COHERENT 2026 Q2
Earnings Overview & AI Insights

Earnings Performance

Summary of Financial Performance: Coherent delivered an outstanding fiscal 2026, with pro forma revenue up 28% to a record $7.0 billion and reported revenue of $7.12 billion, up 23% year over year. Q4 revenue reached a record $2.05 billion, up 13% sequentially and 34% year over year. Non-GAAP EPS rose 59% for the full year to $5.61 and was $1.74 in Q4, up 74% year over year. Gross margin expanded 152 bps for the year to 39.4%, while operating margin improved nearly 300 bps to 20.5%. The balance sheet strengthened materially, with debt leverage falling to 0.7x from 2.0x in FY25.

Company Outlook & Strategy: Management expects fiscal 2027 to be another strong year, with growth accelerating further and revenue expected to exceed $3 billion in a quarter by the end of FY27. Q1 FY27 guidance calls for revenue of $2.2 billion to $2.4 billion, non-GAAP gross margin of 39.5% to 41.5%, and non-GAAP EPS of $1.85 to $2.05. The strategy centers on scaling capacity, especially 6-inch indium phosphide, while ramping new growth platforms including OCS, CPO, PhotonLink, multi-rail, and thermal management solutions. Management emphasized continued margin expansion and EPS growth faster than revenue.

Key Industry Trends: The call highlighted exceptionally strong demand tied to AI data center expansion, optical networking growth, and the shift from copper to optical connectivity. Broader demand remained strong across transceivers, DCI, scale-out networking, and telecom. Management repeatedly pointed to long customer visibility, with orders extending into calendar 2028 and LTAs through the end of the decade, underscoring a robust AI infrastructure cycle.

Operational Highlights: Coherent is rapidly expanding production capacity, with 6-inch indium phosphide output on track to double year over year by the current quarter, one quarter ahead of plan, and more than double again by the end of calendar 2027. Yields on 6-inch lines were said to exceed 3-inch across CW lasers, EMLs, and photodiodes. The company is also ramping ultra-high-power CW lasers for CPO, expanding OCS production across two sites, and preparing CPO revenue to begin contributing in fiscal Q2. Operational efficiencies improved via shared services, while SG&A leverage improved materially. Capex rose sharply to support future growth and is expected to increase again in Q1.

Challenges & Risks: The industrial segment remained weak overall, with growth offset by broader softness outside semicap and display equipment. Coherent also faces execution risk in scaling multiple new product ramps and capacity expansions. Market concerns around CPO timing were addressed directly by management, which said it had seen no demand pushout and in fact saw demand being pulled forward.

Key Analyst Questions & Responses: Analysts focused on the 6-inch indium phosphide ramp, how it translates into revenue and margins, and the outlook for CPO amid market chatter about delays. Management said the ramp is ahead of plan, yields are better than 3-inch, and laser output growth should support stronger data center revenue in the near term. On CPO, management said demand remains strong, with no pushout seen and customer pull-in instead, and reiterated that initial revenue should begin in the December quarter.