ZACKS·2025-09-11 16:11Core Insights - Fabrinet (FN) and TE Connectivity (TEL) are key players in the electronics and industrial markets, with FN specializing in high-precision optical components and TEL in connectivity and sensor solutions [1][2] - Both companies are positioned to benefit from growth drivers such as artificial intelligence infrastructure, electric vehicles, and industrial automation, making them direct competitors in high-growth connectivity markets [2] Fabrinet (FN) Overview - Fabrinet is recognized for its contract manufacturing of high-end optical communications equipment, serving major clients like NVIDIA and Cisco [3] - In Q4 fiscal 2025, Fabrinet reported revenues of $910 million, a 21% increase year over year, with optical communications contributing $689 million, reflecting a 15% rise [3][4] - The company’s optical packaging capabilities are crucial for AI infrastructure, with data center interconnect revenue growing 45% year over year to $107 million [4] - The Zacks Consensus Estimate for optical communications revenues in Q1 fiscal 2026 is $699.92 million, an 11.8% increase year over year, with earnings projected at $2.83 per share, up 2.2% [4] Risks for Fabrinet (FN) - Fabrinet faces near-term challenges, including component supply constraints and margin pressure from new product launches [5] - The company has a high concentration risk, with NVIDIA accounting for 28% of fiscal 2025 revenues and the top 10 customers making up 86% [5] TE Connectivity (TEL) Overview - TE Connectivity is a diversified technology leader providing connectivity and sensor solutions across various markets, including transportation and industrial sectors [6] - In Q3 fiscal 2025, TEL reported revenues of $4.53 billion, a 14% increase year over year, with margins near 20% in both Transportation and Industrial segments [6][7] - TEL anticipates over $800 million in AI-related revenue for fiscal 2025, more than double the previous year [8] Strengths of TE Connectivity (TEL) - TEL's localized manufacturing, with over 70% of production near customers, mitigates supply chain risks [9] - The company’s strong free cash flow supports shareholder returns and strategic acquisitions, enhancing its competitive position [9] Share Performance and Valuation - Year-to-date, Fabrinet shares have increased by 69.5%, while TE Connectivity shares have appreciated by 47.1% [10] - Fabrinet trades at a higher price-to-sales (P/S) ratio of 3.93 compared to TEL's 3.78, reflecting greater risks associated with customer concentration and cyclical demand [13] Conclusion - Both companies are integral to the electronics ecosystem, with Fabrinet focusing on high-speed optical communications and TEL offering diversified exposure across multiple markets [16] - TEL is recommended as a better investment option due to its diversified market presence and strong cash flow, compared to Fabrinet's concentrated customer base and cyclical risks [16]