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    COHR
    Earnings call· Jun 2025(Q4 FY25)

    COHERENT CORP. COHR

    Aug 13, 2025 Source

    Executive summary

    Coherent Q4 FY25 — Record Revenue and Strong AI Datacenter Growth

    Coherent concluded FY25 with record revenue, driven by robust growth in its AI datacenter and communications segments, alongside significant gross margin expansion and profitability improvements. The company is strategically optimizing its portfolio, highlighted by the divestiture of its Aerospace and Defense business to reduce debt and enhance EPS. While maintaining a cautious near-term outlook for industrial markets, Coherent is focused on leveraging its photonic technology and U.S. manufacturing footprint to capitalize on long-term growth opportunities in AI and optical networking.

    Highlights

    5

    • Full year FY25 revenue increased 23% year-over-year to a record $5.81 billion.

    • Q4 FY25 revenue increased 16% year-over-year to a record $1.53 billion.

    • Full year FY25 non-GAAP EPS grew 191% year-over-year to $3.53.

    • Q4 FY25 non-GAAP EPS approximately doubled year-over-year to $1.00.

    • Debt leverage ratio reduced to 2x, down from 2.5x at the end of FY24.

    Concerns

    3

    • Q4 FY25 non-GAAP gross margin declined 43 basis points sequentially due to unfavorable foreign exchange.

    • Industrial-related markets are expected to be flat to down sequentially in Q1 FY26 due to macro uncertainty and tariffs.

    • Silicon carbide business was a headwind to overall industrial revenue in FY25.

    Guidance & targets

    7
    CategoryTargetConfidence
    Q1 FY26 Revenue
    $1.46 billion to $1.6 billion
    high materiality
    High
    Q1 FY26 Non-GAAP Gross Margin
    37.5% to 39.5%
    high materiality
    High
    Q1 FY26 Non-GAAP Operating Expenses
    $290 million to $310 million
    medium materiality
    High
    Q1 FY26 Non-GAAP Tax Rate
    18% to 22%
    medium materiality
    High
    Q1 FY26 Non-GAAP EPS
    $0.93 to $1.13
    high materiality
    High
    Fiscal Year 2026 Growth
    another growth year
    high materiality
    High
    Long-term Non-GAAP Gross Margin
    >42%
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Data Center and Communications
    Driven by strong demand in AI datacenter and communications, including initial 1.6T transceiver shipments and OCS revenue. Communications growth accelerated due to ZR/ZR+ DCI products.
    Full year FY25 Revenue Growth: 51%Data Center Q4 Revenue Growth YoY: 38%Data Center Q4 Revenue Growth QoQ: 3%Data Center Full Year FY25 Revenue Growth: 61%Communications Q4 Revenue Growth YoY: 42%Communications Q4 Revenue Growth QoQ: 11%Communications Full Year FY25 Revenue Growth: 23%
    		—39%5%—
    Industrial-related end markets
    Impacted by a decline in the silicon carbide business in FY25. Near-term outlook is cautious due to macro economy uncertainty and tariffs, but long-term growth opportunity remains.
    Full year FY25 Revenue Growth: -2%
    		—-8%-2%—

    Operational metrics

    16
    Non-GAAP Gross Margin
    38.1%-43 bps QoQ, +220 bps YoY
    Q4 FY25

    Would have exceeded high end of guidance without FX headwinds.

    Non-GAAP Gross Margin
    37.9%+358 bps YoY
    FY25

    Significant improvement driven by gross margin expansion strategy.

    Non-GAAP Operating Expenses
    $307 millionvs $297 million QoQ, vs $269 million YoY
    Q4 FY25

    Focus on R&D investments with highest ROI and SG&A efficiency.

    Non-GAAP Operating Expenses
    $1.17 billionvs $998 million FY24
    FY25

    Overall increase for the full fiscal year.

    Non-GAAP Operating Margin
    18.0%vs 18.6% QoQ, vs 15.4% YoY
    Q4 FY25

    Reflects revenue and expense trends.

    Non-GAAP Operating Margin
    17.8%+472 bps YoY
    FY25

    Significant improvement for the full fiscal year.

    Non-GAAP EPS
    $1.00vs $0.91 QoQ, vs $0.51 YoY
    Q4 FY25

    Approximately doubled year-over-year.

    Non-GAAP EPS
    $3.53+191% YoY
    FY25

    Represents approximately a 3x increase over prior year.

    Debt Payments
    $51 million
    Q4 FY25

    Paid down using cash from operations.

    Total Debt Payments
    $437 millionnearly 2x FY24
    FY25

    Significant increase in debt payments for the full fiscal year.

    Debt Leverage Ratio
    2xdown from 2.5x end of FY24
    Q4 FY25

    Reduced through significant debt payments.

    Indium Phosphide Capacity
    tripledYoY
    FY25

    Expanded to meet rising demand for optical networking solutions.

    CW Laser Production
    significant increasesequentially and YoY
    Q4 FY25

    Ramping volume over coming quarters to support CPO applications.

    Aerospace and Defense Business Average Quarterly Revenue
    $50 million
    prior 4 quarters

    Revenue contribution from the divested business.

    Aerospace and Defense Business Employee Count Reduction
    550 employees
    Q1 FY26

    Employees that will remain with the A&D business post-sale.

    Aerospace and Defense Business Site Reduction
    10 sites
    Q1 FY26

    Number of sites Coherent will exit as a result of the sale.

    Industry KPIs

    10
    MetricValueDetails
    M a contribution$400 millionUSD
    Orders book to bill—
    Long term agreementsNew multiyear agreement with Apple
    Segment revenue growthData Center and Communications: $1.53 billion (Q4 FY25); Industrial-related end markets: (implied lower)USD
    Design wins product cycle rampsInitial revenue shipments of 1.6T Transceivers; initial revenue shipments of Optical Circuit Switch (OCS); 100-gig ZR product family ramping rapidly
    Order visibility backlog policy—
    Recurring software services mixIndustrial laser recurring services revenue grew faster than product sales
    Capacity expansion internal sourcingTripled Indium Phosphide capacity
    End market revenue mix organic growthData Center and Communications: 51% (FY25), 39% (Q4 YoY); Industrial-related end markets: -2% (FY25), -8% (Q4 YoY)%
    Operating margin incremental leverage17.8% (FY25), 18.0% (Q4 FY25)%

    Product announcements

    6
    ProductTypeDetails
    1.6T Transceiverslaunch
    3.2T Transceiversroadmap
    6-inch Indium Phosphide Linelaunch
    New Generation VCSELs for Appleexpansion
    Optical Circuit Switch (OCS)launch
    100-gig ZR product familyexpansion

    Deals & partnerships

    2
    UndisclosedSale of Aerospace and Defense business$400 million

    Decision made as the business was not aligned with long-term strategic focus areas and financial targets. Will result in Coherent's exit from 10 sites and reduce employee count by approximately 550.

    AppleNew multiyear agreement for new generation VCSEL productsmultiyear

    VCSELs will support Apple's iPhone and iPad products, manufactured in Coherent's Sherman, Texas facility. Highlights importance of U.S. manufacturing footprint.

    Capital programs

    1
    6-inch Indium Phosphide Lineunderway
    Start: August 2025

    Benefit: higher volume production, lower cost structure

    World's first 6-inch indium phosphide production platform in Sherman, Texas, enhancing supply chain resiliency.

    Risks & headwinds

    3
    Foreign Exchange Impact on Gross MarginQ4 FY25

    43 basis points sequential decline in Q4 FY25 non-GAAP gross margin

    Mitigation: Gross margin expansion strategy (pricing optimization, cost reductions) partially offset the impact. Not expected to be a material impact in Q1 FY26.

    Industrial Market Macroeconomic Uncertainty and TariffsQ1 FY26 (near-term)

    Industrial-related markets expected flat to down sequentially

    Mitigation: Taking a cautious view; long-term growth opportunity remains. Company's U.S. manufacturing footprint may present competitive advantage against semiconductor tariffs.

    Silicon Carbide Demand DeclineFY25

    Significant drop in demand

    Mitigation: Demand has stabilized and is not expected to be a headwind in FY26. Company stopped investment in devices and modules portion, concentrating on wafers and epi.

    What to watch in Q1 FY26

    5

    1.6T Transceiver Revenue Contribution

    CY26
    CurrentInitial revenue shipments in Q4 FY25
    TargetMeaningful revenue contribution in CY26

    Why it matters

    Indicates the pace of adoption and revenue ramp for a key next-generation product in the AI datacenter market.

    we continue to expect 1.6T volumes to ramp throughout the balance of this calendar year with more meaningful revenue contribution in calendar '26.

    Q&A highlights

    5

    What is the growth outlook for the data center business in FY26, given hyperscaler spending, and how is the 6-inch indium phosphide ramp progressing, especially with customer interest in U.S. manufacturing and the Apple partnership?

    Management expects strong demand signals for data center and communications, with sequential growth in Q1 FY26, driven by 800-gig and 1.6T transceivers, OCS, and DCI. The 6-inch indium phosphide line in Sherman, Texas, began production in August, offering capacity and cost advantages. The Apple multiyear agreement for VCSELs, manufactured in Sherman, is a proof point of the strategic advantage of U.S. manufacturing, with revenue expected in H2 CY26.

    “We believe this is the world's first 6-inch indium phosphide production and it will start this quarter, but obviously ramp over the coming quarters. This is a big benefit to us in 2 ways, both capacity, obviously, on a larger wafer size we get a significant increase in capacity. But also, we expect a significant cost structure advantage.”

    asked by Samik Chatterjee · answered by James Anderson

    2 min read5 chapters

    Detailed Narrative

    01

    AI Datacenter and Communications Momentum

    Coherent reported strong performance in its data center and communications market, with full year FY25 revenue growing 51% and Q4 revenue up 39% year-over-year. Data center revenue alone increased 61% for the full year and 38% in Q4, reaching a new record. The company saw initial revenue shipments of its new 1.6T Transceivers in Q4, with volumes expected to ramp through CY26. Development of 3.2T Transceivers is progressing, leveraging the 400-gig per lane differential EML technology. Communications revenue also accelerated, growing 42% year-over-year in Q4, driven by robust demand for ZR/ZR+ DCI-focused products, particularly the rapidly ramping 100-gig ZR family.

    02

    Strategic Indium Phosphide Capacity Expansion

    To meet rising demand for optical networking solutions, Coherent tripled its indium phosphide capacity year-over-year. A significant milestone is the commencement of production in August 2025 at the world's first 6-inch indium phosphide line in Coherent's Sherman, Texas facility. This expansion is expected to provide significant advantages in lower cost and higher volume production, enhancing supply chain resiliency. Indium phosphide is critical for EML and CW lasers used in pluggable transceivers and CPO applications.

    03

    Expanded Apple Partnership and US Manufacturing

    Coherent announced a new multiyear agreement with Apple for a new generation of VCSEL products for iPhones and iPads. Revenue from this expanded partnership is expected to begin in the second half of calendar year 2026. These VCSELs will be manufactured at the Sherman, Texas facility, supporting its long-term growth and utilization. This agreement highlights the importance of Coherent's extensive U.S. manufacturing footprint, which spans over 20 locations across 13 states, as a key competitive advantage and hedge against geopolitical risk.

    04

    Optical Circuit Switch (OCS) Product Ramp

    Initial revenue shipments of Coherent's new Optical Circuit Switch (OCS) began in Q4 FY25. This product represents a $2 billion expansion of the company's addressable market. The OCS technology, based on field-proven digital liquid-crystal, offers significant reliability advantages over mechanical MEMS-based solutions. Customer engagements are growing, and revenue is expected to ramp through the remainder of CY25 and contribute more meaningfully in CY26.

    05

    Industrial Market Dynamics and Portfolio Optimization

    Industrial-related end markets saw a 2% revenue decrease for FY25 and an 8% year-over-year decline in Q4. This was primarily due to a decline in the silicon carbide business, which was a headwind in FY25 but has since stabilized and is not expected to be a headwind in FY26. The company is taking a cautious near-term view on the broad industrial market due to macroeconomic uncertainty🌐 and tariffs. Coherent also announced the agreement to sell its Aerospace and Defense business for $400 million, with proceeds to be used for debt reduction, expecting it to be accretive to EPS and streamline the portfolio.

    AI-generated summary of the company’s earnings call. Not investment advice.