Fabrinet (FN) Q2 2026: Non-Optical Revenue Surges 61% as HPC Ramp Accelerates

2026-02-02 | By EarningsIQ Research

Fabrinet delivered a record-setting quarter, fueled by explosive high-performance computing (HPC) and robust telecom demand, with non-optical revenue up 61% year-over-year. Strategic capacity expansions are underway as the company leans into sustained customer momentum across optical, datacom, and HPC. Management signals confidence in further sequential growth, even as FX and supply constraints persist, positioning Fabrinet for continued outperformance in 2026.

Summary

• HPC Ramp Transforms Revenue Mix: High-performance computing became a major growth engine, with rapid scale and further upside expected.
• Capacity Expansion Accelerates: Aggressive build-out of manufacturing space reflects confidence in long-term demand visibility.
• Supply Constraints Easing: Key component bottlenecks in datacom are being addressed, supporting a stronger sequential outlook.

Performance Analysis

Fabrinet posted its fastest year-over-year revenue growth since IPO, with total revenue reaching a new record and operating leverage driving margin expansion. The standout was non-optical communications, where revenue soared 61% year-over-year, primarily on the back of a dramatic ramp in high-performance computing (HPC) products. Within optical communications, telecom revenue hit an all-time high, up 59% from last year, fueled by robust demand for data center interconnect (DCI) modules. Datacom, while still down year-over-year, showed sequential improvement as supply constraints began to ease.

Gross margin ticked up despite persistent FX headwinds, reflecting operational discipline even as capital expenditures remained elevated to support capacity expansion. Free cash flow was modestly negative due to heavy investment, but the balance sheet remains strong and debt-free. Share repurchases were limited, with $169 million still authorized under the existing program.

• Non-Optical Communications Surge: HPC revenue jumped from $15 million in Q1 to $86 million, now more than halfway to full ramp potential.
• Telecom and DCI Strength: Telecom revenue up 59% YoY, with DCI modules contributing 42% YoY growth and durable demand visibility.
• Datacom Recovery Underway: Sequential growth of 2% as a second source for lasers alleviates supply constraints; further upside expected as capacity normalizes.

Automotive and industrial laser segments contributed steady if unspectacular growth, with automotive revenue up 12% YoY but down slightly sequentially as anticipated. Overall, Fabrinet’s diversified growth drivers are increasingly weighted toward next-generation computing and optical infrastructure.

Executive Commentary

Strategic Positioning

1. High-Performance Computing: New Growth Anchor

HPC, high-performance computing, emerged as a transformational revenue stream, contributing $86 million in the quarter and on track to exceed $150 million when fully ramped in the next couple of quarters. Management highlighted its “one-stop shop” manufacturing value proposition and competitive cost structure as key differentiators, with additional customer opportunities in the pipeline beyond the current anchor program.

2. Capacity Expansion: Building for Demand

Fabrinet is aggressively expanding manufacturing capacity, with 250,000 square feet of its new 2 million square foot Building 10 coming online by mid-year, and further conversions at the Pinehurst campus adding another 120,000 square feet. These moves are a direct response to visible, multi-year demand from both legacy and new customers, particularly in telecom, datacom, and HPC.

3. Optical and Datacom: Supply Chain and Technology Leverage

Optical communications remains a core engine, with DCI modules and next-gen telecom systems driving record revenue. Datacom is rebounding as component supply constraints ease, aided by qualification of a second laser source. Fabrinet’s pure contract manufacturing model—without its own competing products—continues to resonate with hyperscale and OEM customers seeking scale and neutrality.

4. Emerging Technologies: CPO and OCS Opportunity

Co-packaged optics (CPO) and optical circuit switches (OCS) are emerging as incremental growth vectors, with Fabrinet already engaged on multiple customer programs. While revenue contribution is nascent, management sees a “significant role” for these technologies in future data center architectures and is investing to stay ahead of the curve.

5. Operating Leverage and Capital Allocation

Operating margin expanded 30 basis points year-over-year, as strong top-line growth outpaced modest increases in operating expenses. Capital expenditures remain elevated to support expansion, but management’s track record of filling new capacity with profitable business, and a 40% return on invested capital, underpins the aggressive build-out strategy.

Key Considerations

Fabrinet’s quarter was defined by a sharp inflection in HPC, sustained telecom strength, and a proactive approach to scaling for future demand. Investors should weigh the following:

Key Considerations:

• HPC Ramp Rate: The current HPC program is only halfway to full ramp, with additional lines and customers targeted for future upside.
• Capacity Timing: Early delivery of new manufacturing space reflects urgency and confidence in multi-segment demand, with risk of modest margin drag if underutilized.
• Supply Chain Normalization: Second-sourcing of lasers for datacom is resolving constraints, supporting sequential growth and greater customer wallet share.
• Technology Pipeline: Engagements in CPO and OCS position Fabrinet for the next wave of optical innovation, though revenue realization will depend on customer roadmaps.
• Capital Efficiency: Debt-free expansion and high ROIC provide a cushion for aggressive investment, but require continued execution to maintain returns as capacity comes online.

Risks

Persistent FX headwinds and elevated CapEx could pressure near-term margins, though management expects to offset most of the impact through operating leverage. Customer concentration in key HPC and telecom programs introduces exposure to project timing and share shifts, while aggressive capacity additions carry the risk of underutilization if demand softens or ramps are delayed. Technology transitions such as CPO and OCS, while promising, remain subject to customer adoption cycles and execution risk.

Forward Outlook

For Q3 2026, Fabrinet guided to:

• Revenue of $1.15 to $1.2 billion, representing roughly 35% year-over-year growth at midpoint
• Non-GAAP EPS of $3.45 to $3.60, up approximately 40% year-over-year at midpoint

For full-year 2026, management maintained a bullish stance, citing:

• Continued sequential growth in telecom, datacom, and HPC
• Modest sequential decline in automotive, consistent with recent trends

Management emphasized “very strong growth trends” across all major areas except automotive, and expects FX headwinds to be largely mitigated by ongoing operating leverage and cost discipline.

Takeaways

Fabrinet’s Q2 2026 results underscore a business in the midst of a structural growth acceleration, with HPC and telecom demand supporting record revenue and earnings. The company’s willingness to invest ahead of demand, coupled with a strong balance sheet and customer-led innovation, positions it for continued share gains.

• HPC and Next-Gen Optical as Growth Catalysts: Rapid scaling in HPC and DCI modules is reshaping the revenue mix and extending visibility into 2026 and beyond.
• Execution on Capacity and Supply Chain: Early delivery of new manufacturing space and resolution of component bottlenecks are critical to sustaining momentum.
• Technology Optionality: CPO and OCS engagement could provide incremental upside as adoption accelerates, but require ongoing investment and customer alignment.

Conclusion

Fabrinet’s record quarter affirms the company’s ability to capture secular demand in HPC and optical communications while executing on capacity expansion and operational discipline. The path forward is defined by continued growth investments, technology leadership, and a strong customer pipeline, though execution risks remain as the company scales.

Industry Read-Through

Fabrinet’s explosive growth in HPC and DCI is a clear signal of intensifying demand for advanced optical and compute infrastructure, mirroring broader hyperscale and AI-driven capex cycles. Component supply normalization and the rapid scaling of manufacturing capacity indicate that bottlenecks in optical and datacom supply chains are easing, with implications for peers and upstream suppliers. Early engagement in CPO and OCS positions Fabrinet—and potentially its customers—at the forefront of the next wave of data center innovation, a trend that will ripple across the optical ecosystem as adoption accelerates.

FN Technology Optical communications HPC Capacity expansion Datacom Telecom Capital allocation