Fabrinet (NYSE:FN) reported record results for its second quarter of fiscal 2026, as management said multiple large programs across optical communications and non-optical markets drove revenue and earnings well above guidance. The company’s fiscal second quarter ended Dec. 26, 2025.
Record quarter driven by multiple programs
Chairman and CEO Seamus Grady said the company delivered “an excellent second quarter,” with both revenue and earnings “significantly” exceeding the company’s guidance ranges. Fabrinet posted revenue of $1.13 billion, which Grady said was a new company record and represented 36% year-over-year growth and 16% sequential growth. He called it the fastest year-over-year growth rate the company has achieved since its IPO more than 15 years ago.
Optical communications: telecom strength and improving datacom trends
Fabrinet’s optical communications revenue totaled $833 million, up 29% year-over-year and 11% sequentially. Within that category:
- Telecom revenue reached a record $554 million, up 59% year-over-year and 17% sequentially.
- Datacom revenue was $278 million, down 7% year-over-year but up 2% sequentially.
Management broke out data center interconnect (DCI) module revenue at $142 million, up 42% year-over-year and up 3% sequentially. Grady said longer-term growth trends in DCI remain intact and described the demand outlook as durable, while noting that leading-edge products can create “constraints here and there” as components and designs must align.
In the Q&A, Grady emphasized that Fabrinet’s reported DCI figure includes coherent telecom modules the company has “high confidence” are used in DCI applications—such as 400ZR and 800ZR modules and some embedded coherent line card modules—and does not include telecom systems.
On datacom, Grady said Fabrinet has been supply-constrained on leading-edge 200G-per-lane products (including 800G and 1.6T) as demand outstripped available components. He added that the company’s customer approved a second source for an EML laser during the quarter, which management expects will help in the current quarter and beyond. Grady said the mix between 800G and 1.6T is “not that relevant” to Fabrinet because the products are built on similar lines, but he described demand as “very robust.”
Non-optical: high-performance computing ramps quickly
In non-optical communications, revenue was $300 million, up 61% year-over-year and 30% sequentially. The standout was high-performance computing (HPC), which contributed $86 million in revenue versus $15 million in the prior quarter (the first quarter Fabrinet broke out the category). Sverha said the company expects its first HPC program to continue to grow rapidly and be “fully ramped over the next 2 quarters.”
Grady told analysts the current HPC program is “a little bit about halfway” ramped, with an expectation that revenue will be north of $150 million when fully ramped. He said Fabrinet is currently running on two fully automated production lines and is qualifying additional lines. He also noted the company is a second source on the program, and believes it could earn a larger share by exceeding expectations for cost, quality, and deliveries. Grady added that Fabrinet is pursuing other HPC customers and that its relationship with AWS “is not exclusive,” though he cautioned that timelines can be long.
Elsewhere in non-optical markets, automotive revenue was $117 million, up 12% year-over-year but slightly down sequentially, which management said was anticipated. Industrial laser revenue was $41 million, up 10% year-over-year and 4% sequentially.
Margins, cash flow, and capital allocation
On margins, Sverha reported non-GAAP gross margin of 12.4%, up 10 basis points sequentially and “consistent with a year ago” despite FX pressure. Operating margin was 10.9%, up 30 basis points from both the prior quarter and the year-ago period, which management attributed to operating leverage.
For the quarter, Fabrinet posted interest income of $9 million, partially offset by the $3 million FX revaluation loss. The effective GAAP tax rate was 5.9%. Sverha said net income was $122 million, equal to $3.36 per diluted share.
The company ended the quarter with $961 million in cash and short-term investments, down $7 million from the end of the first quarter. Fabrinet generated $46 million in operating cash flow and spent $52 million in capital expenditures related to Building 10 construction and capacity enhancements at its Pinehurst campus, resulting in free cash flow outflow of $5 million.
During the quarter, Fabrinet repurchased just over 12,000 shares at an average price of $387 for a total of $5 million. The company had $169 million remaining under its repurchase authorization at quarter-end.
Capacity expansion and Q3 outlook
Management highlighted ongoing capacity expansion to support growth. Grady said construction of Building 10, a 2 million square-foot facility, remains on track for completion at the end of calendar 2026, with approximately 250,000 square feet expected to be completed by mid-calendar 2026. In addition, Fabrinet is expanding capacity at its Pinehurst campus by converting office space to manufacturing space and relocating offices to a new building.
In the Q&A, management said Pinehurst conversions are expected to add about 120,000 square feet of manufacturing space, which Sverha said could represent over $150 million of revenue upside opportunity depending on product mix. Grady also said the company had not experienced construction material delays for Building 10 and anticipated taking possession of the balance of the facility in January or February 2027 after staged completion.
For the third quarter, Fabrinet guided for revenue of $1.15 billion to $1.2 billion and non-GAAP EPS of $3.45 to $3.60. Management said it expects sequential revenue growth in telecom, datacom, and HPC, while anticipating another modest sequential decline in automotive. Sverha said FX headwinds are expected to persist, with an anticipated 20-30 basis point gross margin headwind, but the company expects operating leverage to help offset the impact.
During the call, management also discussed emerging opportunities in co-packaged optics (CPO) and optical circuit switches (OCS). Grady said the company is already seeing some CPO revenue, though “relatively small,” and is working on CPO programs with three customers. On OCS, he said Fabrinet is engaged on “a couple of projects,” but added that timing depends on customer ramp schedules.
About Fabrinet (NYSE:FN)
Fabrinet is a global provider of advanced optical packaging and precision optical, electro‐mechanical and electronic manufacturing services (CEM). The company specializes in complex manufacturing processes for original equipment manufacturers (OEMs) in communications, data center, industrial, instrumentation and medical markets. Key capabilities include high‐precision fiber alignment, micro‐assembly, testing and diagnostics, and integration of electro‐optic subassemblies.
Incorporated in 2000, Fabrinet operates under a corporate structure headquartered in Singapore with additional regional offices and design centers in the Americas, Europe and Asia.
