Fabrinet(US:FN)2024-02-06 01:59Financial Data and Key Metrics Changes - The company reported record revenue of $712.7 million for the second quarter, up 7% year-over-year and 4% sequentially [102][125] - Non-GAAP earnings per share reached $2.08, exceeding guidance and marking a new quarterly record [102][130] - Operating margins improved to 10.7%, a 20 basis point increase from the first quarter [104][130] Business Line Data and Key Metrics Changes - Datacom revenue was $288.1 million, surpassing telecom revenue for the first time, driven by AI optical interconnect products [128] - Telecom revenue was $279.8 million, a 4% sequential decline due to inventory absorption, but expected to stabilize in the third quarter [103][100] - Non-optical communications revenue decreased 5% sequentially to $144.8 million, primarily due to automotive inventory absorption [129] Market Data and Key Metrics Changes - Products rated 400-gig and faster grew 118% year-over-year and 18% from the first quarter, representing two-thirds of total optical communications revenue [128] - The company anticipates continued growth in datacom revenue, primarily driven by AI applications, while telecom is expected to show modest sequential growth [126][131] Company Strategy and Development Direction - The company is focused on expanding its capacity to meet strong demand for optical interconnects, particularly in AI applications [136] - There is a strategic shift towards datacom being larger than telecom, driven by AI growth and cloudification trends [154] - The company is optimistic about its pipeline for high-speed optical programs, particularly in the 400-gig and above segment [11][128] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's ability to deliver strong results in the third quarter, despite some moderation in datacom growth [9][126] - The company is navigating inventory absorption in the telecom sector but expects this to stabilize, allowing for slight revenue growth [100][131] - Management highlighted the early stages of the AI market and its potential for long-term growth, emphasizing the need for optical interconnects [43][146] Other Important Information - The company repurchased approximately 38,000 shares at an average price of $166.61, with $93.6 million remaining in the share repurchase authorization [8] - The effective GAAP tax rate was 5.2%, consistent with expectations for the fiscal year [130] Q&A Session Summary Question: What is the outlook for the telecom business in the third quarter? - Management indicated that telecom revenue is expected to show modest sequential growth, driven by stabilization of inventory issues and demand for data center interconnect products [131] Question: How is the company addressing capacity constraints in AI production? - Management confirmed that they are not constrained by demand and are actively adding capacity to meet the needs of AI programs [143] Question: Can you provide insights on the impact of the Intel business transfer? - The transfer of the Intel business is expected to impact revenue in the third quarter, but management is confident in the overall growth trajectory [91][160]