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    COHR
    Earnings call· Dec 2025(Q2 FY26)

    COHERENT Q2 FY26 earnings call COHR

    Feb 4, 2026 Source

    Executive summary

    Coherent Corp. Q2 FY26 — Strong AI-Driven Growth and Capacity Expansion

    Coherent Corp. delivered strong Q2 FY26 results, driven by exceptional demand from AI build-out in its Datacenter & Communications segment. The company is rapidly expanding its 6-inch indium phosphide production capacity and transceiver assembly to meet robust customer orders, which are extending further into future periods. Management anticipates sustained strong revenue growth and meaningful operating leverage in the coming quarters, with fiscal '27 growth expected to exceed fiscal '26.

    Highlights

    5

    • Revenue increased 9% sequentially and 22% year-over-year on a pro forma basis to $1.69 billion.

    • Non-GAAP gross margin expanded by 24 basis points sequentially and 77 basis points year-over-year to 39%.

    • Non-GAAP EPS grew 11% sequentially and 35% year-over-year to $1.29.

    • Datacenter & Communications segment revenue grew 11% sequentially and 34% year-over-year.

    • Data center bookings book-to-bill ratio exceeded 4x, indicating extraordinary demand and visibility.

    Concerns

    2

    • Non-GAAP operating expenses increased to $321 million from $304 million sequentially and $283 million year-over-year.

    • Capital expenditures increased to $154 million from $104 million sequentially and $106 million year-over-year, with further sequential increases expected.

    Guidance & targets

    13
    CategoryTargetConfidence
    Q3 FY26 Revenue
    $1.7 billion - $1.84 billion
    high materiality
    High
    Q3 FY26 Non-GAAP Gross Margin
    38.5% - 40.5%
    high materiality
    High
    Q3 FY26 Non-GAAP Total Operating Expenses
    $320 million - $340 million
    medium materiality
    High
    Q3 FY26 Non-GAAP Tax Rate
    18% - 20%
    low materiality
    High
    Q3 FY26 Non-GAAP EPS
    $1.28 - $1.48
    high materiality
    High
    Fiscal Year 2027 Revenue Growth Rate
    Exceed fiscal '26 growth rate
    high materiality
    High
    Data Center Sequential Revenue Growth
    Double-digit sequential growth
    medium materiality
    High
    Industrial Segment Sequential Revenue Growth
    Roughly flat sequentially in current quarter, sequential growth in June quarter and remainder of calendar year
    medium materiality
    Medium
    Internal Indium Phosphide Production Capacity
    Double by the fourth quarter of this calendar year
    high materiality
    High
    CPO Solution Revenue
    Initial revenue towards the end of this calendar year, more significant revenue contribution next calendar year and beyond
    medium materiality
    High
    OCS Revenue
    Grow sequentially in the current quarter and the coming quarters
    medium materiality
    High
    Communications Business Sequential Revenue Growth
    Grow sequentially in the current quarter as well as our June quarter
    medium materiality
    High
    3D Sensing Revenue (Apple Partnership)
    Starts to kick in in the second half of this calendar year
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Datacenter & Communications
    Accounts for over 70% of total revenue. Driven by strong growth in both Datacenter and Communications markets. Data center growth was driven by 800 gig and 1.6T transceivers. Communications growth was driven by DCI and scale across products, as well as traditional telecom applications.
    Data center revenue growth: 14% QoQData center revenue growth: 36% YoYData center bookings book-to-bill: >4xCommunications revenue growth: 9% QoQCommunications revenue growth: 44% YoY
    		$1.18B34%11%improved
    Industrial
    Sequential growth in Q2 was driven by industrial lasers and engineered materials product lines. Expects sequential growth in June quarter and remainder of calendar year due to increased semi-cap orders.
    Orders from semi-cap customers: significant increase
    		$0.51Bflat (pro forma)4%—

    Operational metrics

    13
    Non-GAAP Gross Margin
    39%24 bps sequential improvement, 77 bps year-over-year improvement
    Q2 FY26

    Achieved as part of gross margin expansion strategy, with significant benefits in Datacenter & Communications.

    Non-GAAP Operating Expenses
    $321 millionup from $304 million QoQ, up from $283 million YoY
    Q2 FY26

    Increased primarily due to R&D investments in Datacenter & Communications.

    Operating Expenses as % of Revenue
    19%down from 19.2% QoQ, down from 19.7% YoY
    Q2 FY26

    Reflects progress on driving efficiencies and greater leverage.

    SG&A as % of Revenue
    9.6%down from 9.8% QoQ, down from 10.2% YoY
    Q2 FY26

    Due to continued progress on driving efficiencies and greater leverage, with a long-term target of 8%.

    Non-GAAP Operating Margin
    19.9%up from 19.5% QoQ, up from 18.5% YoY
    Q2 FY26

    Driven by revenue growth and gross margin expansion.

    Non-GAAP EPS
    $1.29up from $1.16 QoQ, up from $0.95 YoY
    Q2 FY26

    Strong growth driven by revenue and margin improvements.

    Debt Leverage Ratio
    1.7xdown from 2.3x YoY
    Q2 FY26

    Maintained below 2x, reflecting progress in strengthening the balance sheet.

    Capital Expenditures
    $154 millionup from $104 million QoQ, up from $106 million YoY
    Q2 FY26

    Increased to support exceptional customer demand in Datacenter & Communications and rapid capacity expansion.

    Headcount Reduction (Munich sale)
    425 employees
    Q2 FY26

    Result of the sale of the product division based in Munich, Germany.

    Sites Exited (portfolio optimization)
    33 total10 in Q2 FY26
    past 6 quarters

    Part of ongoing initiative to streamline footprint and exit underutilized/unnecessary sites.

    R&D Growth
    16%
    YoY

    Investments focused on areas with highest ROI, particularly Datacenter & Communications.

    Indium Phosphide Wafer Starts
    80%of target capacity
    Q2 FY26

    Represents progress towards doubling indium phosphide capacity by Q4 CY26, ahead of schedule.

    6-inch Indium Phosphide Capacity Share
    approximately half
    by end of CY26

    Expected share of total internal indium phosphide capacity, growing from current levels.

    Industry KPIs

    11
    MetricValueDetails
    M a contributiondivestiture of Munich product division
    Orders book to bill>4xratio
    Long term agreementsnumber of long-term supply agreements
    Segment revenue growthDatacenter & Communications: $1.18B, Industrial: $0.51BUSD
    Ai data center content revenuestrong growth
    Design wins product cycle rampssignificant design win
    Order visibility backlog policyextraordinary visibility
    Supply demand imbalance lead timessupply-demand imbalance
    Capacity expansion internal sourcingdoubling capacity
    End market revenue mix organic growthDatacenter & Communications: 70%, Industrial: 30%% of revenue
    Operating margin incremental leverage19.9%%

    Orderbook & backlog

    3
    Data Center Bookings Book-to-Bill Ratio>4xQ2 FY26

    increased

    Customers placing orders further out in time, providing strong visibility for coming quarters.

    OCS Backloggrew sequentiallyQ2 FY26

    sequential growth

    Includes both 64x64 and 320x320 system sizes, with most weighted toward larger size. Over 10 customer engagements.

    Bookings Durationinto calendar '27Q2 FY26

    Most of calendar '26 is booked out, and calendar '27 is filling very quickly. Detailed long-term forecasts from big customers go out 2-3 years into calendar '28.

    Product announcements

    3
    ProductTypeDetails
    CPO solution with new high-power CW Laserlaunch
    Multi-rail technology platformlaunch
    Uncooled 3-pin micro-pump solutionlaunch

    Deals & partnerships

    4
    Munich product division (materials processing tools)divestiture

    Completed the sale of the product division based in Munich, Germany. Over the past 4 quarters, this business contributed average quarterly revenue of $25 million with a gross margin well below Coherent's corporate gross margin. Reduced employee headcount by approximately 425 employees.

    Market-leading AI data center customercustomer contractexceptionally large purchase order

    For a CPO solution that includes Coherent's new high-power CW Laser. A key factor in the customer's decision was the production of the CW Laser on Coherent's 6-inch indium phosphide line in Sherman, Texas.

    Leading DCI OEMcustomer contractsignificant multiyear design winmultiyear

    Utilizes Coherent's industry-first uncooled 3-pin micro-pump solution for Data Center Interconnect (DCI).

    Applepartnershipsignificant new agreementmultiyear

    Partnership for 3D sensing, announced as part of Apple's American manufacturing program. Leverages 6-inch gallium arsenide VCSEL technology in Sherman, Texas.

    Capital programs

    2
    Indium Phosphide Production Capacity Expansionunderway
    Period spend: $154 million (part of total capex)

    Benefit: double internal indium phosphide production capacity

    Driven by a ramp of 6-inch wafer production, which produces more than 4x as many chips at less than half the cost compared to 3-inch wafers. Ramping production in parallel at 2 sites: Sherman, Texas and Jarfalla, Sweden.

    Transceiver Module Assembly Capacity Expansionunderway

    Benefit: expanding production capacity in Malaysia, Vietnam and other locations

    Expanding to meet rapid growth in demand for transceiver products.

    Risks & headwinds

    2
    Increased Capital Expendituresremainder of FY26

    $154 million in Q2 FY26, expected to increase sequentially over the remainder of this fiscal year

    Mitigation: Supporting the exceptional customer demand in Datacenter & Communications by rapidly expanding capacity.

    Supply-Demand Imbalance for Indium PhosphideCY26, CY27, potentially longer

    Industry supply-demand imbalance expected to continue

    Mitigation: Rapidly expanding 6-inch indium phosphide production capacity, driving aggressive goals beyond current doubling target to meet demand.

    Q&A highlights

    8

    How would you characterize demand visibility and the capacity ramp for indium phosphide, particularly the contribution of 6-inch wafers?

    Management described demand visibility as 'extraordinary,' with bookings extending into calendar year 2027 and detailed forecasts into 2028. They are also securing long-term supply agreements. For indium phosphide, wafer starts are already at 80% of the target to double capacity by year-end, with 6-inch wafers producing 4x more chips at less than half the cost.

    “bookings being booked out through the rest of this calendar year. And most of the bookings we're getting now are into calendar '27.”

    asked by Samik Chatterjee · answered by James Anderson

    2 min read6 chapters

    Detailed Narrative

    01

    AI-Driven Demand and Visibility

    Coherent is experiencing extraordinary demand and visibility due to the AI build-out, particularly in optical networking infrastructure. Data center bookings saw a book-to-bill ratio exceeding 4x in Q2 FY26, with orders extending into calendar year 2027 and detailed forecasts reaching calendar year 2028. The company is also securing long-term supply agreements with financial commitments from customers to guarantee demand, providing robust confidence in future growth.

    02

    Indium Phosphide Capacity Expansion

    The company is rapidly expanding its 6-inch indium phosphide production capacity, with wafer starts already at 80% of the target to double capacity by Q4 CY26. This 6-inch technology produces over 4x as many chips at less than half the cost compared to 3-inch wafers, driving significant revenue growth and margin expansion. Production is ramping at two sites, Sherman, Texas, and Jarfalla, Sweden, with 6-inch yields exceeding 3-inch lines, and committed substrate supply has been secured.

    03

    1.6T and CPO Product Ramps

    Coherent expects significant growth from 1.6T transceivers, with initial ramps driven by EML and Silicon Photonics-based transceivers, followed by 200-gig VCSEL-based 1.6T transceivers in H2 CY26. The company secured an exceptionally large purchase order for a CPO solution, including its new high-power CW Laser, with initial revenue expected by end of CY26 and significant contribution in CY27. This CPO solution leverages 6-inch indium phosphide production in Sherman, Texas, highlighting a competitive advantage.

    04

    Optical Circuit Switch (OCS) Momentum

    OCS backlog grew sequentially in Q2 FY26, with over 10 customer engagements for both 64x64 and 320x320 systems. OCS revenue is expected to grow sequentially in the current and coming quarters, addressing an expected addressable market opportunity of over $2 billion over the coming years. Applications are broadening beyond traditional uses to include DCI and scale-up networks, indicating a larger market potential than previously assessed.

    05

    Industrial Segment Recovery and Portfolio Optimization

    The Industrial segment saw a significant increase in orders from semi-cap customers in Q2 FY26, expected to drive sequential growth in the June quarter and H2 CY26. Coherent also completed the sale of its Munich-based materials processing product division, which is expected to be immediately accretive to gross margin and EPS. This divestiture, along with other streamlining initiatives, has led to exiting 33 sites over the past six quarters, improving operational efficiency.

    06

    Operational Efficiency and Margin Expansion

    Non-GAAP gross margin improved by 24 bps sequentially and 77 bps YoY to 39%, driven by reduced product input costs, manufacturing efficiency gains, yield improvements, and pricing optimization. SG&A as a percentage of revenue declined to 9.6%. The company is consolidating ERP platforms and implementing low-cost region initiatives to further drive efficiencies and achieve its long-term SG&A target of 8% of revenue, while investing in R&D for future growth.

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