Fabrinet (FN) Q4 2025 Earnings Report, Transcript and Summary

Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the Fourth Quarter of Fiscal Year 2025. [Operator Instructions] 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.

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?

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 1/4 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 ?

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 nonspeed 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 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 lasers 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 program. 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 nonoptical 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, we are now ready to open the call for questions.

[Operator Instructions] Our first question comes from the line of Karl Ackerman of BNP Paribas.

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?

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.

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?

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 2 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 4, if you like, 4 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 4 of those growth vectors.

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

Congrats on the results. Just a higher-level question, perhaps. I think maybe it was the close of last quarter's call, Seamus, you talked about, I guess, the potential for accelerating growth in fiscal '26 off of obviously what was a pretty strong '25, growing 19%. I guess the question is any more precision on that now that we're 3 months later, do you feel like -- still feel like that's the case? Does perhaps the component issues change that? Or I just love to get your view on that previous statement.

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.

Got it. And I guess that's evident to some degree in your comments about maybe accelerating the Building 10 capacity expansion and trying to figure out what you're exactly you're trying to communicate here. Are you -- have you pulled the trigger on something? Are you very close to or how -- as you said, evaluating options, how might we see that move forward and over what time frame?

Yes. So the decision to pull Building 10 in to get a portion of the building completed maybe 1 or 2 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. And 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 3 to 6 months ahead of originally contemplated.

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?

It contributed. I mean we're really just getting going. We've always said it will ramp in FY '26. So we're just really getting started with that. And it will ramp as we go throughout the year. So it did contribute, but it's really as we go through the year that we'll start to see that program ramp. But it's going very well. We're very happy with the relationship. I think the customer is happy, and we're very happy with how it's going and how the ramp schedule is going. But the big -- I would say the bulk of that ramp is still in front of us.

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

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 kind of 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 kind of 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 kind of considering? And then I have a follow-up.

Joe, this is Csaba. Let me take that question. With regards 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.

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

OpEx, we are -- we have been very careful about spending on operating expenses, and we have been very cautious about adding costs, and we will maintain that discipline. As you see our track record, we have been able to deliver operating leverage year-over-year. So we continue that path. We don't anticipate to add any significant OpEx other than the usual merit increases throughout the year. So that should continue to drive operating leverage as the top line grows.

Very clear. And then maybe just as my follow-up, 800-gig trends. You mentioned 1.6 being kind of 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?

Yes. So it's -- really, it's a handful of components that are causing us to have some component constraints. With the -- as we saw this past quarter and into this quarter and beyond, we think now a surge in demand for 1.6T transceivers and in particular, 200-gig per lane EML-based products. We are seeing some supply constraints, mainly for specific components, it's a small number of components. It's not broad-based. It's unique to really one component for - 1 or 2 components for 1 product for our customer or for one customer. And because of these constraints, we are anticipating that the datacom revenue will be down. We've called that out in our prepared remarks, but we think it's short-lived. We're pretty confident we're pursuing multiple paths with our customer and with the supply base to help remedy the constraints in order to meet the strong demand, and we believe the supply issues will be temporary. But they will take a little bit of time to fully resolve, maybe 1 or 2 quarters. But we do think it's a short-lived problem, but it's one we have to deal with right now. The good news is the demand is very strong. And the current demand is strong and well above the supply availability. But like I said, it's not unusual when you get a new product like this, kind of a leading-edge product with leading-edge technology and a big spike, coupled with a big spike in demand, it's not unusual to have these temporary supply constraints, but we'll work through that.

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

I think I'm still a little confused on the gross margins. Can we back up and just talk about the fiscal fourth quarter margins for a second? You did better than you thought you would on efficiencies, but I would assume you had some of the product ramps going on. I guess you avoided the component shortages in the quarter and weren't expanding on Building 10 yet faster than previously thought. Like if you could just break that down, what -- like why didn't you see some of these headwinds and how else you got efficiencies in Q4 besides better sales? And then I had a follow-up.

So let me clarify. So first of all, Steve, Building 10 expenses are not in the numbers. So Building 10 is a future event. So we don't see any gross margin headwinds from Building 10 context. So that's number one. Secondly, obviously, as these programs are ramping, obviously, we do have certain inefficiencies that are baked in, in our outlook. However, the existing program -- existing business continues to execute very well, and we have a very strong execution. So that's -- on the flip side, that resulted in a better-than-expected gross margin in our Q4. Again, we do anticipate that this product ramps will put some pressure on the near-term gross margin. So going into Q1, we expect a mild headwinds. But Q4 was strong, and it's not particularly because of Building 10. It's just a very strong execution on the legacy business and obviously starting off with the new programs.

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 takes 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 outstanding -- sorry, an excellent job to execute to make sure that we came in a little bit better than anticipated in Q4.

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?

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.

Typically -- Steven, typically, we don't have margin impacts from component shortages. So we are always able to juggle the capacity to make sure that component constraints don't create near term. Good thing about component constraints, we have a fairly good visibility on supply, so we are able to adjust capacity. So there is no concern of headwinds from component constraints when it comes to gross margins.

Great. And then just as a follow-up, can you -- a little bit more on the data center interconnect business. I thought you also had talked about some new customers for the new fiscal year. I know you don't -- you only guide a quarter at a time, but can you give us a sense for the momentum? You were up 45% year-over-year in the quarter. Any way to think about how the momentum directionally continues for the rest -- for the new fiscal year? Any other clues you can provide there?

Yes. Maybe I'll let Csaba put a bit more detail around it. But in general, Steven, our DCI business has been very strong. We've captured a number of customers there. They're all ramping, and we're able to keep up with the demand. And the demand seems to be -- it's strong, it's robust and it looks to be durable. And it is increasing over time. So I think as these big data center clusters get rolled out, these big AI workloads get shared around between data centers, the need for DCI is increasing, if anything. So we see DCI demand being -- continue to be very strong for some time to come.

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 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 who 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, it's all segment and another DCI category.

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

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?

George, so basically, the first vesting was prior to signing the contract. So upon signing the contract, we vested 10% in Q3. So that was one condition of the vesting. The rest of the shares will vest over revenue and over time. So the fact that you haven't seen anything in Q4 has to do with the fact that there is a threshold that to be met in terms of revenue shipments. So it doesn't mean that we haven't shipped anything. So -- but future vesting will be subject to revenue and volume shipments throughout the year.

Got it. And then any -- I guess we're all curious about how big that Amazon PCB business can be over time. I mean, obviously, you're breaking it out into its own category. I get that certainly. But is this hundreds of millions of opportunity? Is this in the billions? Like how do you kind of think about the scale of what you can do here?

Yes. So as we look at the opportunity, it's certainly a significant opportunity for us. It could be significant. We believe it could be significant this fiscal year. We're not sizing the overall revenue with the customer there or the high-performance compute deal we have with them. But the business will start to ramp in Q1. We did ship a little bit in Q4, but it will start to ramp in Q1, and that is contributing to our strong anticipated sequential growth. But keep in mind that our shipping -- I'm sorry, yes. So yes. I'm sorry, yes, calendar Q1 is just the beginning for us, though, with AWS. And we think there could be more to come. We have one opportunity there, a high-performance compute opportunity, but we're working hard to see if we can gain some momentum in other categories there. Longer term, high-performance compute, we think, represents a significant new TAM expansion opportunity for us, and that's why we've decided to classify it as its own category. So we're -- again, we'll be disclosing in our Q1, we'll be disclosing HPC as its own category. We'll also be disclosing, as Csaba mentioned, or we start to disclose DCI as its own category.

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

Fiscal Q1. We've already started. We've shipped some revenue in Q4. And really, that's just getting off the ground, and that's why we have the -- if you like, we've called out the start-up costs because as you can imagine, when you start up, you don't start at cruising speed. We start up, we get the lines debugged, we get the efficiencies up. We make sure the yields are good. The customer comes and qualifies the production line and then we start ramping. So that work has been largely completed now, and we're just beginning to ramp properly then this quarter. So fiscal Q1.

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

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.

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.

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?

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.

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?

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.

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

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?

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

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

It's affecting both. It's both 600 -- sorry, 800 gig and 1.6T, yes.

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?

Yes and no. I think there's a number of opportunities we're working on with customers, but they're not producing meaningful revenue in the current quarter, even though we're working on several opportunities. The big impact is with our main customer on the 200 gig per lane, again, which impacts both 800 gig and 1.6, but there are -- again, there are other customers we're working with on both 800 gig and 1.6 actually, but they're not meaningful in terms of revenue in the current quarter.

[Operator Instructions] Next question is coming from Tim Savageaux of Northland Capital Markets.

Just a couple of quick ones. One, could you take a shot at quantifying the impact of the component shortages on datacom? I assume without that, they'd be up. Would that be up significantly? Throw us a number on that one. And also, obviously, 800 gig and above grew quite sharply in the quarter, but much more sharply in -- not as sharply as datacom -- sorry, datacom didn't grow that sharply. So it looks like you had a big tick up at 800 gig and above telecom. That was kind of what I was asking with Ciena before. But if I'm reading the numbers right, I wonder what might be driving that. And that's it for me.

Yes. I think on the impact of the component shortage, in datacom, we're not going to quantify that, Tim, but it's -- I'll put it this way, it's meaningful enough for us to call it out. We would be up fairly significantly were it not for that issue. We're not going to quantify it, but it's a substantial enough headwind for us this quarter. On the 800 gig and above, yes, that's a mix of, as you rightly point out, both datacom and telecom. So good growth in the datacom business, the 800 gig and above, but also primarily DCI and other products in the 800-gig telecom category. I don't know, Csaba, if you want to add anything to that?

No, I think that's the color we can provide there. So obviously, we are seeing some in DCI, we have -- it's below 800 gig TIM. So 400 ZR is very strong in DCI segment. So that potentially that's a reason for not going as fast as datacom.

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

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.

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