Fabrinet(US:FN)2024-05-07 02:44Financial Data and Key Metrics Changes - The company reported record revenue of $731.5 million, up 10% year-over-year and up 3% sequentially, exceeding guidance ranges [25][29] - Non-GAAP net income reached a record of $87.7 million or $2.39 per diluted share, also above guidance [54][57] - Operating income was $78 million, with an operating margin of 10.7%, consistent with the previous quarter [15][25] Business Line Data and Key Metrics Changes - Optical communications revenue was $591.4 million, accounting for 81% of total revenue, an increase of 18% year-over-year and 4% sequentially [11] - Datacom revenue was $305.5 million, representing 52% of optical communications revenue, growing 150% year-over-year and 6% sequentially, driven by high data rate products for AI applications [31] - Telecom revenue was $286 million, down 25% year-over-year but up 2% sequentially, primarily due to data center interconnect growth [12][26] - Non-optical communications revenue was $140.1 million, down 3% from the previous quarter, mainly due to inventory absorption in automotive products [13] Market Data and Key Metrics Changes - The company anticipates datacom revenue to slightly increase sequentially in the fourth quarter, driven by high data rate products for AI [56] - Telecom revenue is expected to decline sequentially in the fourth quarter due to ongoing inventory absorption [37][59] Company Strategy and Development Direction - The company is optimistic about its position in the datacom market, particularly with the demand for 800 gig technology for AI applications [6][8] - The transition to higher data rate products is seen as a key growth driver, with expectations that 1.6 terabit products will complement rather than cannibalize 800 gig products [42][62] - The company is evaluating capacity expansion options, with potential plans for a new building to support future demand [72][73] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering strong results in the fourth quarter, anticipating another record year for revenue and profitability [57] - The telecom sector is expected to face challenges for several quarters due to inventory digestion, with growth not anticipated until early to mid-2025 [59] - The company remains well-positioned to capitalize on demand for optical interconnects in AI data centers, with a strong execution track record [51][64] Other Important Information - The company repurchased approximately 153,000 shares at an average price of $193.76 per share, totaling $29.6 million, with $64.1 million remaining in the share repurchase authorization [17] - Cash and short-term investments were $794 million at the end of the third quarter, up $53.4 million from the previous quarter, driven by strong operating cash flow [36] Q&A Session Summary Question: Follow-up on datacom revenue growth - Management noted that datacom revenue growth was strong despite the rolling off of the 100 gig business, with underlying growth remaining robust [21][61] Question: Discussion on customer design wins for 800 gig and 1.6T - Management confirmed that 800 gig demand remains strong and that they are preparing for the next generation 1.6 terabit products, which are expected to be additive to existing products [44][45] Question: Outlook on telecom revenues and inventory digestion - Management indicated that telecom revenue softness is expected to continue for several quarters, with a return to growth not anticipated until early to mid-2025 [58][59] Question: Capacity planning and expansion - Management discussed ongoing evaluations for capacity expansion, with potential plans for a new building to support increased demand, estimating an 18-month timeline from decision to operational readiness [71][73]