COHR - Earnings Call: FY Q4 '26

TLDR

• Growth is set to accelerate in FY27. Coherent enters the year with record backlog, customer orders extending into 2028, LTAs through the end of the decade, and management expecting its first $3B revenue quarter by the end of FY27.
• The growth engine is broadening beyond 800G. 1.6T is ramping quickly, OCS is becoming a meaningful contributor, CPO revenue should begin in FY27, and management is seeing stronger customer engagement across both CPO and NPO.
• InP capacity remains the key bottleneck and upside driver. Coherent expects to double internal InP output by the end of the current quarter and more than double it again by the end of calendar 2027, supporting EML, CW laser, photodiode, and broader AI optics growth.
• Valuation still requires strong execution. At roughly a $52B market cap, the stock is around 27x our forward earnings scenario. Upside to ~$80B requires ~$2B of net income and a 40x multiple, while a miss or multiple compression could push equity value back toward ~$45B.

Overview

• Management expects growth to accelerate significantly in fiscal 2027
• LTAs & Customer Demand
  • Order coverage through calendar 27 is exceptional.
  • Customer orders now extend into 2028
  • Customer LTAs extend through the end of the decade
• Transceivers
  • Growth is expected to be driven by both 800G and 1.6T. Management expects 800G revenue to continue growing year over year in calendar 2026, while 1.60 transceivers ramp rapidly through the balance of calendar 2026 and into calendar 2027, as adoption broadens across customers
• OCS
  • $4 billion in incremental TAM across data center interconnect, scale-out and scale-up networks
  • OCS revenue increased sequentially in Q4 management expects continued growth over the coming quarters as production capacity expands
  • Given strong customer demand across their 320x320 platform, and other system sizes, management expects OCS revenue to grow significantly through fiscal 27.
  • As production expands across 2 manufacturing locations, management expects OCS to become an increasingly meaningful contributor to revenue growth and margin expansion
• CPO
  • Expecting CPO to begin contributing to revenue growth in fiscal Q2, consistent with the planned production ramp
  • Management continues to expect revenue from CPO for scale up applications to start to flow in the second half of calendar 27
  • Customer engagement has increased over the last 3 to 6 months, not only for CPO but also for NPO.
• InP
  • Their 6-inch Indium Phosphide capacity expansion is a key driver of revenue growth and margin expansion. Management remains on track to double their internal Indium Phosphide output capacity year over year by the end of the current quarter, one quarter ahead of their original plan.
  • Management remains on track to more than double their internal Indium Phosphide output capacity again by the end of calendar 27.
  • 6-inch lines in Texas and Sweden are producing EMLs CW lasers, and photodiodes with yields that continue to exceed their 3-inch lines.
• PhotonLink
  • PhotonLink is their integrated platform for basically being the one stop shop for integrated optics platform. It spans all the way from light generation to beam shaping and transport transmission to detection and conversion back to the signal