Coherent Posts Record Revenue as Optical Demand Drives Margin Expansion

Coherent reported fiscal fourth-quarter adjusted earnings per share of $1.74, a 74% year-over-year increase that exceeded consensus estimates by 7.4%. Revenue surpassed $2 billion for the quarter, marking a 33.8% annual jump and a 13.3% sequential gain. According to GN markets/earnings (en-US), these results reflect a sharp acceleration in the Datacenter & Communications segment, which now accounts for roughly 79% of total company revenue. This shift highlights Coherent’s deepening reliance on AI networking infrastructure as a primary growth engine.

Full-year revenues reached a record $7.1 billion, up 22.5% from the prior year. The company’s pro forma growth rate was approximately 28%, indicating that the underlying business portfolio expanded faster than the reported totals suggest. While the Industrial segment declined 10.3% annually, the Datacenter division grew 40.5% to $5.275 billion. This divergence confirms that Coherent’s financial profile is increasingly concentrated around optical connectivity solutions for data centers rather than traditional industrial applications.

Margin Expansion Drives Profitability

Operating efficiency improved significantly alongside top-line growth. Adjusted gross margin reached 40.2%, expanding 215 basis points year-over-year. This improvement was driven by higher manufacturing yields, lower input costs, and the transition to six-inch indium phosphide production. The six-inch platform produces roughly four times the output of the older three-inch process at about half the cost, fundamentally altering the unit economics of the company’s optical components.

Adjusted operating income rose 62.1% to $446 million, resulting in an operating margin of 21.8%. Adjusted net income climbed 82.7% to $351 million. GAAP earnings per share turned positive at $1.19, reversing a loss of $0.83 recorded in the same quarter last year. These figures demonstrate that Coherent is converting its revenue growth into tangible bottom-line profits through structural cost advantages and pricing power.

Capital Spending Supports Future Capacity

To meet demand extending into calendar 2028, Coherent is investing heavily in production capacity. Fourth-quarter capital expenditures totaled $556 million, while full-year property, plant, and equipment additions surged 150.2% to $1.103 billion. This spending supports the rollout of 800-gigabit and 1.6-terabit transceivers, as well as co-packaged optics. Indium phosphide output is scheduled to double year-over-year during the current quarter to alleviate supply constraints.

However, this aggressive expansion has impacted cash flow dynamics. Annual operating cash flow fell 87.5% to $79.5 million, and inventory increased 79.5% to $2.581 billion, outpacing revenue growth. This inventory build-up raises working-capital risks if demand forecasts are missed. Conversely, the company’s balance sheet remains resilient, with total debt declining 12.6% to $3.222 billion and cash reserves rising 27.8% to $1.162 billion.