Fabrinet's First Quarter 2027 Financial Results Conference Call - FABRINET

Good afternoon, and welcome to FRABINET's Financial Results Conference Call for the first quarter of fiscal year 2027. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded. I'll now turn the call over to your host, Gerald Tumajanian, VP of Investor Relations. Thank you, Operator, and good afternoon, everyone. Welcome to today's conference call to discuss Fibonacci Financial and Operating Results for the first quarter of fiscal year 2027, which ended September 25, 2026. With me on the call today are Seamus Grady, Chairman and Chief Executive Officer, and Chabas Farah, Chief Financial Officer. This call is being webcast, and a replay will be available at investor.fibonac.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the Investor section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAP reconciliation, as well as additional details of our revenue breakdown. In addition, today's discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise them in light of new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-K filed on August 18, 2026. We will begin the call with remarks from Seamus and Chaba, followed by time for questions. I would now like to turn the call over to Aberneth's Chairman and CEO, Seamus Grady. Seamus? SEAMUS GRADY Thank you, Gero. Good afternoon, everyone, and thank you for joining our call today. We are off to an excellent start to fiscal 2027. with first quarter revenue that was well above our guidance range and represented another quarter of accelerating growth. First quarter revenue of $1.474 billion increased a remarkable 51% from a year ago and 12% from the fourth quarter, with strong year-over-year and sequential growth from all three of our key revenue categories. In addition to delivering our highest top-line growth in 10 years, our revenue performance helped generate record non-GAAP earnings per share of $4.34, also well above the high end of our guidance range. Our impressive results are being driven by broad-based demand across multiple product areas, including continued strong momentum for data center interconnect, growing demand for data-center transceivers, and expansion in high-performance computing. Looking to the second quarter, we expect new program wins and ramps, in addition to growth from existing programs, to further enhance our growth profile, while also supporting our industry-leading margins. We have discussed some of the new programs that we expect to contribute to our growth this year, in particular, hyperscale direct transceivers and merchant transceiver for the data center market. We are installing capacity to meet demand for optical circuit switches and multi-rail systems. We are also working with a number of customers on NPO and CPO opportunities and expect contributions from these programs toward the end of fiscal 2027. We continue to be extremely enthusiastic about these opportunities and their role in further scaling our business. In order to support the rapidly increasing demand and new program wins across our business, we have taken a number of important steps. During the first quarter, we completed our purchase of a new site in Santa Clara, more than doubling our capacity in Silicon Valley. We're already in discussions with a handful of customers about leveraging this additional capacity. In Thailand, we have been expanding at multiple sites. We are just a few months away from completing Building 10, adding more than 50% to our global footprint. Having accelerated construction and qualification on portions of Building 10 we are already generating initial revenue from the facility. Our manufacturing expansion at Pinehurst and our new Navanacorn site, which is now up and running, are further helping us to stay ahead of increasing customer demand. However, even with this significant expansion, we foresee the need for additional space based on rapid growth from current engagements, combined with new programs that will be ramping in the quarters ahead. As such, we have made the decision to begin construction of Building 11 at our Chonbury campus as soon as Building 10 is completed in January. Building 11 will add approximately 1.5 million square feet, with incremental revenue capacity of approximately $3 billion. Even as we begin executing plans for Building 11, we are already exploring potential new sites to further support the unprecedented levels of customer activity we are experiencing. In summary, we delivered an excellent first quarter for a strong start to the fiscal year. We are seeing growing demand across the markets we serve and remain focused on executing to meet the exacting needs of our customers. At the same time, we are rapidly scaling up our manufacturing capacity to meet anticipated demand from the pipeline of opportunities in front of us. All of this makes us more excited than ever about our prospects for continued profitable growth. Now I'd like to turn the call over to Chaba for more details on our first quarter results and our outlook for the second quarter of fiscal 2027. Chaba. Thank you, Seamus, and good afternoon, everyone. We are off to an excellent start to fiscal year 2027, the first quarter revenue that was well above our guidance range. Revenue of $1.474 billion grew 51% from a year ago for another quarter of accelerating revenue growth. These results flowed through the bottom line, producing record non-GAAP EPS of $4.34, which was also well above hour guidance range, Looking at the details of the quarter, we had a very strong performance from data center products, which grew 78% from a year ago and 16% from Q4 to $777 million, or 53% of total revenue. Growth in data center revenue was broad-based, driven by strong demand across transceivers, data center interconnect, and high-performance computing, with continued momentum across all three categories. We continue to see growing demand and improving visibility from customers across the data center market, giving us strong confidence in our outlook for Q2. Looking ahead, the full year also looks very promising, supported by continued growth in existing programs and additional contribution from new transceiver programs as they begin to ramp. Communications infrastructure revenue was $444 million. an increase of 35% from a year ago, and 8% from Q4. Growth was broad-based across a diverse range of customer programs and applications, including telecom systems, components, and satellite communications. Automotive, industrial, and other revenue was $253 million, up 20% from the year ago and 8%. In the first quarter, the laser market contributed the most to our sequential growth in this category as we make headway with customers who have historically focused on in-house manufacturing as i discussed the details of our p l all expense and profitability metrics will be presented on a non-gap basis unless otherwise noted gross margin in the first quarter was 12.1 percent a 10 basis point decline from q4 primarily due to annual merit increases that take effect in q1 gross margin declined 20 basis points from a year ago primarily due to fx headwinds operating expenses remained well controlled at 1.3 percent of revenue in the first quarter consistent with q4 as a result operating margin was 10.8 percent down 10 basis points sequentially but up 20 basis point year over year our operating model continues to deliver leverage with operating margin increasing from a year ago despite a slight decline in gross margin. Interest income was six million dollars and we had a relatively small foreign exchange evaluation loss of two hundred twenty thousand dollars. Our non-GAAP tax expense was six million dollars excluding a twenty million dollars non-cash Pillar 2 top-up tax provision resulting in a non-GAP effective tax rate of four percent. Tax Tax credits intended to mitigate the impact of Pillar 2 are progressing in Thailand, but have not yet been implemented. As a result, we expect some variability in our reported tax expense over the coming quarters. In addition to the top-up tax provision, GAAP net income includes a $21 million non-cash unrealized loss related to our minority investment in rate tax, which is also excluded from our non-GAAP results. gap net income was $103 million for $2.86 per diluted share. Non-gap net income reached $157 million for $4.34 per dilute share, marking another all-time high for the company. Turning to our balance sheet, we ended the first quarter with cash and short-term investments of $757 million, down $119 million from the end of Q4. operating cash flow for the quarter was 21 million dollars capex increased to 159 million dollars driven by investments in growth and capacity expansion this included the 77 million dollars acquisition of our second campus in santa clara as well as continued construction costs associated with building tanning chonburi and another capacity expansion initiatives as a result free cash flow was an outflow of $137 million in the quarter. In the first quarter, we repurchased approximately 77,000 shares at an average price of approximately $380 per share for a total cash outlay of $29 million. Since the end of the quarter, our Board authorized an additional $103 million for repurchases, bringing the total remaining authorization to $200 million. Turning to our guidance for the second quarter of fiscal 2027, we are encouraged by the increasing demand trends that we are seeing across our business. We expect that our growth will again be led by data center revenue with expansion from data center interconnect and transceiver programs, further bolstered by new program lands that we expect to continue increasingly over the course of the year. Data center growth will be complemented by sequential and year-over-year growth in communication infrastructure as well as in automotive, industrial, and other revenue. For the second quarter, we anticipate revenue to be in the range of $1.6 billion to $1,65 billion, representing year- over-year of 43% at the midpoint. From a profitability perspective, we expect to see efficiencies and leverage drive incremental improvements in margins. We anticipate non-GAAP EPS to be between $4.77 and $4,92. In summary, our impressive first quarter results represent a strong start to fiscal year 2027. With multiple significant programs ramping over the next few quarters, we are also very optimistic that we can deliver a terrific second quarter with momentum extending through the rest of the fiscal year. Operator, we are now ready to open the call for questions. Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you'll need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and and the follow-up. Please stand by while we compile the Q&A roster. And our first question comes from the line of Christopher Rowland of Susquehanna. Your line is now open. Christopher Rowlan Hi. Thank you so much for the questions. I guess my first one, like in your prepared remarks and also the press release, you talked about broad-based demand across multiple significant programs and then new product ramps for their supporting growth I guess first the existing programs were those specifically the hyperscale and merchant opportunity and secondly the new programs was that OCS and multi rail and if you could you know provide any more color as to these new opportunities, the size, engagements, that would be great. Hi, yeah, the growth, Christopher, the growth we're seeing is pretty broad-based. The heartening thing from our point of view is it's across really all of the industries that we serve and all of our customers. You know, the group has been very strong in our data center business, in our communications infrastructure business, and even our automotive and industrial and other business has been growing nicely. And some of that growth is with the programs you mentioned. Our DCI business continues to be very strong and we're just starting to get going with the two programs that you mentioned, multi-rail and OCS. So the growth vectors, if you like, are multiple and across really all aspects of our business. You know, even though we've grown, as we said in the preparatory mark, You know, we were up 51% compared to the same quarter a year ago. We're looking at continued very strong momentum as we go into Q2, and a lot of these newer programs are really just beginning to get going. So we're pretty excited about what's in front of us. Thank you, Seamus. And maybe another one, just the NPO-CPO opportunity. I think there's a lot more discussion about early programs starting in late 27. Maybe if you can talk about the parts of that opportunity you might be able to supply. Is it just NPO? Is it also HPC boards? And how big do you think this can be for you overall? Yeah, we have a number of NPO programs that we're confident we will start to see revenue from those towards the latter half of this fiscal year, and also some CPO programs with several customers. You know, the nice thing, I suppose, about our business is it's not really either or. We've always said that NPO and CPO will be complementary to pluggables. So we see pluggable continuing for a long time. We'll probably see more immediate opportunities with NPO. CPO seems to be still a little bit further out. But, you know, we have several programs for both NPO and CPO. We're finding, as the years go by, we're engaging much earlier with the customers. So we're getting involved right at the very early stage, in some cases at the concept stage with the consumers, and really helping the customers figure out how to build these remarkable products that they design. So our manufacturing expertise is a real benefit to our customers in that we're able to help them figure out, you know, how to make the products manufacturable with a predictable deal. So that's really being of benefit to us and our customers and that we are involved very early and really getting to see those latest and greatest products, in many cases, years before they're being talked about. So we're very excited about that. Thank you, Sherman. Thank you. Chris. Thank you. One moment for our next question. Our next question comes from the line of Carl Ackerman of B&B Peribas. Your line is now open. Yes, thank you. Seamus or Saba, could you speak to the main drivers of your December core outlook by segment? I guess in particular, you know, within data center, I think you've got a merchant transceiver program layering into your existing datacom scale out transceiver business as well as a new customer ramping across coherent plugables so maybe you could discuss how you see the scale out versus scale across growth opportunity progressing thank you yeah we we don't guide by segments we obviously we talk about the segments when we report the the uh the quarter just ended we don'T break out the guidance by segment in in for the quarter in front of us but you know I would say that the the growth is broad based and it's across really all the segments including the programs that you just mentioned the merchant programs are beginning to get going as are the hyperscale direct we're ramping those uh currently so you know we have we've several several programs again i wouldn't want to call out or give specific guidance in any one segment or any one product but we're on track i would say to deliver good good solid growth in q2 got it thank you um maybe maybe for some if i could sneak one more in, please. I know your share repurchases are opportunistic, but does the expansion of your repurchase program suggest you'll be more aggressive given where the stock is here? I guess why the need to broaden the repurchASE program today and give the capital requirements for building 1011? Is there a minimum cash level you need to run and invest in the business? Thank you. Hi, Carl. So let me give you some brief regarding our capital allocation. So our strategy hasn't changed. So our number one priority is to continue to invest in growth. As pointed out we we are using cash and we are using our balance sheet to expand our capacity and working capital requirement as we are going through this staggering growth nevertheless as we have always been opportunistic we have always been strategic with our share buyback program that we continue to designate surplus cash flow to the 10b5 plan as well as remain opportunistic on the market when when we see fit and then when we are in an open window so last quarter purchases were mostly driven by by our 10b5 plan and it just happened to be in our first quarter when we review our capital allocation strategy and we launch our new 10b-5 plan so we we believe that we will continue to adhere to our policy of number one financing growth number two is designating surplus cash to the 10b 5 plan and number three also being opportunistic with buyback so those are the footings of our increased authorization as well so our board have just increased the buyback to 200 million dollars so that will be deployed between 10b5 and an opportunistic program as well thank you thank you one moment for our next question questions. Our next question comes from the line of Joseph Cardozo of J.P. Morgan. Your line is now open. Joseph Cardoso, J.D.: Hey, good afternoon, and congrats on the results. Maybe for my first one, bigger picture question, you had some large players in the industry announce an acquisition this morning, and I believe they happen to be customers of yours, so maybe curious if you could opine on both whether this—how you guys are thinking about this relative to an opportunity for Fabrinet, as well as any bigger picture thoughts on the consolidation between optos and semis and what this means for the industry going forward more broadly. And then I do have a follow-up. Thank you. Hi, Joe. Yeah, so we're not familiar with the terms of the deal. It's obviously late-breaking news for all of us, and we haven't had a chance to with either company i will say you know both both companies are customers of fabric lamentum has been a customer for a very long time really since the foundation of our company um lamentum has been a a customer of a fabric and continues to be really excellent customer for us marvell has become a customer more recently and we're you know so we're excited about the opportunity in front of us historically when there's been consolidation in the industry it has tended to benefit fabric if you look back at some of the the consolidations that happened over the last several years i think at the time there was maybe a thought that it might be some of those consolidations might be bad for fragment but in all cases it turned out to be positive for fabric whether you whether you look at the let's say the momentum acquisition of neophotonics or when infinir acquired corient or even the more recent one when when nokia has acquired infinite in all cases we've seen our our business subsequently grow with the with the combined entities so we we hope and expect that this will be the same obviously our relationship with with both companies is really excellent and we look forward to learning more about the the merger and uh and understanding what that means for us and how we can continue to help and support both companies or the new company um as regards the the overall let's say merger between electronics and photonics you know it's something that we've been um you know really benefiting from and pointing to for for for a long time really um there is this this you know if you like overarching migration from the electronics world to the photonics world and you know it was originally of course over vast distances subsea and the like and now we're down to much closer distances, and when you get right down to, you know, co-packaged optics and near-package optics, you're down to very, very close connections, and including products like optical circuit switching and the like, which are really exciting products. And really, we are seeing the convergence of, you knows, solid state and photonics. And, you know. Fortunately, Farber, we're right in the middle of that, and we feel perfectly poised to benefit as that convergence unfolds and continues. So we're very excited about it. We're excited about the opportunity, not just with the Lamentum Marvell transaction, but in general, this convergence that's going on and has been going on for some time. And we're really just at the start of this. This is really the very first innings, I would say, of this So this kind of overarching convergence that's going on. Got it. Appreciate the thoughts there, Seamus. And then maybe as my second one, I believe you guys are calling for one cue to kind of be a trough here for gross margins and then sequential improvement in two cue. But kind of wanted to take a step back and just can you maybe outline how you guys ARE thinking about the contribution between some of these ramping programs, FX, and then anything else? maybe that I'm missing there, and that there are drivers there. And then as we think about maybe the full year here, are those tailwinds likely to continue? And sorry, the last piece of this would just be, obviously you guys are talking about some of these new opportunities around OCS, multirail, MPO, CPO. Could these programs be margin accretive to the model, or should we think of them kind of triangulating into the average that you guys have talked about in terms of that range? Thank you. All right, so let me take this step by step. So if you look at historically, one thing we are very pleased is to see the consistency of our gross margins and incremental improvement of our operating margin as we continue to grow the top line. So we have been very disciplined with spending. So our operating leverage does show as the company grows and we are going through this huge phase of growth. this comes with challenges as well. Sometimes our gross margin gets pressured from early ramp expenses. We want to make sure that we hire ahead of the ramp to support our customer needs. But those initial phases of headwinds tend to fade away after a short period of time. The biggest variable in our business model has been exchange rate, which we continue to hedge and and try to take out that volatility as much as we can so for the rest of the year exchange rate seems to be flattening out based on the hedges we foresee so we don't anticipate any more headwinds from exchange rates going to the second half of fiscal 2027. with regards to leverage obviously we have a very resilient cost structure with fixed costs being about five percent of our cost you don't get a lot of fixed cost leverage at gross margin level however we do anticipate that our operating margin will continue to expand as we grow with regards to new programs again new program wins and early stage of the of the life cycle tend to be beneficial from gross margin perspective and obviously as the company goes through this transformation as you also and shames mentioned this convergence between photonics and electronics we provide a much greater level of value to our customers which which we do anticipate to accrete our margins so if you look at strategically we do and dissipate our gross margins to improve over time as we continue to deliver higher level of values to our consumers and i think we are doing a good job with managing and mitigating the exchange rate environment and also being disciplined with our opex structure we continue to expect operating margin to grow as we go through 2027 and years ahead i hope it covers all your questions you did thank you appreciate it thank you one moment for our next question Our next question comes from the line of Stephen Fox of Fox Advisor. Your line is now open. Thanks. Good afternoon. I had two questions as well. First of all, maybe just to follow up on the last comment in terms of how convergence with electronics, you were able to add more value. Can you give a couple examples of how that happens and what kind of impact it has on your profitability? And then I had to follow-up. I think the main example is the several examples where we're able to help the customers bring the products to market, that the customers tell us that we help them bring the products to market earlier than if they worked with, we call it a traditional country manufacturer. Our expertise in really figuring out early how to put these products together in a way that's cost effective, but also high yield and repeatable, really helps the customer to get the time to market advantage. um there's several examples i wouldn't want to get too specific but it's everything from the leading edge transceivers to some of the high performance compute products and these newer products such as optical circuit switching um npo and cpo so i i think you know having the knowledge on really how to put these photonics products together in a in a cost-effective way and high yield way gives our customers a big advantage that That results in them continuing to reward us with more and more business. Got it. That's helpful. And then as a follow-up, just looking at this big revenue beat and raise, I'm not quite sure if I understand all the dynamics of it. Like you mentioned new programs, but you also mentioned demand. So were you seeing forecasts get upsided? Were you able to pull in production? Were youable to add capacity to better meet demand? And I'm just not sure, you know, what happened here and what were the big, you know, just sort of broad drivers, forgetting about the product segments for a second. Well, I mean, what happen was our revenue accelerated significantly. You know, Q1 marked our 14th. It wasn't a kind of a one-time event. Q1 mark our 14 consecutive quarter of growth and our seventh consecutive quarter of accelerating year-over-year growth. In Q1, we grew a pretty remarkable 51% year over year. That's an increase of $496 million versus the same quarter a year ago. It really is just extraordinary momentum, which we expect to continue into Q2. And the growth we are seeing is broad-based. It's across several customers and segments. It wasn't a one-time big upside from one customer. It's just significant increase in demand across all of our customers. In Q1, our data center business was up $340 million versus a year-on-year versus the same quarter a year ago, or 78%. So data center businesses up 78%. Our communications infrastructure business was off 35% or $114 million versus Q1 of last year. And our industrial automotive and other business was of 20% or 42 million. so overall up 496 million versus the same quarter year ago across all the industry segments and then for Q2 we don't break out by segment for Q1 but for Q3 at the midpoint of our Q2 guidance we would be up again versus Q2 of last year we would be up 151 million at the point or 43% so just remarkable growth and we believe sustainable growth that's broad based and and continuing into into q2 and hopefully throughout fiscal 27. but just to be clear this was mainly from existing programs where you were able to upside versus original expectations as opposed to new program ramps going faster than expected it's it's both it's both existing programs and i mean new programs as we ramp them their their immediate impact on revenue is not that significant because we're just beginning to ramp them. Obviously new programs then become existing programs and they ramp rapidly, but it's a combination of both. We have a very healthy pipeline of new programs that were ramping, but also programs that were new programs a couple of quarters ago that are now existing programs that were wrapping. So I'd say it's combination of all of the above. Got it, thank you very much. You're welcome. Thank you, one moment for our next question. Our next question comes from the line of George Nodder of Wolf Research. Your line is now open. Hi, guys. Thanks very much. I wanted to ask about Building 11. It looks like you upsized the size of that building. Can you remind us how big the plan was for that building previously and then what it is now? And then also, just looking at the bigger supply chain environment, it feels like, you know, maybe componentry is becoming more readily available for you. I guess I'm inferring that based on the upside here and then the upside in terms of the guidance from the December quarter. But maybe some comments on the supply chain environment would be great. Thanks a lot. Sure. Thanks, George. So first of all, on the capacity, so just to recap, our revenue capacity at the end of fiscal 2026 was about $5.8 billion. We have been aggressively increasing our capacity, and we expect our revenue opacity to be around $10 billion at the beginning of January. so in just a few months from now but the biggest so you know a significant increase in capacity the biggest factor driving this will be the completion of building 10 in chanbury uh which adds two million square feet or about 3.5 billion dollars in revenue capacity um to put that in context just in terms of the physical size you know two two million square feet is about the surface area taken up by 35 american football fields so it's it's uh it's quite gigantic and and that that revenue increase is you know about 75 of our actual fy26 revenue um we we have commissioned our our campus in nava we call it nava one the the campus that we purchased recently and that adds about 400 million dollars of revenue capacity as well as our expanded footprint in santa clara which adds about 300 million so all told you know we'll start the year at about 10 billion of capacity and we continue to invest ahead of the demand uh we're going to rapidly expand our manufacturing footprint to make sure we stay ahead of they the demand we're seeing from our customers uh to that end you know we're not stopping with building 10 we we will be breaking ground on building 11 in seanbury in january um we will probably you know coincide the ribbon cutting for building 10 with the with the groundbreaking for for building 11. building 11 will add about 1.5 million square feet you're right that's maybe a little bit bigger than we originally thought we we tend to get a bit smarter as we as we go along we learn a few things and for for Building 11 you know we don't need much office space in Building 11 because we're more than covered with the other buildings on the campus we don t need much warehousing space so it's it's you know a lot of let's say as a percentage of the total space a lot more of building 11 will be manufacturing space so about 1.5 million square feet or about 3 billion dollars in in revenue capacity and it will take us about 18 months to build and and should come online at the end of fiscal 2028 but based on the the pipeline of business we see in front of us we're already looking for potential new sites both land but also buildings to make sure we stay ahead of the of the demand it's important to note of course that this expansion we funded with our own cash on our balance sheet as you would have seen our capex was significant last year as we purchased the the Santa Clara operation so we continue to fund this growth with our very strong balance sheet and and we continue to deliver ROIC north of 30%. So it's a very compelling business model that we have. All told, if you look at the total, let's say, capacity that we have, if we take Building 10 plus what we had before Building 10 plus NAVA plus Santa Clara plus Building 11, and if we build Building 12 in the future, which we can on the campus in Chunbury. Previously, we had sized all of that at about $14 billion of capacity. We've now revised that up to about $16 billion. So building 11, we originally said it was about $2.1 billion of capacity. Now I think that's closer to $3 billion. As the revenue per square foot continues to go in our favor, smaller, denser, more revenue-dense products improve the revenue for square foot. So that revenue capacity that we're bringing on will be, like I say, about $10 billion in January. But when Building 11 is completed, that will add another $3 billion to take us to $13 billion. Building 12 will add an other $3 million to take it to $16 billion, plus whatever we add in the meantime in terms of other capacity that we uncover as we continue to search for capacity. In terms of components, you know, we – I'm sorry, go ahead. I was just going to ask you about the follow-up question, the component supply chain question. Go ahead, please. Yeah, I was going to say about the components. Yeah, we have been, you know, making good progress and getting our fair share and, thankfully, in some cases, our unfair share of the available components. You know, components are in tight supply across the board. Obviously, demand for everyone is very strong. But, you Know, we've been fortunate. We've been able to keep ahead of that. and, you know, obviously we could always ship more if we have more, but our approach is really to work with the customers and the suppliers to make sure we get what we need to meet the customer's demand and continue to add capacity to make sur that we're never capacity-gated in terms of our ability to grow. So, like I said, we'll continue to have capacity ahead of the demand and we'll continues to work with the customer and the supplier to make we keep the component supply lined up as well. Thank you. You're welcome. Thank you, one moment for our next question. Our next question comes from the line of Mike Genovese of Rosabla Securities, your line is now open. Great, thanks very much. First of all, on the transceiver OEMs that are coming in, how many, are we talking about one or are we taking about more than one transceive OEM that's ramping with the company? we have more than more than one is it more than two we're not going to say much more than that because again these are always as always Mike they're confidential sensitive conversations are going on with the customers and we don't like to say too much but we have we have than one okay yeah and we can we continue to ramp those nicely they're becoming a you know as you can as you can see our, you know, our growth in the data center business was up 78%, and we continue to see strong growth going into Q2. Perfect. And just most of my questions have been asked, so I'm going to ask about the CapEx and the financing. There was about $75 million of long-term borrowing in the quarter. What's the fiscal 27 CapEx plan, and why borrow rather than fund from cash? Let me address the borrowing section first. We have a favorable interest rate environment in Thailand where the cost of borrowing is cheaper than breaking up our cash that is being invested in the U.S. So that's a simple financial decision when we need cash for investment in Thailand is cheaper to borrow there than breaking the investment that it earns. Secondly, our CAPEX plan, as you have seen, we had an outsized CAPEX number in Q1 because of the Santa Clara campus purchase. Other than that, our CapEx is running at about 5% of revenue run rate, which has been somewhat consistent in the last fiscal year. Obviously, as Building 10 comes online, it will be done by January. We will start Building 11, so that will layer on the CapEx spending as well as Seamus mentioned we continue to search for additional capacity so that should come through we should we should see some increase even further increase in in our capex spending for 2027. having said that if you take this large chunky capacity addictions aside our normal I would say capex run rate to support this outsized growth would be at about five percent of the the revenue-run rate for the year okay thank you you're welcome thank you thank you one moment for our next question our next questions comes from the line of tim savage of northland capital markets your line is not open Okay. Sorry about that. And congrats on the results and guidance. Kind of want to pick up where we left off last quarter, where you expressed some optimism of being able to accelerate revenue growth in fiscal 27 versus 26. I imagine you're feeling far more confident about that now, so I wanted to kind of follow up on that, which is, you know, your first half growth rate was 47% given where you guided. Talked about that growth being sustainable, and indeed some new program ramps in the second half of the year. So So I guess a two-part question, you can get an update on your feelings about accelerating growth, and can you sustain something in that range that you're seeing in the first half for the second? Thank you, Tim. You are nothing if not consistent. um yes i think um you know if you look at the growth we've we've been seeing you know it's pretty remarkable really to consider the the growth and it's across the industry segments as i mentioned the numbers i walked through a moment ago you know 51 in q1 uh q2 our guidance would have us at the at 43 growth they're up 151 million year on year at the midpoint of the guidance. And we're continuing to add capacity as fast as we can. You know, Building 10, you know, we have a clear line of sight to what's going into Building 10 and when it's going in to Building 10. Hence our decision to pull the trigger on Building 11, but also to look for additional capacity that we can bring on hopefully before Building 11 is completed. building 11 will take about 18 months from when we start so somewhere around the middle of um you know calendar 2028 so 18 20 20 something months from now um that's when building 11 will will come on stream but we we think we'll need capacity before that so we're actively looking right now there's a few projects we're working on but we're actually looking to bring on additional uh capacity again both land but also a factory space that we can if we can get our hands on it to bring on additional capacity so you know my my i suppose my feelings about the accelerating growth are as as as positive as they were when we spoke approximately 90 days ago if not a little bit more positive i would say um sustainability certainly based on the with the signals we see from the customers who are really happy to show us the demand picture really as far as the eye can see, as far ahead as you can see. It appears to be very sustainable, but the nice thing, I suppose, about our business, Tim, as you know, is we tend to have an asset-like model, and our fixed cost is very low. So even in the doomsday scenario, if there is a downturn, we haven't added any real significant fixed costs. So we'll continue to grow and make sure we benefit from this upside environment that we're in. But also, we're always mindful of, you know, being ready for if there is any kind of a downturn. So we're very optimistic about the future, but also we're pragmatic and we're doing it in a way that we think is low risk and sustainable. So, yeah, to answer the question, I think we're as optimistic as we were, if not a little bit more so than when we spoke 90 days ago. And we do believe that the growth continues to be sustainable, again, because it's across all industry segments that we serve and many, many customers. Okay, great. Appreciate that. If I were to follow up on the NPO-CPO front, obviously, Lumentum talked about a $5 billion win here this morning. And they talked about similar type of numbers in OCS. Yes. I guess, how do you look at those two opportunities in terms of, you know, relative potential for Fabrinet? And, you Know, it sounds like each of these could be, you Know, multi hundred million, if not billion dollar businesses for you guys. Is that crazy to think about? I think that's a fair way to think of it. and they're not even in the, if you like, the numbers yet. They're only just getting started. But they both look to be very, they both have very strong demand. OCS, the demand forecast we see for OCS is very strong. And also for these various NPO programs that we're working on, looks to be a very strong, yeah, either of these or both of these could be multi-hundred million dollar opportunities on their own. And as I said, they're just getting started. We haven't even really started to ship anything yet. But yeah, they are very positive we think for our business. Great. Thanks very much. Thank you, Jim. Thank you. One moment for our next question. Our next question comes from Ryan Kuntz of Needham & Co. Your line is now open. Great. Thank for the question. and, yeah, real nice numbers. I want to ask your view kind of at the macro level about the transceiver market in light of investor concerns that, you know, CPO and NPO are going to be, you know, highly candlestick. And maybe from your perspective, you have a little different view there from talking to your customers and your customers' customers about how you think about the durability of the Datacom transceiver market and maybe how the fulfillment models might be changing a bit um obviously you're seeing some real nice growth some new screen shoots there so anything you can share about the transceivers we appreciate it thank you yeah yeah thanks thanks ryan i think you know the the idea that um it's kind of either or or that cpo was just going to kind of cannibalize uh the the pluggable transceiver market is i i suppose i'll be kind and call it reductive i think it's um it's a bit overly simplistic that you think that it's one or the other we we believe that the that pluggables will continue for a very long time uh but all but that npo and ultimately cpo will also continue to grow so we we don't really think it's One or the Other for for a long time to come um you know if you saw the recent announcement from Cisco and NVIDIA, they announced a roadmap for ultra-dense small form factor plugables, this USFP product, you know, which looks to, I guess, continue the pluggable architecture for many years to come. So, you Know, we think we're ideally positioned to produce all the products in the space, pluggables, NPO, CPO. We're happy to work with the customers. And really, our mission is to just always be ready to produce the customers of the future, sorry, the products of the future for the customers, whatever that might entail, whether it's more dense pluggables or NPO or CPO or all of the above. So we don't see it as an either-or situation. We see it at an and and an also situation. Helpful. Thanks for that. And maybe just a follow-up there with regards to your strength in the datacom side of the world as well as telecom side of world. The middle ground there is coherent light have you have you announced any coherent light winds or um is that a market you feel like you're well positioned for yeah i mean we feel we're very well positioned uh you know those products fit perfectly into our our kind of capabilities we haven't announced anything specific um in that market but uh yeah we we would we would fit they would fit very well with our capabilities great thanks that's all i had thank you ryan thank you i'm showing no further questions at this time. I'll now turn it back to Seamus Grady for closing remarks. Thank you for joining our call today. We're off to an excellent start in fiscal 2027 with year-over-year top line growth of nearly $500 million or 51% and strong momentum continuing into Q2. We are staying ahead of the incredible demand by aggressively expanding our capacity as we see contributions from existing programs and new program ramps driving our rapid growth. We look forward to speaking with you again next quarter. Thanks again, and goodbye. Thank you for your participation in today's conference. To conclude the program, you may now disconnect.