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    COHR
    Earnings call· Sep 2025(Q1 FY26)

    COHERENT CORP. COHR

    Nov 5, 2025 Source

    Executive summary

    Coherent Corp. Q1 FY26 — Strong Datacenter & Communications Demand Drives Revenue and EPS Growth

    Coherent delivered strong Q1 FY26 results, driven by exceptional demand in its Datacenter & Communications segment, particularly for optical networking products in AI data centers. The company is aggressively expanding indium phosphide and transceiver module capacity to meet this demand, while also streamlining its portfolio through divestitures and footprint optimization. Management expects continued strong sequential growth throughout the fiscal year.

    Highlights

    5

    • Revenue increased 6% sequentially and 19% year-over-year on a pro forma basis.

    • Non-GAAP gross margin expanded 70 basis points sequentially and 200 basis points year-over-year to 38.7%.

    • Non-GAAP EPS grew 16% sequentially and 73% year-over-year to $1.16.

    • Debt leverage ratio reduced to 1.7x from 2.4x in the year-ago quarter.

    • Record level of bookings, with orders extending over a year out, providing strong visibility.

    Concerns

    2

    • Datacenter growth in Q1 FY26 was constrained by the supply of indium phosphide lasers.

    • Industrial segment maintains a cautious outlook on near-term demand due to macroeconomic backdrop and ongoing tariff and regulatory uncertainty.

    Guidance & targets

    12
    CategoryTargetConfidence
    Revenue
    $1.56 billion and $1.7 billion
    high materiality
    High
    Non-GAAP gross margin
    38% and 40%
    medium materiality
    High
    Total operating expenses (non-GAAP)
    $300 million and $320 million
    medium materiality
    High
    Tax rate (non-GAAP)
    18% and 20%
    low materiality
    High
    Non-GAAP EPS
    $1.10 and $1.30
    high materiality
    High
    Datacenter sequential growth
    approximately 10%
    high materiality
    High
    Communications sequential growth
    single digits
    medium materiality
    Medium
    Industrial sequential growth
    stable to slightly up
    medium materiality
    Medium
    Indium phosphide production capacity
    roughly double
    high materiality
    High
    1.6T transceivers based on 200-gig VCSELs ramp
    ramp next calendar year
    medium materiality
    High
    Initial CPO deployments
    calendar 2026
    medium materiality
    High
    OCS revenue ramp
    throughout calendar 2026
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Datacenter & Communications
    Largest and fastest-growing business. Datacenter growth in Q1 was constrained by indium phosphide laser supply. Strong demand for 800-gig and 1.6T transceivers. Communications growth driven by DCI and traditional telecom applications. Expects sequential growth in Q2 and through balance of FY26.
    Datacenter revenue growth QoQ: 4%Datacenter revenue growth YoY: 23%Communications revenue growth QoQ: 11%Communications revenue growth YoY: 55%
    		—26%7%—
    Industrial
    Growth on a pro forma basis, excluding divested aerospace and defense business. Maintains a cautious outlook on near-term demand due to macroeconomic backdrop and ongoing tariff/regulatory uncertainty. Expects to be stable to slightly up sequentially in Q2. Key growth areas include OLED display capital equipment, semi cap equipment, and advanced materials for thermal management in AI data centers.
    		—4%2%—

    Operational metrics

    16
    Total Revenue
    $1.58 billionup 3% sequentially, up 17% year-over-year
    Q1 FY26

    Record revenue for the first quarter.

    Non-GAAP gross margin
    38.7%70 basis point improvement sequentially, 200 basis point improvement year-over-year
    Q1 FY26

    Progress towards target model of greater than 42%.

    Non-GAAP operating expenses
    $304 millioncompared to $307 million in prior quarter and $278 million in year ago quarter
    Q1 FY26

    Sequential decline driven by timing of investments.

    Operating expenses as % of revenue
    19.2%declined from 20.1% in prior quarter and 20.6% in year ago quarter
    Q1 FY26

    Due to continued focus on driving efficiencies and greater leverage in SG&A.

    Non-GAAP operating margin
    19.5%compared to 18% in prior quarter and 16.1% in year ago quarter
    Q1 FY26

    Driven by revenue growth and gross margin expansion.

    Non-GAAP EPS
    $1.16compared to $1 in prior quarter and $0.67 in year ago quarter
    Q1 FY26

    Non-GAAP earnings per diluted share.

    Debt paid down
    $400 million
    Q1 FY26

    Used proceeds from the sale of the Aerospace and Defense business.

    Debt leverage ratio
    1.7xdown from 2.4x in the year ago quarter
    Q1 FY26

    Significantly reduced.

    Revolving credit facility
    $700 milliondoubled
    Q1 FY26

    Completed refinancing of debt, increasing liquidity and flexibility.

    6-inch indium phosphide production yields
    higherthan our current 3-inch indium phosphide deals
    Q1 FY26

    Initial yields from the Sherman, Texas facility.

    Sites sold or exited
    23
    since beginning of FY25

    Part of portfolio optimization and footprint streamlining efforts.

    Munich product division average quarterly revenue
    $25 million
    past 4 quarters

    Contribution from the divested product division in Munich, Germany.

    Munich product division gross margin
    well below Coherent's corporate gross margin
    past 4 quarters

    Reason for divestiture, as it did not support long-term financial goals.

    Munich product division employee headcount reduction
    425
    Q3 FY26 (expected close)

    Expected reduction upon sale of the product division.

    OCS systems shipped
    7
    Q1 FY26

    Number of customers to whom OCS systems have been shipped.

    Communications segment sequential growth streak
    5
    Q1 FY26

    Consistent sequential growth in the Communications segment.

    Industry KPIs

    9
    MetricValueDetails
    M a contribution33 millionUSD
    Orders book to billrecord level of orders
    Segment revenue growth—
    Design wins product cycle rampsmultiple customer engagements
    Order visibility backlog policyover a year
    Supply demand imbalance lead timesconstrained
    Capacity expansion internal sourcingroughly double
    End market revenue mix organic growth—
    Operating margin incremental leverage19.5%%

    Orderbook & backlog

    3
    Direct bookingsrecord levelQ1 FY26

    step function increase

    Bookings not just for near-term quarters, but further out in time, in some cases over a year from now, providing great visibility and allowing for product mix and capacity planning.

    OCS backloggrew sequentiallyQ1 FY26

    expect to grow again in the current quarter

    Includes both 64x64 and 320x320 systems, with the majority weighted toward the larger system size. Aggressively ramping production to support demand.

    Customer forecast visibility3 years outQ1 FY26

    Very large customers providing visibility out into 2028, which is very helpful for the business.

    Product announcements

    3
    ProductTypeDetails
    1.6T transceivers based on 200-gig VCSELsroadmap
    400-milliwatt CW laserslaunch
    Multi-rail technology platformlaunch

    Deals & partnerships

    2
    Unnamed buyerSale of Aerospace and Defense business

    Transaction closed at the beginning of September. Enhanced portfolio focus and accelerated deleveraging.

    Unnamed buyerSale of product division based in Munich, Germany (tools for materials processing)

    Division was not aligned to long-term strategic focus areas and did not support long-term financial goals. Contributed average quarterly revenue of $25 million with gross margin well below corporate. Reduces employee headcount by approximately 425 employees.

    Capital programs

    5
    6-inch indium phosphide production line (Sherman, Texas)underway
    Start: last quarter (Q4 FY25)

    Benefit: produces more than 4x as many chips at less than half the cost compared to a 3-inch wafer; contributes to roughly doubling total internal indium phosphide capacity over the next year (combined with Jarfalla site)

    World's first 6-inch indium phosphide production line. Began production and continues to ramp well, with initial yields higher than 3-inch lines.

    6-inch indium phosphide production line (Jarfalla, Sweden)underway
    Start: Q1 FY26

    Benefit: contributes to roughly doubling total internal indium phosphide capacity over the next year (combined with Sherman site)

    Second site for 6-inch indium phosphide production. Ramping at two sites in parallel will significantly accelerate production capacity ramp.

    Transceiver module assembly capacity expansion (EP, Malaysia)underway

    Benefit: rapidly ramp module capacity to support demand growth

    Continuing to expand production at the existing primary facility.

    Transceiver module assembly capacity expansion (Penang, Malaysia)underway
    Start: recently opened

    Benefit: rapidly ramp module capacity to support demand growth

    Expanding production capacity in parallel at a new transceiver production facility.

    Transceiver module assembly capacity expansion (Vietnam)underway

    Benefit: rapidly ramp module capacity to support demand growth

    Adding transceiver production capacity at an existing site that already produces transceiver components.

    Risks & headwinds

    2
    Indium phosphide laser supply constraintQ1 FY26, with some constraint continuing into Q2 FY26

    Constrained Q1 FY26 Datacenter growth to 4% sequential.

    Mitigation: Aggressively ramping 6-inch indium phosphide capacity at two sites (Sherman, Texas and Jarfalla, Sweden). Expecting significant improvement in supply in Q2 and Q3 FY26, and throughout the next calendar year.

    Macroeconomic backdrop and ongoing tariff and regulatory uncertaintyNear-term

    Qualitative impact on near-term demand.

    Mitigation: Maintaining a cautious outlook, focusing on portfolio optimization and driving gross margin expansion within the Industrial segment.

    What to watch in Q2 FY26

    5

    Indium phosphide capacity ramp

    Next 12 months (by Q1 FY27)
    CurrentInitial 6-inch indium phosphide production yields are actually higher than our current 3-inch indium phosphide deals
    TargetRoughly double our total internal production capacity of indium phosphide over the next year

    Why it matters

    This is a key constraint for Datacenter & Communications growth and a driver for gross margin expansion.

    Given the healthy yields we are seeing with 6-inch production, we began production of 6-inch indium phosphide at a second site in Jarfalla, Sweden, ramping at 2 sites in parallel will significantly accelerate our production capacity ramp. Additionally, we are in production on 3 different types of key transceiver components on 6-inch indium phosphide, EMLs, CW lasers and photodiodes. With the ramp of 6-inch production at 2 sites in parallel, we expect to roughly double our total internal production capacity of indium phosphide over the next year.

    Q&A highlights

    6

    How broad-based is the strong demand and record orders, and what are the drivers across the communications portfolio?

    Demand is very broad-based across data center and communications, with record bookings in Q1 FY26, including orders extending over a year out. This provides strong visibility. Strong orders were seen for 800-gig and 1.6T transceivers, DCI products, and traditional telecom, with the Communications segment showing 5 sequential quarters of growth.

    “Yes, I would call it very broad-based. So very strong demand across both data center and communications. When I look back at our fiscal Q1, really saw a record level of bookings in that quarter. And bookings not just for near-term quarters, but bookings further out in time than we normally would see. So bookings leading out, in some cases, over a year over a year from now, right?”

    asked by Samik Chatterjee · answered by James Anderson

    2 min read6 chapters

    Detailed Narrative

    01

    AI Data Center Demand & Optical Networking

    Coherent is experiencing unprecedented🌐 demand for its optical networking products in AI data centers, driving strong sequential revenue growth. The company saw a record level of direct bookings in Q1 FY26, indicating robust customer demand for both 800-gig and 1.6T transceivers, with accelerated adoption of the latter. Coherent's deep portfolio of optical networking technology, vertical integration, and diversified supply chain are highlighted as key competitive advantages.

    02

    Indium Phosphide Capacity Expansion

    To address supply constraints and meet strong demand, Coherent is aggressively ramping its 6-inch indium phosphide production capacity. The world's first 6-inch indium phosphide line in Sherman, Texas, began production last quarter with yields higher than 3-inch lines. Production has now commenced at a second 6-inch indium phosphide site in Jarfalla, Sweden, with the parallel ramp expected to roughly double total internal capacity over the next year. This expansion is crucial for EMLs, CW lasers, and photodiodes.

    03

    Transceiver Module Assembly Expansion

    Coherent is also expanding its transceiver module assembly capacity across multiple locations. Production is being expanded at the existing facility in EP, Malaysia, in parallel with a newly opened transceiver production facility in Penang, Malaysia. Additionally, the company will be adding transceiver production capacity at its existing site in Vietnam, which already produces transceiver components. These efforts aim to rapidly scale module capacity to support demand growth.

    04

    Advanced Optical Technologies (LPO, LRO, CPO, NPO, OCS)

    The company is making progress on next-generation optical technologies including LPO, LRO, CPO, and NPO, with strong customer engagements. They have shipped LPO and LRO 800-gig and 1.6T transceivers to customers and commenced sampling 400-milliwatt CW lasers for CPO and silicon photonics applications. The Optical Circuit Switch (OCS) platform is progressing well, having shipped systems to 7 customers, with revenue and backlog growing sequentially and expected to ramp throughout calendar 2026, adding over $2 billion in addressable market opportunity.

    05

    Communications Market Recovery & Growth

    The Communications segment demonstrated strong performance, with revenue growing 11% sequentially and 55% year-over-year in Q1 FY26. This growth was primarily driven by products for data center interconnect (DCI), including 100-gig, 400-gig, and 800-gig ZR/ZR+ coherent transceivers. The company also noted a steady recovery in traditional telecom applications, supported by new industry-leading platforms like the multi-rail technology platform, which is generating significant customer interest.

    06

    Portfolio Optimization & Footprint Streamlining

    Coherent is actively streamlining its portfolio and physical footprint to focus on long-term growth and profitability. The sale of the Aerospace and Defense business closed in Q1 FY26, and the sale of a product division in Munich, Germany, is expected to close in Q3 FY26; both are immediately accretive to gross margin and EPS, with proceeds used for debt reduction. Since the beginning of FY25, 23 sites have been sold or exited, with further consolidation planned to optimize asset utilization and return on invested capital.

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