Fabrinet Q4 2024 Earnings Call Transcript

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

Question: Joe Cardoso - JPMorgan Chase & Co. - Analyst : Thanks for the question. This is Joe Cardoso on for Samik. So maybe first one here just on the datacom business. Curious if you could talk about the timing around 1.6T and whether you think that could start to -- or whether that's beginning to mid-July as early as your September quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 19, 2024 / 9:00PM, FN.N - Q4 2024 Fabrinet Earnings Call And then second part of this question is just like how are you thinking about 400 gig and 800 gig demand going forward. Both of these look like strong growth drivers in '24, just doing kind of the back of the envelope math here on the new disclosures. And I think in the past, you highlighted an expectation that 800 gig demand continues, as you don't expect 1.6T to cannibalize it. Is that still the same case expectations going into 2025? And does that apply to 400 gig as well? And then I have a quick follow-up.

Question: Joe Cardoso - JPMorgan Chase & Co. - Analyst : Thanks, Seamus. And then maybe just in terms of my second question and maybe bigger picture, obviously, great to hear the news around building an expansion. As we think about the portfolio and what's driving the conviction to break ground there, is this all related to further confidence in terms of -- around the datacom business? Or are there other areas of your portfolio that's driving conviction here and supporting the additional facility build-out? Just curious high-level thoughts how you're thinking about and what's driving the conviction there. appreciate the questions.

Question: Karl Ackerman - BNP Paribas Exane - Analyst : I've got two questions. First, your 800-gig transceiver revenue to date has been primarily driven by your largest customer. And some investors have been concerned that a pushout of the latest GPUs would impact your near outlook. That does not appear to be the case. So does your September quarter outlook imply that you are seeing a broadening of your datacom customer base for 800 gig as several hyperscalers are beginning to deploy broadly 800 networking switches.

Question: Karl Ackerman - BNP Paribas Exane - Analyst : Yes. Thanks for that, Seamus. To that point, could you discuss the breadth of customer adoption and growth of coherent ZR optics using telecom and DCI. And then at the same time, if I may, these -- you spoke in your prepared comments about new programs within telecom beginning to float in the model in the second half of fiscal '25. I'm curious whether the reason to expand Building 10 of what appears to be twice as large as your previous plans is driven by the outlook within the telecom programs or if it's driven predominantly by the datacom opportunity that you see? Thank you.

Question: Alex Henderson - Needham & Company, LLC - Analyst : Thanks so much. Wow, you got Ciena in there, the systems business, that's fabulous. Congratulations. That's good news. I was hoping you might talk a little bit about whether you're going to break that out as a category now that it's become a multiple vendor group as opposed to one or two customers? And then second, within the systems business, a lot of systems inventory out there, but it seems to be clearing faster on the system side than the component side. So do you expect the systems business to pick up faster than the overall telecom component business?

Question: Alex Henderson - Needham & Company, LLC - Analyst : In your remarks, you made a comment that the AI has multiple alternative growth factors outside of NVIDIA. Are any of those three categories that you identified anywhere near the possibility of an announcement? Do you think that that's something that could happen during this upcoming fiscal year? Or do you think that's really '26 and beyond type of business?

Question: Alex Henderson - Needham & Company, LLC - Analyst : One last question, then I'll cede the floor. So I think you've talked about pricing pressure being larger than the 10% to 15% normal price pressure that has been evident in this category for -- I don't know but it's the decade or plus with the exception of the COVID window. And you clearly selling predominantly into a single customer who's now got qualification from multiple customers or multiple alternative suppliers. The combination of those two with some slowing of the overall growth rate expected in this category in '25 and '26. Does it suggest to you that this category could decelerate to pretty modest growth? Or as you have share loss against your major customer and the pricing pressures there? Or do you have visibility that the new capacity coming on stream from that customer coming in quarter after quarter after quarter is going to continue to drive solid 5% to 15% kind of growth, which is what you've been producing quarter to quarter over the last year. How do we think about this dynamic perspective? Thanks.

Question: Tim Savageaux - Northland Capital Markets - Analyst : My congratulations as well. And I'll just try and put that in a little more context in terms of the win here. You'd mentioned Infinera and Cisco, historically. I think we started out with relatively muted expectations there. But clearly, they are very sizable customers for you, I think the increment REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 19, 2024 / 9:00PM, FN.N - Q4 2024 Fabrinet Earnings Call there is couple $300 million. I don't know whether you said it there. I think you mentioned Ciena was not a 10% customer currently. I assume they will be in fiscal '26. Is that fair to say?

Question: Tim Savageaux - Northland Capital Markets - Analyst : Okay. And you mentioned modems. I assume that's the kind of the mainline kind of coherent line cards and the associated optics that go with that. And I don't know if you can say this, but would that include pluggables as well, ZR pluggables or maybe you already do that?

Question: Mike Genovese - Rosenblatt Securities Inc. - Analyst : So Seamus, the Ciena win sounds very positive, and the ZR commentary was positive. I'm just wondering on the telecom side of the world, are there any other green shoots to point out? Or are those the two main things? Or is there a third and a fourth?

Question: Mike Genovese - Rosenblatt Securities Inc. - Analyst : Right. And then just to clarify and kind of put kind of your business in context with other people's business in the industry. Is it correct to assume that everything you make for the customer is a multi-mode transceiver. Is that correct?

Question: Mike Genovese - Rosenblatt Securities Inc. - Analyst : Okay. Okay. So I guess, though, how would you position like the products that you make versus other people's products out there, for instance, that use EMLs, is there significant overlap in those applications? Or do you think that there are kind of different products for different parts of the network?

Question: Mike Genovese - Rosenblatt Securities Inc. - Analyst : Okay. Then finally, I actually even feel a little bit embarrassed to this question. because it really seems to be trying to read the tea leaves way too closely. But if we just look at the 800G business, and thanks for breaking that out, just as the sequential growth looks like maybe it was at a low point in the fourth quarter, and from the guide, it sounds like it maybe be a little bit faster sequentially in the first quarter than it was in the fourth quarter? And is there anything at all to read about the market by that?

Question: George Notter - Jefferies & Company - Analyst : I wanted to ask about Building 10, I think the way you phrased it, Seamus, was that you were going to make the decision on Building 10 during this fiscal year. Did you make that decision during the June quarter that you're breaking ground in the June quarter? Or did you mean to infer that you could break ground in any one of the next several quarters?

Question: George Notter - Jefferies & Company - Analyst : Got it. Okay. So you mentioned it's 1.5 years to get it up and running. Is that 1.5 years from today? Is that 1.5 years from quarter or two? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 19, 2024 / 9:00PM, FN.N - Q4 2024 Fabrinet Earnings Call

Question: George Notter - Jefferies & Company - Analyst : Okay. Cool. Okay. So can I assume that you're at a 70% utilization rate then right now on Building 9. I think in the past, you've talked about that as being the threshold at which you guys make a decision.

Question: George Notter - Jefferies & Company - Analyst : Got it. Great. And then just one last follow-up. So on the Ciena win, I guess, from the timing of Building 10 breaking ground and then being up and running, I assume the Ciena win is going to come on relatively slowly. Like if I look at Ciena's optical business, obviously, there are multiples of the size of Cisco. Cisco is a 10% customer for you. I guess I'm just -- I'm wondering if it's fair to say that it will take some time to really get that business ramp.