Fabrinet’s (FN Quick QuoteFN - Free Report) shares have lost 5.2% in the past three months, underperforming the broader Zacks Computer & Technology sector’s growth of 9.5% and the Zacks Electronics - Miscellaneous Components industry’s decline of 3.9%.

FN's underperformance resulted from lower revenues from non-speed-rated optical communications products in first-quarter fiscal 2025, and an unexpected shift in Datacom's revenue mix between 400 gig and 800 gig transceivers.

Also, a $7-million loss from the stronger Thai baht against the U.S. dollar in the first quarter of fiscal 2025, coupled with higher-than-expected foreign exchange losses, negatively impacted the company's overall fiscal first-quarter results.

However, growth in Optical Communications and the expansion of the Automotive sector have been significant positive developments for Fabrinet, driving its performance and market presence.

Growing Product Markets Support FN’s Q1 Sales

The company reported revenues of $804 million, marking a 17% year-over-year increase and beating the Zacks Consensus Estimate of $770 million. This strong top-line increase was primarily driven by outstanding performances across key product markets.

Datacom, a segment of Optical Communications, generated $329 million in revenues, marking a 36% year-over-year increase, driven by strong demand for optical interconnect products used in AI applications.

The company is optimistic about the performance of its Telecom business, which generated $297 million in revenues in the quarter. This marks a milestone, as it represents the first year-over-year revenue increase in this segment in six quarters.

In the Non-Optical Communications segment, the company achieved accelerating revenue growth in the quarter, largely driven by a robust performance in the automotive sector, which surpassed $100 million in revenues for the first time.

Notably, within the automotive market, EV charging infrastructure products experienced exceptional momentum, highlighting a growing demand and solidifying the company's position in this rapidly expanding industry.

The company’s industrial laser revenues reached the highest level in two years at $35.3 million. Fabrinet is optimistic that the strong trends in the automotive and industrial laser sectors will continue into the fiscal second quarter.

Stiff Competition Concerns FN

Fabrinet operates in a highly competitive market, facing challenges from established and emerging players across its core operations and target markets.

Competitors in the optical manufacturing services market include Celestica (CLS Quick QuoteCLS - Free Report) , Benchmark Electronics (BHE Quick QuoteBHE - Free Report) and Sanmina Corporation (SANM Quick QuoteSANM - Free Report) . Fabrinet faces competition from companies like Fujian Castech Crystals and Photop Technologies in the customized optics and glass operations segment.

As Fabrinet expands into new markets, the risks of new competitors rise, adding to the complexity of maintaining market share and pricing power.

FN Offers Optimistic Q2 Guidance

For second-quarter fiscal 2025, Fabrinet expects revenues between $800 million and $820 million.

The Zacks Consensus Estimate for revenues is pegged at $814.77 million, indicating 14.32% year-over-year growth.

Non-GAAP earnings are expected to be $2.44-$2.52.

The consensus estimate for non-GAAP earnings is pegged at $2.51 per share, implying a year-over-year rise of 20.67%.

Zacks Rank & Valuation

Currently, GoDaddy carries a Zacks Rank #3 (Hold). Considering its stretched valuation, as indicated by a Zacks Value Style Score of C, it may be ideal to wait for a more favorable entry point.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.