Fabrinet's Q3 2025 Earnings Call: Unraveling Contradictions in Datacom Growth, Margins, and Product Transitions

Product transition and ramp in Datacom, gross margin impact of tariffs, telecom growth expectations, product transition and ramp timelines, and Datacom product transition and growth are the key contradictions discussed in Fabrinet's latest 2025Q3 earnings call.



Revenue Growth and Segment Performance:
- Fabrinet reported revenue of $872 million for Q3, above guidance and reflecting a 19% year-on-year increase.
- The growth was particularly driven by the Optical Communications segment, with Datacom revenue experiencing a 16% sequential decrease, offset by a significant 42% year-on-year increase in Telecom revenue due to recent system wins and strong telecom market trends.

Telecommunications and Data Center Demand:
- Telecom revenue rose to $406 million, comprising 62% of Optical Communications revenue, up 17% from Q2.
- The surge in telecom was driven by 400ZR momentum for datacenter interconnect applications and improvements in traditional telecom products, while Datacom revenue decreased due to a product transition at a large customer.

Automotive and Industrial Laser Growth:
- Automotive revenue saw a 76% year-on-year increase, with $129 million in sales, contributing to the Non-Optical Communications segment's 53% year-on-year growth.
- This increase was supported by strong demand from the automotive sector, while Industrial Laser revenue rose 33% year-on-year.

New Partnership and Long-term Strategy:
- Fabrinet announced a new commercial relationship with Amazon Web Services, with a multi-year agreement and warrant purchase.
- This partnership is expected to provide additional revenue starting in fiscal year 2026, reflecting Fabrinet's long-term optimistic view and alignment with hyperscale customers.