Fabrinet Shatters Records on Surging Optical and HPC Demand, Forecasts Continued Growth
Fabrinet (NYSE: FN) delivered a blockbuster second quarter, with revenue and profit soaring past its own forecasts on the back of surging demand in both its core optical communications business and emerging high-growth sectors. The results, for the period ended December 26, 2025, mark the company's fastest year-over-year growth rate since its IPO.
"We are firing on all cylinders," said Chairman and CEO Seamus Grady during the earnings call. The company posted record revenue of $1.13 billion, a staggering 36% increase from the same quarter last year. Profitability also hit a new high, with non-GAAP earnings per share reaching $3.36, despite facing significant foreign exchange headwinds.
The engine of growth remains optical communications, which generated $833 million in revenue. A standout was the data center interconnect (DCI) segment, where revenue jumped 42% year-over-year to $142 million. Grady described the DCI demand outlook as "durable," though he acknowledged supply constraints for cutting-edge components like 200G-per-lane products used in 800G and 1.6T modules. To alleviate this, the company secured a second-source supplier for a critical laser component during the quarter.
Perhaps the most dramatic story was the explosive entry into the high-performance computing (HPC) market. Revenue from its first major HPC program skyrocketed to $86 million, up from just $15 million the prior quarter. Management expects this program to be fully ramped within the next two quarters, potentially generating over $150 million in revenue at peak. Grady emphasized that Fabrinet's role as a second-source supplier on this project is an opportunity to gain share through superior execution, and that the company is actively pursuing other HPC customers.
"The HPC ramp is a game-changer," said Michael Thorne, a technology sector analyst at Veritas Capital. "It demonstrates Fabrinet's ability to pivot its advanced manufacturing expertise into adjacent, high-margin markets beyond traditional optics. This diversifies their revenue stream and de-risks the model."
Other non-optical segments also showed strength, with overall non-optical revenue up 61% year-over-year to $300 million. Automotive revenue held steady at $117 million, while industrial lasers saw modest growth.
To support this growth, Fabrinet is aggressively expanding capacity. Construction of a massive new 2-million-square-foot facility (Building 10) is on track for a 2026 completion. Additionally, the company is converting office space at its Pinehurst campus into manufacturing lines, which CFO Csaba Sverha said could unlock over $150 million in additional revenue potential.
Looking ahead, Fabrinet provided an optimistic forecast for Q3, guiding revenue to between $1.15 billion and $1.2 billion with EPS of $3.45 to $3.60. Management expects continued growth in telecom, datacom, and HPC, partially offset by persistent FX pressures.
"The numbers are impressive, but let's not get carried away," countered Lisa Chen, a portfolio manager known for her skeptical takes. "This HPC windfall is from a single program. What happens when that ramps are complete? The optical business is cyclical and capex is soaring. That negative free cash flow this quarter is a red flag everyone's ignoring in the euphoria."
"I see it differently," responded David Park, a long-time investor in manufacturing tech. "The consistency of their execution is what's compelling. They guided conservatively and blew past it. The margin expansion despite FX issues shows real operating leverage. Building 10 isn't just about capacity; it's about capturing the next wave of optical innovation like co-packaged optics."
Indeed, Grady confirmed the company is already generating early revenue from co-packaged optics (CPO) and is engaged in several optical circuit switch (OCS) projects, positioning Fabrinet at the forefront of data center infrastructure evolution.