Optical communications ODM leader Fabrinet (FN.US) reported fiscal Q4 2026 results for the period ending June 30 on Monday after U.S. market close, with both revenue and earnings surpassing Wall Street expectations and next-quarter guidance coming in above analyst forecasts. Despite the strong numbers, shares tumbled in after-hours trading, signaling that investors are repricing the company's elevated valuation and future growth trajectory.
Fourth-quarter revenue reached $1.316 billion, up 45% from $909.7 million in the same period last year and ahead of the roughly $1.27 billion consensus estimate, marking the 12th consecutive quarter of record revenue. Non-GAAP earnings per share came in at $4.10, beating the average analyst estimate of $3.81 by approximately 7.61%, with non-GAAP net income of $149.1 million. On a GAAP basis, quarterly net profit was $139.3 million, or $3.83 per diluted share, compared to $87.2 million, or $2.42 per diluted share, in the prior-year period.
For the full fiscal year, Fabrinet generated revenue of $4.64 billion, a 36% increase from $3.42 billion in fiscal 2025, with adjusted diluted EPS of $14.09, up from $10.17 in the prior year. The company's non-GAAP gross margin stood at 12.2%, down 30 basis points year-over-year but up 10 basis points sequentially. Non-GAAP operating margin reached 10.9%, the highest level in three years, while return on capital climbed to 40.6%, up from 38.2% a year earlier, and 38.9% for the full fiscal year.
The standout highlight of the quarter was data center revenue crossing the 50% threshold for the first time. Data center segment revenue hit $669 million, representing 51% of total revenue and growing 68% year-over-year. This segment encompasses optical transceivers, data center interconnects, high-performance computing components, silicon photonics, and co-packaged optics, driven primarily by AI infrastructure and hyperscale data center buildout demand. Communications infrastructure contributed $413 million, accounting for 31% of revenue with 40% growth, though only 1% sequential growth, covering optical and networking products for telecom and enterprise networks. Automotive, industrial, and other businesses brought in $234 million, representing 18% of revenue, up 8% year-over-year and 9% sequentially.
Management emphasized that growth was not concentrated in any single product category or customer. During fiscal 2026, Cisco (CSCO.US), Nvidia (NVDA.US), Nokia (NOK.US), and Amazon (AMZN.US) each accounted for at least 10% of total revenue, collectively representing over 40% of sales. CEO Seamus Grady commented, "Our fourth quarter was outstanding, providing a perfect conclusion to a year of strong momentum and remarkable achievements. Quarterly revenue reached an all-time high of $1.316 billion, exceeding our guidance range and growing 45% year-over-year." He also noted that customer visibility extends into late 2027 and beyond, with current demand showing "no end in sight."
As of the end of fiscal Q4, Fabrinet held $875.8 million in cash and equivalents with zero debt, total shareholders' equity of $2.5 billion, and working capital of $1.03 billion. However, due to heavy capital expenditures, the company reported negative free cash flow for the quarter. Multiple capacity expansion projects are underway, including Thailand's Building 10 expected to complete in early 2027, which will add $3 billion to $3.5 billion in revenue capacity. The newly acquired Navanakorn facility and Santa Clara expansion project each contribute $200 million to $250 million in additional capacity. Management estimates total potential capacity could reach $12.5 billion to $14 billion, approximately three times the current revenue scale.
For fiscal Q1 2027, Fabrinet guided revenue in the range of $1.375 billion to $1.425 billion, with a midpoint of $1.405 billion representing roughly 43% year-over-year growth. Non-GAAP EPS guidance is set between $4.10 and $4.25, with a midpoint of $4.18. This outlook also exceeds analyst expectations of approximately $1.32 billion in revenue and $3.99 in EPS. CFO Csaba Sverha stated the company is entering fiscal 2027 with "strong momentum" and more confidence in the long-term outlook than ever before. Management anticipates sustained data center demand with continued growth in optical transceivers, data center interconnects, and high-performance computing applications, while communications infrastructure and automotive, industrial, and other segments are also expected to maintain healthy growth.
Despite the earnings beat and strong guidance, Fabrinet shares fell more than 7% in after-hours trading. Over the past 12 months, the stock has gained approximately 81.5%, with the price-to-earnings ratio reaching 51.35 times. Some analysts suggest the stock may be trading above fair value, and investors could be reassessing valuations, particularly as high growth expectations are already fully priced in. Additionally, the company faces several concerns: heavy revenue concentration among four major customers creates client concentration risk; management acknowledged potential supply chain constraints affecting certain product categories; overall gross margin of approximately 12% remains relatively thin; and capacity expansion capital expenditures resulted in negative quarterly free cash flow. Emerging opportunities such as near-package optics, co-packaged optics, and optical cross-connect products remain in early stages without material financial impact yet. However, looking at long-term trends, Fabrinet remains well-positioned in AI infrastructure, data center construction, and optical network upgrades, with its zero-debt balance sheet, expanding manufacturing capabilities, and deep relationships with major OEM customers supporting its long-term growth strategy execution.
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