Fabrinet at JPMorgan Global Technology, Media and Communications Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Starting off, just you -- I mean, just talking a bit more about the revenue growth that you've seen in recent years. You've seen double-digit revenue growth for the last couple of years, and many of your customers expressed the outlook that they see double-digit growth for their businesses as well. When you sort of think about the current headwinds that you're facing, does that call into question sort of a double-digit growth rate for your business? And should investors really just think of this as temporary in terms of some of the headwinds? Or does it have any structural sort of implications in terms of the growth rate?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Maybe just to sort of ask that question another way is, as you said, you've seen 18% growth, 20% growth recently. One of the concerns investors have is, is it more that those growth rates have been elevated just because of pull forward of demand from your customers? And as we sort of look at the next maybe 12 to 18 months or even 2 years as a period, is there going to be sort of under or below that sort of run rate -- below run rate REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2023 / 2:00PM, FN.N - Fabrinet at JPMorgan Global Technology, Media and Communications Conference performance in terms of growth for the next couple of years as you -- as customers digest the pull forward that they had over the last couple of years?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Staying on the topic of growth and maybe you talked about sort of what your aspirations are in terms of growth, but how do you generally tie that into long-term planning for even capacity and particularly now that you're going after a lot more systems business, does that change sort of the nature of opportunities that you're going after just as a function of trying to prioritize that systems opportunity a lot more, what does that addressable market look like at your customers that you can go after?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Going back to inventory digestion and obviously, I'm sure you're getting these questions the most today as well in the meetings. You said you have visibility from your customers of a 13-week window right now. So then for your internal planning purposes, how are you sort of putting the guardrails around it of like how do you manage your business step going -- already stepping into the next quarter or thinking about the next quarter? How are you really putting guardrails about how sort of -- what the magnitude of that change can be on the revenue side? And how do you manage your cost structure then?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Moving to just telecom and that's when -- that's an area of the business where we've heard more from some of your customers about the inventory digestion. When you sort of look at the headwinds in that business, is it focused on certain technologies or components in particular, like are -- is it more focused, the inventory headwind, on the legacy products versus the newer products, how would you characterize where the pockets of weakness are the greatest?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. I know your customers are really sort of driving your 13-week window and what you sort of really build capacity towards our plan for growth in the telecom business. But as you outlined, you have a certain view of what the optical industry has historically done. When you look at the drivers for the optical industry, particularly related to the telecom products, do you see some of those drivers continuing? Like when you evaluate what the optical industry probably looks in terms of growth rate for the next 3 to 5 years, what are those essential drivers, why telecom for the optical industry remains a big growth driver?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Let's move to datacom. Your revenue trend there, which has been sort of moving up sequentially in the last few quarters, that's been counter to the inventory digestion that we've heard more broadly from cloud customers in recent quarters. So maybe just help us think through what's driving the sort of almost like contrary trend to what other suppliers are seeing in the datacom side.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. So let's talk about 800 gig then. How big of an opportunity do you think it can be? Who are your primary customers right now? And do you see that customer list expanding beyond sort of 1 or 2 really more sort of concentrated customers? Or do you see this more being, okay, this is going to be sort of the group of 4 or 5 that are going to be really the customers and we scale with them? How do you see that evolving? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2023 / 2:00PM, FN.N - Fabrinet at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : I'm just curious on that front because we've seen different companies talk about sort of their AI products that they're doing. How do you get to the sort of end point of realizing its AI use case? Is it based on the speed? Is it based on some of the requirements that these products have? Like because different companies seem to be using different classifications of what they end up calling as AI sort of use case and some might be just doing it based on speed, et cetera. How you're doing that? And then when you're sort of doing that with this particular customer, are you seeing then more customers come in with similar requirements?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : I mean we've asked the other companies this as part of more of the upfront questions, but maybe this is the right time to ask you just in terms of AI broadly, when you think about the implications for your business, you outlined sort of the new products that you're doing on that front. How do you characterize the opportunity? Is it more of a strong investment cycle and a volume opportunity for you? Or as you sort of see these products being very early stage at this point, you are probably one of the few contract manufacturers in the world that can do them. Is it more of a content opportunity, a margin opportunity for you to start with and then the volume sort of kick takes over later, how should we think about that?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Maybe just sort of then going back to some of the legacy products, what's happening on pricing relative to 400 gig and 100 gig, as 800 gig already sort of in the market, at least a customer is using it and then more customers sort of start to look at 800 gig as an option. What are you seeing on the pricing dynamics on 400 gig and 100 gig? And maybe a second part to that is, then when you think about now going from 400 gig to 800 gig in sort of -- with a few of your customers, does that cycle look different from when you went from 100 gig to 400 gig?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Relative to 400 gig as the price -- as the volume scale and pricing comes down, how much of an impact is that to the contract manufacturer like Fabrinet versus something that's absorbed by the OEMs themselves?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. Let me just pause and see if any questions from the audience. Just wait for the mic, please. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2023 / 2:00PM, FN.N - Fabrinet at JPMorgan Global Technology, Media and Communications Conference Unidentified Participant Questions about LIDAR. And I know you've been very careful to hedge your bets and it's taking time to ramp, and you're smart because you're not going to take any big inventory bets or do anything, so you've managed that really well. Are you seeing any green shoots in LIDAR area sort of as we're starting to see some more cars that are kind of adopting this?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : So let me take this question that came in, and I promise you this isn't my question. So Coherent said on the last call, they're accelerating their facility rationalization. Is there any outsourcing opportunity there?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Coherent said on the last call that they're accelerating their facility rationalization. Is there any outsourcing opportunity there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2023 / 2:00PM, FN.N - Fabrinet at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Fair. Moving back to the discussion on sort of the demand drivers that you've seen recently. Silicon photonics demand has been a recent bright spot. How should we think about the use cases that are driving adoption of silicon photonics products? What could the run rate of revenues be when it comes to silicon photonics? And I think that's the only area you sort of highlighted supply constraints on. So what's the sort of run rate -- normalized run rate you're running at?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Good. DZSI, that's one of your newest customers, and can you give us the update on the transition of their, I think, Florida manufacturing facility that they have and then any potential sort of expansion of that partnership?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : I know we often like to ask you this about every new customer, but do you expect DZSI to be a 10% customer once they're fully ramped?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Maybe a similar question, but on Infinera and Cisco that are already your customers, like do you see more opportunities to expand your business with them given the sort of engagement you already have with them, the reliability that you've offered? Do you see more opportunities there?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : On that front though, I mean, your success with Cisco has also sort of been around the systems business. Is there a more proactive sort of positioning that you're doing when you're quoting now for new business and trying to guide your customers to give you a systems business rather than something that's sort of either subassembly or a module like, is there more proactively trying to push the customer to say that it's probably better value for them to give you the complete system? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2023 / 2:00PM, FN.N - Fabrinet at JPMorgan Global Technology, Media and Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Maybe last one or 2 here. Really, just maybe switching gears here to margins. Complexity is increasing. You're going from 400 gig to now 800 gig. You're doing silicon photonics, you're doing systems. Like does that overall change the margin outlook for the company relative to where you are today? How do you think about where long-term margins should be, is it more really a change in the gross margin sort of structurally your operating margin? How should we think about that?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : We're almost up on time, so I'll wrap it up there. Thank you. Thanks for coming to the conference.