-Q filed on May 6, 2025. We will begin the call with remarks from Seamus and Csaba, followed by time for questions. I would now like to turn the call over to Fabrinet's CEO, Seamus Grady. Seamus?

Seamus Grady, CEO

Thank you, Garo. Good afternoon, and thanks to those joining our call today. We had an excellent fourth quarter, ending an outstanding year with tremendous momentum. Fourth quarter revenue was $910 million, which was above our guidance range and up more than 20% from a year ago and 4% from Q3. With margins that were a little better than expected, we also achieved record non-GAAP earnings of $2.65 per share. For the full year fiscal 2025, revenue reached a record $3.4 billion, representing a robust 19% increase over the prior year. Non-GAAP EPS also hit an all-time high at $10.17. Looking back, fiscal year 2025 was an exceptional year of execution and growth for Fabrinet. We navigated a significant product transition at a major datacom customer, while our telecom business and overall revenue reached record highs. We established a significant partnership with Amazon Web Services, which we anticipate will be a meaningful revenue driver in fiscal year 2026. Construction began on Building 10, which will add 2 million square feet of capacity to our overall footprint. We also marked the 15th anniversary of our IPO by ringing the opening bell at the New York Stock Exchange. Additionally, we returned $126 million to shareholders through our buyback program with continued repurchases expected in fiscal 2026. We begin fiscal 2026 with strong broad-based momentum. Robust customer demand across our business leaves us better positioned than ever to capitalize on the many significant opportunities ahead of us. In fact, with multiple growth drivers providing clear visibility toward reaching $1 billion in quarterly revenue, we are now evaluating options to accelerate the completion of a portion of Building 10 to meet increasing customer demand. Looking more closely at our fourth quarter results, Optical communications revenue delivered strong growth. Telecom revenue increased 46% from a year ago and 1% from Q3, with system programs and demand for data center interconnect products driving the bulk of our growth. In fact, DCI revenue represented one-fourth of our total telecom revenue and grew 45% from a year ago. We expect our telecom momentum to continue into Q1, especially as we begin to ramp volume production of a next-generation system program for a major customer. As anticipated, datacom revenue was down from a year ago, but increased double digits sequentially as we enter a meaningful growth phase for 1.6T products. With demand still increasing, we are very optimistic about datacom growth trends for fiscal 2026. In the near term, this surge in demand has created some temporary component supply challenges, which we are working closely with a major customer to overcome. Within non-optical communications, automotive performed better than expected for the quarter with only a slight sequential decline, while industrial laser revenue remained stable. Looking ahead, multiple simultaneous growth drivers give us strong optimism for fiscal 2026. These include the launch of a new telecom system, continued growth in DCI, increasing demand for 1.6T transceivers, and the ramp of our prominent high-performance compute program. We remain confident in our ability to maintain excellent execution while continuing to grow both revenue and earnings. In summary, we are pleased with our outstanding performance in Q4 and throughout fiscal 2025. More importantly, we enter fiscal 2026 in a very strong position, reinforcing our optimism for the future as we further solidify our leadership position in the marketplace. We look forward to carrying this momentum into a strong Q1. I'll now turn the call over to Csaba for more financial details on our fourth quarter results and our outlook for the first quarter of fiscal 2026. Csaba?

Csaba Sverha, CFO

Thank you, Seamus, and good afternoon, everyone. We had a very strong fourth quarter, achieving new quarterly records for both revenue and non-GAAP net income. Revenue in the fourth quarter was $910 million, above our guidance range and an increase of 21% from a year ago and 4% from Q3. Non-GAAP EPS was $2.65, a new quarterly record. This result includes the impact of a $4 million or $0.10 per share FX revaluation loss. Looking at revenue performance by category, in the fourth quarter, Optical communications revenue was $689 million, up 15% from a year ago and 5% from Q3. Within Optical communications, telecom revenue reached a robust $412 million, up 46% from a year ago and 1% from Q3. This performance reflects growing demand driven primarily by continued strength in data center interconnect products. For the first time, we are reporting DCI revenue, which reached $107 million in the fourth quarter, representing 12% of overall revenue. To provide investors better insight into this important growth area, we have included historical DCI revenue data in the investor presentation available on our website. Datacom revenue of $277 million was down 12% from a year ago, but swung to a strong growth of 10% sequentially, driven by very strong demand for new higher data rate products. In Optical communications, revenue from 800-gig and faster products was $313 million, up 21% year-over-year and 32% sequentially, driven primarily by the ramp of new 1.6T datacom products. Importantly, we have now begun volume shipments of 1.6T transceivers, a major milestone, and expect demand trends to continue ramping in fiscal 2026. In contrast, revenue from products below 800 gig was $233 million, up 4% from a year ago, but down 18% from Q3, reflecting the industry's transition to next-generation products. Revenue from Optical communications products that are non-speed rated was $143 million, up 4% from Q3. We expect strong revenue momentum from 800-gig and faster products to continue, while revenue from lower speed products is expected to decline gradually as the industry transitions towards higher data rates. As a result, beginning next quarter, we will no longer report revenue by data rate. Similarly, starting in Q1, we will discontinue the breakout of silicon photonics revenue as the vast majority of it is now captured under DCI. Non-optical communications revenue was $221 million, representing a healthy 41% increase year-over-year and a 3% sequential gain. Automotive revenue came in better than expected at $128 million, experiencing a modest quarterly decline following several quarters of rapid growth. Industrial laser revenue was stable at $40 million. Other revenue was $53 million, up 38% year-over-year and 20% from Q3, with the sequential increase primarily reflecting the absence of a noncash contra revenue item recorded in Q3. As I discuss the details of our P&L, expense and profitability metrics will be on a non-GAAP basis, unless otherwise noted. Gross margin in the fourth quarter was better than anticipated at 12.5%, with operational efficiencies offsetting a smaller-than-expected impact from large project ramps. Operating expenses remained below 2% of revenue, resulting in record operating income of $97 million or an operating margin of 10.7%, a 50 basis point improvement from Q3. Interest income was $8 million in Q4. As I mentioned, we also incurred a foreign exchange evaluation loss of $4 million. Effective GAAP tax rate was 6.5%. Non-GAAP net income was $96 million or $2.65 per diluted share. For the full fiscal year, revenue was a record $3.4 billion, up 19% from fiscal 2024. Non-GAAP EPS was $10.17 for the year, which includes the impact of an $0.11 headwind from noncash contra revenue and a $0.26 impact from FX revaluation losses. Looking at customer concentration, in fiscal 2025, we had 2 customers who represented more than 10% of our total revenue, with NVIDIA at 28% and Cisco at 18% of revenue. Our top 10 customers made up 86% of total revenue for the year, consistent with last year. Turning to our balance sheet highlights, we ended the year with cash and short-term investments of $934 million, down $16 million from the end of Q3. Operating cash flow in the quarter was $55 million. Capital expenditures rose to $50 million, primarily driven by Building 10 construction costs and investments to support new program ramps, resulting in fourth quarter free cash flow of $5 million. As Seamus mentioned, we are actively evaluating options to accelerate the construction of Building 10 in response to growing customer demand. If we move forward, quarterly capital expenditures could temporarily increase from current levels. With our very strong balance sheet, we believe we have ample cash to support our top capital allocation priorities, which are: first, investing in our future growth; and second, returning value to shareholders through our buyback programs. In the fourth quarter, we remained active in our share repurchase program. We repurchased 108,000 shares at an average price of $206 per share for a total cash outlay of $22 billion. For fiscal year 2025, we repurchased $126 million worth of Fabrinet shares, which is the most we have ever spent on repurchases in a single fiscal year. We entered fiscal 2026 with $174 million available for repurchases. Now turning to our guidance for the first quarter of fiscal year 2026. We remain very well positioned to extend our track record of excellent growth and execution. In telecom, we expect our very strong revenue growth trends to extend into the first fiscal quarter, driven particularly by ramping system programs. In datacom, we are excited to see growing demand, especially for next-generation products. However, the surging demand has resulted in near-term supply constraints for some critical components. And as a result, we expect to see a sequential dip in datacom revenue in Q1. We are working with our customers and suppliers to resolve these supply issues, which we expect to be temporary. In non-optical communications, we anticipate strong growth driven primarily by a new high-performance computing program. Since this new revenue stream does not align with our current disclosure categories, beginning in Q1, we will be introducing a new revenue category called HPC. In automotive, we expect the near-term softness experienced in Q4 to continue into Q1, but we remain optimistic about a return to more normalized growth trends. Industrial laser revenue should be relatively flat. Taking all of this together, we anticipate healthy year-over-year and sequential growth in the first quarter, with total revenue in the range of $910 million to $950 million. From a profitability perspective, please keep in mind that our annual merit increases take effect in Q1, creating seasonal margin pressure of about 10 to 20 basis points that we typically recover through efficiency gains over the course of the year. In addition, Q1 margins will be impacted by temporary inefficiencies from new product ramps, which are expected to subside as these programs advance through their early production stages. With that in mind, we remain optimistic that we can achieve gross margins within our mid-5% target range while continuing to generate operating leverage that supports steady improvement in operating margins over time. We expect earnings per diluted share to be between $2.75 and $2.90. In summary, this is an exciting time at Fabrinet. We delivered a very strong fourth quarter and an outstanding fiscal year. With multiple new programs fueling our long-term growth trajectory and our strong competitive position, we are highly optimistic about Q1 and the new fiscal year ahead.

Operator, Operator

Our first question comes from Karl Ackerman of BNP Paribas.

Karl Ackerman, Analyst

Congrats on the quarter. I have a clarification question and a follow-up, if I may. The clarification question is the dip in datacom revenue that you expect in September, does that exclude or include contributions from the new HPC segment?

Seamus Grady, CEO

Karl, thanks for the question. So the new HPC program is not in our datacom number in Q1. It will be in a new category that we'll report in the quarter called HPC or high-performance compute. So HPC will not be in datacom. It will be in its own category. In Q4, it was in other as it just got off the ground, but in Q1, it will be in its own category.

Karl Ackerman, Analyst

Got it. So Seamus, you suggested in the past that hyperscalers are interested and certainly have the opportunity to perhaps have an EMS partner manufacture transceivers. I know you've been shifting manufacturing capacity away from 800 gig toward 1.6T. So should we assume that any future hyperscaler transceiver opportunities would be on 1.6 terabit port speeds? Or do you still see a very long runway of growth on 800 gig?

Seamus Grady, CEO

No, I think what it depends on really whether we're talking about our main customer or the market generally. For our main customer, it will be predominantly 1.6T. But for the datacom customers, generally, it will be both 800 and 1.6. We don't see much going on below 800 gig. For the datacom opportunities, if you like, in total that we're pursuing, we usually work with our customers on the current plus the next two generations of products. And so in addition to our leading datacom customer, we have other long-standing datacom customers that we're working with who are designing their own products for 800 gig, 1.6 and also CPO products. We're also pursuing engagements with a number of merchant transceiver suppliers as well as, as you mentioned, hyperscale direct. So we have four distinct growth vectors in the datacom space: our largest datacom customer, other datacom customers who are designing their own products, merchant transceiver manufacturers, and hyperscalers direct. And we're actively pursuing all four of those growth vectors.

Operator, Operator

Our next question comes from the line of Tim Savageaux of Northland Capital Markets.

Timothy Paul Savageaux, Analyst

Congratulations on the results. I have a question that might be at a higher level. Last quarter, Seamus, you mentioned the potential for accelerated growth in fiscal '26 following a strong '25, which grew 19%. Now that we’re three months later, do you still believe that to be the case? Have the component issues changed that outlook? I would love to hear your thoughts on your previous statement.

Seamus Grady, CEO

Yes. I think we enter fiscal year 26 very optimistic about the year ahead. As you say, we had an excellent FY 25. We grew 19%. And we grew 19% in a year where our largest customer, our business with our largest customer was down on a dollar-for-dollar basis. So we feel, I would say, very optimistic, Tim, about the year ahead. We guide one quarter at a time, so we're not going to give full year guidance, but I think our cause for optimism remains. The datacom business is coming back and the demand is outstripping supply right now. That's a temporary issue, but we have very strong demand for 1.6 terabit products right now. We have a number of other datacom products in the works, as I just mentioned. The strong telecom trends continue driven primarily by DCI. And we have a number of new customer wins, of course, that we've talked about previously. But overall, I think we entered the year with a very positive outlook for the year ahead.

Timothy Paul Savageaux, Analyst

Got it. It seems clear from your comments about possibly accelerating the Building 10 capacity expansion that you're working on your communication strategy. Have you made any decisions regarding this? Are you close to taking action, and how are you evaluating options moving forward in terms of time frame?

Seamus Grady, CEO

Yes. So the decision to pull Building 10 in to get a portion of the building completed maybe one or two quarters ahead of the original schedule. We're really communicating that because it will impact our CapEx. Obviously, we'll have to spend a little bit more to pull in completion of a portion of the building. It's a combination of a few things. It's a combination of the business opportunities that we just talked about that we're addressing right now in telecom, datacom and high-performance compute, as well as some other potential new opportunities. We really want to be able to occupy some of the space in Building 10 before the total building is completed. So meanwhile, we have flexibility. We can accommodate all the demand that we're seeing, but we do want to be able to occupy a few hundred thousand square feet of Building 10, probably three to six months ahead of originally contemplated.

Timothy Paul Savageaux, Analyst

Great. And last one for me. I wonder if you can talk about whether your new telecom systems win contributed in a material way in Q4?

Seamus Grady, CEO

It contributed. We're really just getting started, and we've always mentioned that it will ramp up in FY 26. As we progress through the year, we're beginning to see that program ramp up. We're pleased with how it's going and with the relationship, and I think the customer is satisfied as well. However, the majority of that ramp is still ahead of us.

Operator, Operator

Our next question comes from the line of Samik Chatterjee of JPMorgan.

Joseph Lima Cardoso, Analyst

This is Joe Cardoso on for Samik. Maybe for my first one, in a similar vein to the prior question on kind of the growth prospects for the company heading into next year, just given these multiple customer ramps across various and different products, some of them being kind of newer to the portfolio, anything we should keep in mind relative to kind of the gross margin and OpEx trends going forward? Anything one-off or different from what we're used to in terms of the historical profile for Fabrinet? Just trying to be mindful that there's a lot of irons in the fire here. And so if there's anything that we should be considering? And then I have a follow-up.

Csaba Sverha, CFO

Joe, this is Csaba. Let me take that question. With regard to profitability, obviously, our aim is to maintain our gross margin target range in the mid-12%. So obviously, as you would anticipate, some of these large new programs would put some temporary pressure on the gross margins. However, we do anticipate that these headwinds to be temporary and subside over time. We did call out a small headwind in our Q1 guide because that's a seasonal quarter for us with merit increases as well as these program ramps are coming through. However, we don't anticipate any structural changes in our portfolio or margin profile. So our aim is to maintain our existing gross margin range.

Joseph Lima Cardoso, Analyst

And then just on the OpEx side. And then I have a follow-up.

Csaba Sverha, CFO

We have been very careful about our spending on operating expenses and are cautious about adding costs, and we will continue to exercise that discipline. Our track record shows that we have managed to achieve operating leverage year-over-year, and we plan to maintain that trend. We do not expect to add any significant operating expenses aside from the usual merit increases over the year, which should continue to support operating leverage as our revenue grows.

Joseph Lima Cardoso, Analyst

Very clear. And then maybe just as my follow-up, 800-gig trends. You mentioned 1.6 being the primary driver of growth sequentially. But curious how much of a gating factor was the supply constraints that you highlighted? And as you think about the ramp going forward, any color on how you're thinking about the magnitude of the impact from these bottlenecks and when we potentially could see them easing? And then maybe just quickly, like any color on whether that's what components those are lasers, DSPs, anything else that you guys are seeing that's kind of the concentration of the supply constraints?

Seamus Grady, CEO

Yes. We are experiencing some constraints due to a few specific components. Recently, there has been a surge in demand for 1.6T transceivers, especially for 200-gig per lane EML-based products. The supply issues we are facing are limited to a small number of components, primarily related to one or two specific products for a particular customer. Because of these constraints, we expect a decline in datacom revenue, as mentioned in our prepared remarks, but we believe this will be a temporary situation. We are actively working with our customer and suppliers to address these constraints to meet the strong demand we are seeing, which we believe will resolve in one or two quarters. While the demand currently exceeds supply, it's typical for cutting-edge products to encounter temporary supply issues during significant demand spikes, and we are committed to overcoming these challenges.

Operator, Operator

Our next question comes from the line of Steven Fox of Fox Advisors.

Steven Bryant Fox, Analyst

I'm still a bit unclear about the gross margins. Could we take a moment to discuss the fiscal fourth quarter margins? You performed better than expected in terms of efficiencies, but I assume there were some product ramps happening. It seems like you avoided component shortages during the quarter and weren't ramping up Building 10 as quickly as anticipated. If you could clarify that—why you didn't encounter some of these challenges and how else you achieved efficiencies in Q4 aside from higher sales? I also have a follow-up question.

Csaba Sverha, CFO

Let me clarify. First, the expenses related to Building 10 are not included in our numbers. Building 10 is a future event, and we don’t anticipate any gross margin challenges from it at this time. Secondly, as these programs ramp up, there are some inherent inefficiencies accounted for in our outlook. However, our existing business continues to perform well, leading to strong execution. This strong performance contributed to a better-than-expected gross margin in Q4. We do expect that the ramp-up of these products will create some pressure on our near-term gross margin, so for Q1, we anticipate a slight headwind. Nonetheless, Q4 was strong and not particularly influenced by Building 10; it resulted from the solid execution of our legacy business and the initiation of new programs.

Seamus Grady, CEO

Just if I can just add maybe to Csaba's comments there, Steven. The ramp costs that we had assumed going into the quarter, we came in a little bit better than we had planned. But we have a few quarters, I think, now of fairly strong ramps going on simultaneously. So we are going to have to carry these ramp costs when we start new programs. Some of these big programs take a little bit of time to get ramped up to full efficiency. So we do carry some start-up costs or NPI costs when we start these programs. And then in Q4, we just did a little bit better on efficiencies. Our operations team did an excellent job to execute to make sure that we came in a little bit better than anticipated in Q4.

Steven Bryant Fox, Analyst

And just one other minor detail on all that, and that's very helpful is that you didn't experience any component constraints to speak of in Q4. Is that correct?

Seamus Grady, CEO

Not any huge constraints. I mean we have, again, as we called out there, a couple of constraints going into Q1. There was some in Q4, but the big hit really is in Q1. We were able to get what we needed in Q4, but we are constrained in Q1, yes.

Csaba Sverha, CFO

Typically, we don't experience margin impacts from component shortages. We can always adjust our capacity to ensure that component constraints do not create immediate issues. Fortunately, we have good visibility on supply, allowing us to make the necessary adjustments. Therefore, we have no concerns about any headwinds from component constraints affecting our gross margins.

Steven Bryant Fox, Analyst

Great. As a follow-up, can you provide more details on the data center interconnect business? I recall you mentioning some new customers for the upcoming fiscal year. I understand that you only provide guidance on a quarterly basis, but could you share any insights about the momentum? You experienced a 45% year-over-year increase in the quarter. Is there a way to consider how that momentum might continue in the new fiscal year? Any additional information you could share would be appreciated.

Seamus Grady, CEO

Certainly. I’ll have Csaba provide some additional details on this. Overall, our DCI business has been performing very well. We have onboarded several new customers who are all starting to ramp up, and we are managing to meet the rising demand. This demand is strong, stable, and appears to be lasting, with a continuous increase over time. As large data center clusters are deployed and substantial AI workloads are distributed among data centers, the need for DCI is growing. We anticipate that DCI demand will remain robust for the foreseeable future.

Csaba Sverha, CFO

And some clarification there, Steve, as well. So DCI is a distinct category, as you called out, we wanted to give that additional color to the investors. So it's part of our telecom business, but we wanted to call out as it's a significant growth driver as we look ahead. So there is one more thing that's going on in DCI, obviously, bulk of that growth came in the fiscal year from 400 ZRs. We started to see the transition to 800 ZR as well, but it's not at the expense of 400 at this stage. So there is that growth driver going on there. And to clarify your question about the new programs, we did not talk about particular DCI programs as a new category going forward. So DCI, we have already captured the customers that we have been shipping, and we anticipate the growth to come from those customers. So the new system wins will be in the telecom space, not the DCI, and the HPC is going to be a distinct new segment from DCI.

Operator, Operator

Our next question comes from the line of George Notter of Wolfe Research.

George Charles Notter, Analyst

Can you just remind us the triggers on vesting of the Amazon warrants and recognition of contra revenue? I know that it was $4 million last quarter; I think none here in the June quarter. Can I assume that you did not generate revenue with Amazon this quarter? Is that the right read-through?

Csaba Sverha, CFO

George, the first vesting occurred before the contract was signed. Once we signed the contract, we vested 10% in Q3, which was one of the vesting conditions. The remaining shares will vest based on revenue and over time. The reason you didn't see anything in Q4 is that there is a revenue shipment threshold that needs to be met. This doesn't imply we haven't shipped anything. Future vesting will depend on revenue and volume shipments throughout the year.

George Charles Notter, Analyst

Got it. We're all curious about how significant the Amazon PCB business could become over time. I understand you're categorizing it separately, but do you see it as a potential opportunity in the hundreds of millions or even billions? How do you perceive the scale of this business?

Seamus Grady, CEO

Yes, as we consider this opportunity, it is indeed significant for us. We believe it could be substantial this fiscal year. While we are not quantifying the overall revenue from this customer or the high-performance computing deal, we expect the business to begin ramping up in the first quarter. We did ship a small amount in the fourth quarter, but the real increase will start in the first quarter, contributing to our strong anticipated sequential growth. However, it's important to note that the first quarter is just the beginning with AWS, and we believe there may be further opportunities. We have one high-performance computing opportunity in focus, but we are striving to create momentum in other areas as well. In the long term, high-performance computing represents a significant new market expansion opportunity for us, which is why we are classifying it as its own category. We will be providing more details on this in our first quarter report, and we will also classify high-performance computing as a distinct category.

George Charles Notter, Analyst

Got it. And just to be clear, the ramp is in your fiscal Q1 or in calendar Q1 of '26?

Seamus Grady, CEO

In fiscal Q1, we have already begun operations. We generated some revenue in Q4, and this is just the initial phase. This is why we mentioned the start-up costs, as starting up doesn’t mean operating at full capacity right away. We need to debug the lines, improve efficiencies, and ensure good yields. The customer will come to qualify the production line before we fully ramp up. That foundational work is mostly complete now, and we are just starting the proper ramp up this quarter, which is fiscal Q1.

Operator, Operator

Our next question comes from the line of Ryan Koontz of Needham & Company.

Ryan Boyer Koontz, Analyst

I ask also about datacom, maybe a different angle here, if we could. I certainly understand the ramp going on for your large customer at 1.6T that's self-evident. You've talked about, I think, 800 remaining strong. And obviously, there are other customers involved in the mix there. But Seamus, how would you characterize your visibility for 800 demand right now as you look at this next fiscal year? I think there's been some investor concern that, that might dry up with your large customer shifting over.

Seamus Grady, CEO

Our visibility is quite good. I mean our main focus is on the next-generation products, the 1.6T, but we have visibility on 800 gig as well. Our visibility is quite good. And like I say, in both areas, it's supply constrained as opposed to demand constrained right now.

Ryan Boyer Koontz, Analyst

Got it. Helpful. And then you guys had some pretty decent auto numbers, auto segment. Any view of how you think that unravels in '26?

Seamus Grady, CEO

I think steady. We think steady. I don't think it's going to have the same kind of growth trajectory as, let's say, high-performance compute or datacom or even telecom. It's probably more steady growth as we gain market share. Again, bear in mind, our automotive business is more on the infrastructure side, the EV charging side of the business. So we're not as exposed to consumer sentiment as maybe other companies who are producing for automotive companies. So we think automotive will be steady, but maybe not grow quite as fast as datacom or telecom or the others.

Ryan Boyer Koontz, Analyst

That's great. And one last one, if I could just sneak it in is around tariffs. Any dialogue with tariffs that you'd be willing to share in terms of how your discussions are going with customers?

Seamus Grady, CEO

Yes. It's an interesting one. For us, we haven't seen any meaningful impact to date from the tariffs. First, bear in mind, our shipping terms with our customers dictate that the receiver or the customer is responsible for the tariffs. So we don't bear the cost of the tariffs. And the products we make both in the optical communication space and the non-optical communication space, those categories are not necessarily shipped directly to the U.S. as they may be shipped to Asia or Europe or elsewhere to another contract manufacturer for higher-level assembly. So in many cases, the products we make, they don't ship directly into the U.S. So thus far, we have not seen any significant impact from tariffs, thankfully.

Operator, Operator

Our next question comes from the line of Mike Genovese of Rosenblatt Securities.

Michael Edward Genovese, Analyst

Seamus, I'm wondering, do you have any of your 800G customers moving to 200G per lane lasers? Or is 800G still a 100G per lane market?

Seamus Grady, CEO

The focus for us is on 200 gig per lane 800-gig products. That's where the bulk of the growth we're seeing is on 200 gig per lane 800-gig products.

Michael Edward Genovese, Analyst

So when you talk about supply constraints, is it in both the current quarter for 800G and 1.6, or is it more in 1.6 than in 800?

Seamus Grady, CEO

It's affecting both. It's both 800 gig and 1.6T, yes.

Michael Edward Genovese, Analyst

So then when we talk about being like sequentially down in the quarter, then that sounds like it could happen at more than one customer. That would be something that would happen at multiple customers because potentially 200G per lane EMLs are in short supply. Is that a right read?

Seamus Grady, CEO

Yes and no. There are several opportunities we are exploring with customers, but they are not generating significant revenue in the current quarter, despite our efforts. The main impact is with our primary customer concerning the 200 gig per lane, which affects both 800 gig and 1.6, although we are also engaging with other customers regarding both 800 gig and 1.6. However, these efforts are not contributing meaningfully to revenue this quarter.

Operator, Operator

Next question is coming from Tim Savageaux of Northland Capital Markets.

Timothy Paul Savageaux, Analyst

I have a couple of quick questions. First, can you provide an estimate on how the component shortages have affected datacom? I assume that without those shortages, the numbers would be higher. Can you give us a figure on that? Additionally, we saw substantial growth in 800 gig and above during the quarter, although datacom didn’t grow as much. It appears there has been a significant increase in telecom at the 800 gig and above level. That’s what I was hoping to clarify with Ciena previously. If my understanding of the numbers is correct, I’m curious about what might be driving that growth. That’s all from me.

Seamus Grady, CEO

Yes. I think the component shortage has had a significant impact on our datacom segment, but we won't provide specific numbers. However, it's substantial enough to mention. We would have seen considerable growth if not for that issue. Regarding the 800 gig and above, it includes both datacom and telecom. We experienced good growth in the datacom sector for the 800 gig and above, along with notable performance from DCI and other products in the telecom 800-gig category. Csaba, do you have anything to add?

Csaba Sverha, CFO

No, I think that's the information we can provide. We are seeing some activity in DCI, but it's below 800 gig TIM. The 400 ZR is performing very well in the DCI segment, which may explain why it's not progressing as quickly as datacom.

Operator, Operator

Thank you. I would now like to turn the conference back to Seamus Grady for closing remarks. Sir?

Seamus Grady, CEO

Thank you for joining our call today. We are very pleased with our strong fourth quarter results, culminating in another record year for the company. As we look to the first quarter and fiscal 2026, we are very excited about the opportunities that lie ahead and believe we are better positioned than ever to extend our strong track record of growth and execution. We look forward to speaking with you in the future and to seeing those of you who will be attending the Wolfe Research Conference in September. Goodbye.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.