Coherent Earnings Conference Call Interprets AI Data Center Demand Driven Growth

Coherent, a leader in optical communication technology, announced its third quarter financial report for fiscal year 2025, with revenue increasing by 24% year-on-year to $1.5 billion and non GAAP earnings per share of $0.91, exceeding market expectations of $0.86. CEO Jim Anderson stated in the conference call that the performance growth is mainly due to the strong performance of AI data center related businesses and the continued recovery of the telecommunications market.

AI and data center demand surge

This quarter, the revenue of data center business increased by 11% month on month and surged by 54% year-on-year, setting a new historical high. Anderson emphasized that the company has the most comprehensive combination of high-speed optical transmission technologies in the industry, which can meet the demand of AI infrastructure for optical modules with speeds ranging from 100G to 1.6T. At the Fiber Optic Communications Conference (OFC) in March, the company showcased three 1.6T optical module design solutions based on different laser technologies, including EML, VCSEL, and silicon photonics technology routes, highlighting the advantages of technological diversity. In addition, progress has been made in the co packaged optical (CPO) solution in collaboration with NVIDIA, which is expected to further enhance competitiveness in the field of AI computing power.

1.6t product is about to be mass-produced, while 3.2 R&D is progressing synchronously

Anderson revealed that the 1.6T optical module has passed the technical verification of key customers and is expected to start mass production within 2025, with further expansion in 2026. At the same time, the company showcased a 400G/channel differential EML laser, laying the foundation for the next generation of 3.2T optical modules. To support production capacity demand, Coherent is expanding its indium phosphide (InP) wafer capacity and plans to launch a 6-inch production line in the next quarter, which is expected to significantly reduce costs and increase output.

The telecommunications market continues to recover

The revenue of telecommunications business has increased month on month for three consecutive quarters, with a year-on-year increase of 21% in this quarter. Data center interconnect (DCI) has become the main driving force, and the demand for 100G/400G/800G ZR/Zr+coherent optical modules is steadily increasing. The traditional telecommunications market has also shown a moderate recovery, but the management still maintains a cautious and optimistic attitude.

New products and strategic adjustments

In addition to optical communication products, the company focuses on introducing the Optical Circuit Switch (OCS) platform, which uses digital LCD technology to replace traditional mechanical MEMS solutions. The product has obtained its first customer order and is expected to generate revenue by 2025. In terms of strategy, Coherent has terminated non core businesses such as silicon carbide device development and focused its resources on high growth areas.

US domestic manufacturing respnds to tariff risks

In response to investors’ concerns about tariff issues, the management stated that the current policy has limited financial impact. About half of the company’s 60 global production bases are located in the United States, and key laser components are independently produced, demonstrating outstanding supply chain flexibility. Chief Financial Officer Sherri Luther pointed out that the Malaysian factory has fully met the needs of American customers and can adjust its production capacity layout according to policies in the future.

Next quarter outlook and long-term planning

The company expects fourth quarter revenue to be between $1.425 billion and $1.575 billion, with a non GAAP gross profit margin of 37% -39%. Despite being cautious about the demand in the industrial market, the data center business is still expected to continue to grow. The management will announce the long-term strategy, including the technical roadmap and financial goals, on investor day on May 28th.

Analyst Focus

-Morgan Stanley asked if the weakness in industrial business was due to pre demand, and Anderson responded that the order pattern is normal and the cautious attitude stems from macro uncertainty;

-Bank of America is focusing on the 1.6T market share, and the company has stated that it will not disclose specific data at this time, but expects the industry to adopt a curve similar to 800G;

-Needham&Company explores the application scenarios of OCS switches and confirms that the product can be deployed in multiple scenarios such as AI clusters and network front-end.

Coherent emphasizes that despite the challenges in the macro environment, the company has laid the foundation for long-term growth through product innovation and supply chain optimization. With the continuous explosion of demand for AI and computing power, the technological iteration and capacity competition in the optical communication industry may further accelerate.