Coherent: We Would Benefit if Optical Module Restrictions Take Effect

C114 News, August 13 (Shui Yi) — Coherent recently reported results for the fourth quarter of fiscal 2026. The company posted revenue of $2.05 billion for the quarter, up 14% year over year and 42% sequentially, excluding the impact of previously divested business units. Management forecast revenue of $2.2 billion to $2.4 billion for the first quarter of fiscal 2027, and expects quarterly revenue to exceed $3 billion by the end of fiscal 2027.

Coherent CEO Jim Anderson said confidence in fiscal 2027 rests on three factors: continued growth in customer demand, with record orders booked; a gradual easing of critical component shortages, including a doubling of in-house indium phosphide (InP) capacity; and the ramp-up of several new revenue sources, including OCS, CPO, Multi-Rail systems, and advanced materials for thermal and power management in customer data centers.

Datacom drives growth as InP capacity continues to ramp

The Datacom and Communications segment was the main driver of Coherent's growth, with fourth-quarter fiscal 2026 revenue up 59% year over year and 19% sequentially, accounting for 79% of total company revenue. Jim Anderson said: "We see no signs of weakening in customer demand. Orders now extend into calendar 2028, and long-term agreements (LTAs) run through the end of 2030."

Within the segment, data center revenue rose 66% year over year and 24% sequentially in the fiscal fourth quarter, marking the third consecutive quarter of double-digit sequential growth. Strong sequential growth is expected to continue this quarter.

At the product level, 800G optical modules continued to post year-over-year growth in 2026, while 1.6T optical modules will ramp rapidly over the remainder of 2026 and into 2027. OCS applications are expanding: initially in scale-out, clear deployment paths are now emerging for scale-across and scale-up scenarios, with revenue expected to grow sequentially again this quarter. CPO will begin contributing revenue in the second quarter of fiscal 2027.

"Expanding 6-inch InP capacity is key to revenue growth," Jim Anderson said. The company originally planned to double its internal InP capacity this quarter, but actually completed the expansion one quarter ahead of schedule. Given the strength of customer demand, the company is planning additional capacity beyond 2027.

Coherent CFO Sherri Luther said that, compared with 3-inch wafers, 6-inch wafers yield four times as many devices at only half the cost. In addition, the 6-inch line has consistently achieved higher yields than the 3-inch line across all three device types: CW lasers, EMLs and photodiodes.

In the communications segment, revenue for the fourth quarter of fiscal 2026 rose 56% year over year and 11% sequentially, driven mainly by strong demand in DCI, scale-across and legacy telecom applications, particularly ZR/ZR+ optical modules and pump laser products. Another strong sequential increase is expected this quarter. The Multi-Rail system is also expected to open up new growth opportunities in scale-across scenarios.

Coherent's capital expenditure in the fourth quarter of fiscal 2026 rose sharply to $556 million, well above $290 million in the previous quarter and $131 million a year earlier, mainly for advanced tools and manufacturing equipment for the datacom and communications businesses. These investments have a payback period of 18 months, and the capacity is highly versatile and can be adjusted dynamically in line with demand.

CPO is not delayed; PhotonLink one-stop solution launched

Addressing market rumors that large-scale CPO deployment has been delayed, Jim Anderson stressed: "We have seen absolutely no postponement of CPO demand. On the contrary, customer demand and orders are both increasing, and demand is being pulled forward."

Coherent's ultra-high-power CW lasers for CPO solutions, including products developed with NVIDIA, are ramping capacity and are expected to begin contributing to growth in the second quarter of fiscal 2027, with CPO revenue for scale-up applications expected to start in the second half of calendar 2027.

In addition, customer interest in NPO has risen over the past three to six months. Nearly all strategic customers have CPO or NPO projects under way, and some are pursuing both approaches depending on their architectures. In Jim Anderson's view, NPO and CPO differ only in product form factor, and Coherent offers a full portfolio including lasers, external laser modules, isolator-equipped polarization-maintaining fiber, and fiber connectivity components.

Jim Anderson also noted that when choosing CPO and NPO solutions, customers are not content to buy a single component, such as a laser or an isolator; they are eager for the complete solution Coherent provides. To that end, Coherent plans to launch the PhotonLink platform at ECOC in September 2026.

The PhotonLink platform covers the complete optical signal chain from light generation, beam shaping and transmission to detection and conversion back to electrical signals. It supports CPO, NPO and other optical integration formats and is designed as a one-stop solution for customers. Initial revenue from PhotonLink-related products is expected to begin in the second quarter of fiscal 2027.

Notably, Coherent responded to media reports that the US Federal Communications Commission (FCC) would ban imports of new optical modules made in China.

"The reports are speculation at this point, but if it happens, we would benefit," Jim Anderson said. "Since the recent articles were published, we have been contacted proactively by several customers. These discussions have mainly focused on manufacturing strategies and alternatives, generating new demand and supply-side negotiations. Those discussions are currently progressing actively."