Detailed narrative
Record backlog and multi-year demand visibility
Management reported another 'step function' increase in the order book, driving backlog to a record level, with record bookings substantially above the prior quarter. Order visibility now extends into calendar 2028 and customer LTAs reach the end of the decade, and management characterized demand as exceptionally strong and broad-based across multiple customers and product categories with no signs of attenuation.
The company frames the June quarter as a new inflection point in its revenue growth rate, with supply — not demand — as the gating factor.
6-inch indium phosphide capacity ramp
Indium phosphide has been the key constraint for Coherent and the industry. The 6-inch platform delivers more than 4x the devices at less than half the cost of 3-inch, and yields on all three device types (EMLs, CW lasers, photodiodes) already exceed 3-inch yields.
The Sherman, Texas facility ramped first and shipped the first transceivers containing 6-inch-produced components this quarter, contributing to both sequential revenue and gross margin. Sweden is in production and a third site in Zurich was announced, with output expected to begin in early calendar 2027.
Internal InP capacity is on track to double one quarter early (June quarter) and more than double again by end of CY27; by the end of this year roughly half of capacity will be 6-inch.
Data center transceivers — 800G and 1.6T
Data center revenue grew 13% sequentially and 37% YoY, a second consecutive quarter of double-digit sequential growth. Management expects 800 gig revenue to grow YoY in calendar 2026 while 1.6T ramps rapidly through the balance of the year and into next, with a broad range of customers adopting 1.6T; the 1.6T ramp is running faster than expected a year ago and drives a good portion of current-quarter sequential growth.
The 1.6T ramp uses both EML and silicon-photonics-based transceivers (both requiring InP-based CW lasers), with no significant gross margin difference between the two; mix is determined by customer application. A 400-gig-per-lane silicon photonics capability enabling 3.2T was demonstrated at OFC.
OCS and CPO growth vectors
Coherent raised its OCS market opportunity to over $4B, citing expanding use cases across data center interconnect, scale-out and scale-up networks. A recently resolved internal-component bottleneck now allows OCS output to ramp rapidly across two facilities. CPO is framed as a transformational, >$15B incremental opportunity; the NVIDIA partnership covers multiple CPO products (high-power CW laser, external laser source module, fiber attach unit with micro-lens arrays and polarization-maintaining fiber).
Initial scale-out CPO revenue begins H2 CY26 and scale-up CPO in H2 CY27, with NVIDIA as lead customer and multiple others engaged across CPO and MPO opportunities.
Communications, scale-across and multi-rail
Communications revenue accelerated to 16% sequential and 60% YoY growth, driven by data center interconnect (ZR/ZR+ transceivers), scale-across and traditional telecom. The portfolio spans components (pump lasers), modules (100G/400G/800G ZR/ZR+), line cards, amplifiers and full systems, with LTAs in place.
Multi-rail — addressing bandwidth between increasingly distributed AI data centers — is a new full-system product with a market sized at least $2B; management describes highly differentiated underlying component technology and a higher gross margin structure, with initial revenue in H1 CY27.
Gross margin expansion drivers
Non-GAAP gross margin reached 39.6%, up 57 bps sequentially and 105 bps YoY, marking sequential improvement in 7 of the past 8 quarters (~530 bps cumulative). Drivers are cost reductions (notably 6-inch InP at roughly half the cost), yield improvements, and pricing optimization, each of which increased significantly QoQ.
Improvements were predominantly in Datacenter & Communications, and pricing optimization was 'quite sizable' in that segment as well as industrial. Management reiterated its >42% long-term gross margin target and characterized the trajectory as early stage.
Industrial segment and data center thermal opportunity
Industrial revenue declined modestly both sequentially and YoY on a pro forma basis amid continued softness, but semiconductor capital equipment bookings increased meaningfully and are expected to contribute to revenue growth in the current quarter. Longer term, Coherent is repurposing industrial materials technology for AI data centers: Thermadite (a proprietary material offering 2x-5x better heat transfer than copper for XPU/ASIC cooling) and thermoelectric generators for waste-heat recovery, both with revenue expected to begin in H2 CY27.
Balance sheet, capital allocation and NVIDIA investment
Cash rose to $3.0B from $1.5B, primarily on NVIDIA's $2B equity investment announced March 2, 2026. The company made $162M of debt payments, cutting the debt leverage ratio to 0.5x from 1.7x in Q2 and 2.1x a year ago. Capital expenditures rose to $290M (from $154M and $112M) to expand internal capacity and are guided higher again in Q4.
Capital allocation is focused on capacity expansion and the R&D road map; new LTAs typically include upfront customer capex investment, a supply commitment, and a minimum demand commitment.