Fabrinet’s Q3 Earnings: A Telecom Beacon in a Datacom Doldrums Market

Investors, buckle up! On May 5, 2025, Fabrinet (NYSE: FN) will release its third-quarter fiscal year 2025 financial results—a report that could illuminate whether this optical manufacturing powerhouse is navigating the choppy waters of datacom softness or sailing smoothly on telecom tailwinds. Let’s break down the numbers, the risks, and what this means for your portfolio.

Q2 Results: A Strong Foundation, But Datacom Stumbles

Fabrinet’s second quarter delivered record revenue of $833.6 million, up 17% year-over-year, fueled by surging telecom demand and early wins in systems contracts. Non-GAAP diluted EPS hit $2.61, a 25% jump from the prior year. But here’s the catch: Datacom demand showed “moderate near-term softness,” as management put it. That’s a red flag because datacom has historically been a growth engine for this sector.

Q3 Guidance: Bulls vs. Bears in the Analyst Arena

For Q3, Fabrinet is guiding to $850–870 million in revenue, a 17.25% year-over-year increase. Non-GAAP diluted EPS is expected to range between $2.55–2.63, reflecting confidence in operational leverage. But here’s the twist: analysts are skeptical. The consensus EPS estimate is just $2.20, nearly 17% below management’s target. That’s a gap worth watching. If Fabrinet crushes these lowered expectations, it could spark a rally. Miss them, and the datacom worries could dominate.

Ask Aime: Will Fabrinet's Q3 financial results show resilience against datacom softness or succumb to it?

Telecom’s Golden Age: A Lifeline for Fabrinet

The telecom sector is booming, and Fabrinet is right in the thick of it. Global telecom revenues are projected to hit $1.53 trillion in 2024, with Asia Pacific and EMEA leading growth. Fixed Wireless Access (FWA) is a key driver, with 10 million U.S. households already connected, and Deloitte predicting 20% annual FWA growth through 2026.

Fabrinet’s strength here is no accident. The company is a critical supplier to telecom giants, manufacturing optical components for next-gen networks. As 5G adoption creeps forward (only 49 operators globally have deployed 5G Standalone networks as of early 2024), Fabrinet is also eyeing 6G opportunities, which could require ultra-low latency infrastructure and AI-driven networks.

Datacom’s Doldrums: Can Gen AI Save the Day?

Datacom’s softness isn’t a surprise. The sector faces headwinds from moderate enterprise spending and lingering macroeconomic uncertainty. But here’s the silver lining: generative AI (Gen AI) is driving a surge in data center and fiber optic infrastructure spending. Big tech firms are plowing $100+ billion into network capex through 2030, and Fabrinet is a key player in fiber manufacturing.

The company has already begun developing next-gen datacom products, which management calls “progressive.” If these innovations gain traction, datacom could rebound—especially as Gen AI shifts from text-based use cases to bandwidth-heavy applications like video and immersive tech.

Risks: Supply Chains and the Datacom Hangover

Don’t get complacent. Fabrinet’s supply chain is global, with operations in Thailand, China, and the U.S.—regions prone to geopolitical and logistical disruptions. A hiccup here could derail margins.

Then there’s datacom’s stubborn softness. If Gen AI adoption stays niche, or if hyperscalers like Amazon and Google outpace telcos in infrastructure builds, Fabrinet’s top line could stagnate.

The Bull Case: Telecom + Buybacks = Value

Fabrinet’s $534.3 million share repurchase program is a bullish signal. With a forward P/E of just 14.5x (well below the sector average), the stock offers a margin of safety. Telecom’s steady growth and FWA’s 20% expansion rate could push Fabrinet’s revenue past $3.4 billion by fiscal 2026—up from $3.1 billion in fiscal 2025.

Verdict: Buy, But Keep an Eye on Datacom

Fabrinet is a BUY for investors willing to ride the telecom wave and bet on Gen AI’s long-term potential. The stock’s 12-month target of $120–$130 (vs. current $105) isn’t unreasonable if Q3 beats expectations.

But here’s the catch: If datacom remains sluggish and analysts’ low EPS estimates hold, Fabrinet could face a correction. Monitor FWA adoption rates and Gen AI infrastructure spending closely. For now, though, Fabrinet’s telecom moat and buyback clout make it a compelling pick in a market craving stability.

Final Take: Telecom’s golden age and strategic bets on Gen AI position Fabrinet as a tech stock to watch. Just don’t lose sight of datacom’s recovery timeline.

Conclusion: Fabrinet’s Q3 earnings are a litmus test for its ability to balance telecom’s steady growth with datacom’s volatility. With robust telecom demand, a disciplined buyback program, and Gen AI’s looming infrastructure boom, the company is well-positioned to outperform. However, investors must remain vigilant about supply chain risks and datacom’s slow recovery. For now, this is a BUY with a caveat: watch those datacom numbers like a hawk!