Fabrinet (FN Quick QuoteFN - Free Report) reported first-quarter fiscal 2027 non-GAAP earnings of $4.34 per share, up 48.6% year over year. The figure surpassed the Zacks Consensus Estimate by 3.58%.

Revenues surged 50.7% year over year to $1.47 billion, beating the consensus mark by 5%. Results benefited from broad-based demand across data center, communications infrastructure and industrial markets. Data center revenues jumped 78% year over year to $777 million, driven by strong demand for transceivers, data center interconnect and high-performance computing products.

FN's Data Center Revenues Drive Robust Growth

Data center revenues increased 16% sequentially and accounted for approximately 53% of total revenues. Growth was supported by continued momentum in data center interconnect, expanding transceiver demand and high-performance computing applications.

FN highlighted increasing customer demand and improving visibility across the data center market. New hyperscale-direct and merchant transceiver programs are beginning to ramp, providing additional growth opportunities alongside existing customer engagements.

Fabrinet’s Communications and Industrial Sales Rise

Communications infrastructure revenues climbed 35% year over year to $444 million, reflecting broad-based strength across telecom systems, optical components and satellite communications. Revenues increased 8% sequentially.

Automotive, industrial and other revenues advanced 20% year over year to $253 million, increasing 8% from the preceding quarter. Industrial lasers contributed the most to sequential growth as Fabrinet expanded relationships with customers that previously relied on in-house manufacturing.

FN’s Margins Reflect FX and Compensation Pressures

Non-GAAP gross margin contracted 20 basis points (bps) year over year to 12.1%, primarily due to foreign exchange headwinds. Sequentially, gross margin declined 10 bps, reflecting annual employee merit increases.

Non-GAAP operating expenses represented 1.3% of revenues, unchanged sequentially. 

Operating margin expanded 20 bps year over year to 10.8%, benefiting from disciplined spending and operating leverage, despite gross margin pressure.

Fabrinet Expands Manufacturing Capacity to Meet Demand

Fabrinet continued expanding its manufacturing footprint to support existing programs and new customer opportunities. The company completed the acquisition of a second Santa Clara campus for $77 million, more than doubling its Silicon Valley capacity.

In Thailand, Building 10 at the Chonburi campus is expected to be completed in January 2027. The facility will add approximately 2 million square feet and $3.5 billion in annual revenue capacity. Initial production revenues have already commenced.

Fabrinet expects total annual revenue capacity to reach approximately $10 billion in January compared with $5.8 billion at the end of fiscal 2026. Construction of Building 11 is scheduled to begin in January, adding approximately 1.5 million square feet and $3 billion in incremental annual revenue capacity when completed around the end of fiscal 2028.

FN’s Cash Flow Reflects Elevated Capital Investments

Fabrinet ended the quarter with approximately $755.75 million in cash and short-term investments, compared with $875.06 million at the end of the preceding quarter.

Operating cash flow totaled $21.29 million, down from $102.57 million in the year-ago quarter. Capital expenditures increased to $158.70 million from $45.27 million, reflecting manufacturing expansion and the Santa Clara acquisition.

Free cash outflow totaled $137.41 million, compared with positive free cash flow of $57.30 million a year earlier.

Fabrinet repurchased approximately 77,000 shares for $29 million during the quarter. The board subsequently authorized an additional $103 million for repurchases, bringing the remaining authorization to approximately $200 million.

Fabrinet’s Q2 Outlook Signals Sustained Growth

For the second quarter of fiscal 2027, Fabrinet expects revenues between $1.6 billion and $1.65 billion, implying approximately 43% year-over-year growth at the midpoint.

Non-GAAP earnings are projected between $4.77 and $4.92 per share. 

The company anticipates continued growth across all three major revenue categories, led by data center interconnect and transceiver programs. New optical circuit switching and multi-rail opportunities are beginning to contribute, while near-packaged and co-packaged optics programs are expected to generate revenues later in fiscal 2027.

Operating margins are expected to improve with increasing scale and operating efficiencies. However, tight component availability and spending on additional manufacturing capacity remain important considerations as Fabrinet supports accelerating customer demand.

Zacks Rank & Upcoming Earnings to Watch For

Currently, Fabrinet carries a Zacks Rank #2 (Buy). 

Forgent Power Solutions (FPS Quick QuoteFPS - Free Report) , Telos (TLS Quick QuoteTLS - Free Report) and NVIDIA (NVDA Quick QuoteNVDA - Free Report) are some other top-ranked stocks in the broader Zacks Computer and Technology sector. While Forgent Power and Telos sport a Zacks Rank #1 (Strong Buy) each at present, NVIDIA carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Forgent Power, Telos and NVIDIA are expected to report their quarterly results on Nov. 12, 9 and 17, respectively. Forgent Power shares have dropped 15.3% year to date (YTD). Telos shares have inched up 2.2% YTD, while NVIDIA shares have climbed 8.4% YTD.