Fabrinet (NYSE:FN) Q2 2026 Earnings Call Transcript

Fabrinet (NYSE:FN) Q2 2026 Earnings Call Transcript February 2, 2026

Fabrinet beats earnings expectations. Reported EPS is $3.36, expectations were $3.26.

Operator: Good afternoon. Welcome to Fabrinet’s Financial Results Conference Call for 2026. At this time, all participants are in a listen-only mode. Instructions on how to participate will be provided at that time. As a reminder, today’s call is being recorded. I would now like to turn the call over to your host, Garo Toomajanian, VP of Investor Relations. Please go ahead.

Garo Toomajanian: Thank you, operator, and good afternoon, everyone. Thank you for joining us on today’s conference call to discuss Fabrinet’s financial and operating results for 2026, which ended December 26, 2025. With me on the call today are Seamus Grady, Chairman and Chief Executive Officer, and Csaba Sverha, Chief Financial Officer. This call is being webcast, and a replay will be available on the section of our website located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the Investors section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation, as well as additional details of our revenue breakdown.

In addition, today’s discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management’s current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-Q filed on November 4, 2025. We will begin the call with remarks from Seamus and Csaba, followed by time for questions.

I would now like to turn the call over to Fabrinet’s Chairman and CEO, Seamus Grady.

Seamus Grady: Thank you, Garo. Good afternoon, everyone, and thanks for joining our call today. We had an excellent second quarter. Revenue and earnings significantly exceeded our guidance ranges, with multiple large key strategic programs across our business all contributing to our strong performance. Second quarter revenue was $1.13 billion, a new record for the company, which represented growth of 36% from a year ago and is the fastest year-over-year growth we have achieved since our IPO over fifteen years ago. Our remarkable top-line performance also represents 16% growth from the prior quarter. Non-GAAP EPS also set a new record at $3.36 per share, exceeding our guidance range despite stronger FX headwinds in the quarter.

Looking at our performance in greater detail, optical communications revenue grew 29% from a year ago and 11% from the prior quarter. Telecom revenue reached a new record, increasing 59% from last year and 17% from Q1. Within telecom, DCI revenue grew 42% from a year ago and 3% from Q1, as strong longer-term growth trends remain firmly intact. Datacom revenue grew 2% sequentially, while the year-over-year decline narrowed to 7% as demand continues to strengthen. In non-optical communications, we delivered a very strong performance, with revenue surging 61% from a year ago and up 30% from last quarter, as high-performance computing revenues soared to $86 million in the quarter. We expect this strong sequential growth to continue in the near term, particularly as our second and third fully automated production lines get qualified.

Automotive revenue grew 12% from a year ago but was down slightly from Q1 as anticipated, while industrial laser revenue demonstrated respectable growth of 10% from a year ago and 4% from last quarter. We are confident that the same growth drivers that contributed to our success in Q2 will extend into Q3. This includes growth in all major areas of our business, with the possible exception of automotive. We are experiencing sustained telecom demand, including strong DCI module growth, ongoing datacom momentum, and continued growth in HPC as our business ramps. In addition, we continue to aggressively pursue new opportunities across all areas of our business. As our business scales, we remain focused on execution as well as strategic capacity expansion.

Construction of Building 10, which will be a 2 million square foot facility, is still on track for completion at the end of 2026. We are making progress on completing about 250,000 square feet of that by the middle of the calendar year. At the same time, we are creating additional manufacturing space at our Pinehurst campus, converting office space into manufacturing space and relocating those offices into a new building on that campus. With this capacity expansion, we are well prepared to continue supporting our anticipated growth in 2026 and beyond. In summary, we delivered an impressive second quarter performance with numerous significant customer programs contributing to our outstanding results. We are well positioned to extend our track record of profitable growth and to meet the increasing level of demand we are experiencing in the third quarter and beyond.

I will now turn the call over to Csaba for more financial details on our second quarter results and our outlook for the third quarter.

Csaba Sverha: Thank you, Seamus, and good afternoon, everyone. We are extremely pleased with our performance in 2026. Revenue exceeded our guidance range, reaching a record $1.13 billion, up 36% from a year ago and 16% from Q1. Strong execution produced non-GAAP EPS that also exceeded our guidance range at $3.36, which includes the negative impact of a $3 million or 9¢ per share FX revaluation loss. Turning to revenue performance by market, in the second quarter, optical communications revenue was $833 million, up a strong 29% from a year ago and 11% from Q1. Within optical communications, telecom revenue grew to a record $554 million, surging 59% from a year ago and 17% from Q1. Revenue from data center interconnect, or DCI modules, was $142 million.

DCI module revenue delivered another strong year-over-year performance, increasing 42% and growing 3% from the first quarter. Datacom revenue was $278 million. While revenue declined 7% year-over-year, it increased 2% sequentially, and trends appear favorable for continued sequential growth. Turning to non-optical communications, revenue in this category was $300 million, up a sharp 61% from a year ago and 30% from Q1. This exceptional growth was primarily driven by high-performance computing products, which contributed $86 million to revenue in the quarter, compared with $15 million in Q1, the first quarter in which we broke out this category. We are confident that our first HPC program will continue to grow rapidly and is on track to be fully ramped over the next two quarters.

Automotive revenue of $117 million was up 12% from a year ago but was slightly down sequentially as anticipated. Industrial laser revenue grew 10% year-over-year and increased 4% sequentially, contributing $41 million to the non-optical communications category. As I discuss the details of our P&L, all expense and profitability metrics will be presented on a non-GAAP basis unless otherwise noted. Gross margin in the second quarter was 12.4%, a 10 basis point improvement from Q1 and consistent with a year ago, despite foreign exchange headwinds. At the same time, a modest increase in operating expenses combined with strong top-line growth continued to drive operating leverage. Operating margin reached 10.9% in the second quarter, up 30 basis points from both Q1 and a year ago.

Interest income was $9 million and was partially offset by a $3 million foreign exchange revaluation loss. The effective GAAP tax rate for the quarter was 5.9%. As a result, net income was $122 million or $3.36 per diluted share. Turning to our balance sheet, we ended the second quarter with cash and short-term investments of $961 million, down $7 million from the end of Q1. Operating cash flow for the quarter was $46 million. Capital expenditures of $52 million continued to run above maintenance CapEx levels, reflecting construction of Building 10 and capacity enhancements at our Pinehurst campus. As a result, free cash flow was an outflow of $5 million for the quarter. Turning to our share repurchase program, during the second quarter, we repurchased just over 12,000 shares at an average price of $387 per share, for a total cash outlay of $5 million.

At the end of the second quarter, $169 million remained available under the program. Turning to our Q3 guidance, we are confident that the very strong growth trends we have been seeing across our business will continue in the third quarter. We expect revenue to grow sequentially in telecom, datacom, and HPC, while anticipating another modest sequential decline in automotive revenue. We expect total revenue to be in the range of $1.15 billion and $1.2 billion, representing approximately 35% year-over-year growth at the midpoint. While we anticipate that FX headwinds will persist in Q3, we expect to offset that pressure through continued strong operating leverage. As a result, we expect non-GAAP EPS to be in the range of $3.45 to $3.60, representing approximately 40% year-over-year growth at the midpoint.

In summary, we delivered an excellent second quarter, with strong momentum across multiple areas of our business. We are well positioned to extend our track record of success into the third quarter. Operator, we are now ready to open the call for questions.

Q&A Session

Operator: Thank you so much. And as a reminder, to ask a question, simply press 11 to get in the queue and wait for your name to be announced. To withdraw yourself, press 11 again. Our first question comes from Samik Chatterjee with JPMorgan. Please go ahead.

Samik Chatterjee: Hi. Thanks for taking my questions. And maybe, Seamus, starting with you, you had a pretty strong ramp with the customer. But maybe if you can sort of share your thoughts in terms of where you are with the ramp with that customer. Really, I think you have talked about a second and third production line. I mean, what does the fully ramped volume look like relative to the $86 million plus sort of level you did this quarter? Are you sort of halfway relative to the full ramp, or are you sort of only one-third in because you are adding two more production lines? If you can just share your thoughts in terms of what the full ramp looks like and when to expect that full ramp? And I have a follow-up. Thank you.

Seamus Grady: Hi, Samik. Thank you. Yes, we are a little more than halfway, I would say. Maybe a little bit more than halfway. We expect the revenue from our current HPC program to be north of about $150 million when it is fully ramped. We are currently running on two fully automated production lines. We had one line, we got a second production line qualified, and we are in the process of qualifying additional lines. Once we are able to achieve that and get the lines around, we will be well on our way to that run rate, which we expect to achieve over the next couple of quarters. After that, we believe there are a couple of growth paths for us in HPC. Given our one-stop-shop kind of value proposition and competitive cost structure, we are pursuing other HPC customers, of course, as our relationship with AWS is not exclusive, but the timelines for these can be fairly long.

Meanwhile, if we can exceed our initial customer’s expectations for cost, quality, and deliveries, we may be able to earn a larger piece of our current program because we are currently a second source in that program. So no matter how you look at it, we are very excited to see our high-performance computing business rapidly becoming a pretty meaningful revenue and growth driver.

Samik Chatterjee: Got it. Got it. Okay. And then maybe I wanted to ask you about a couple of opportunities as well. I mean, one of your big customers is now closer to commercializing CPO in more large volume. Any more clarity that you have on that front as to what your role in co-packaged optics is going to be and what maybe the content opportunity on that front is going to be? There is a lot of excitement in the optical space around OCS products as well, optical circuit switches. Do you see that as an incremental opportunity? Any customer engagement on that front as well? Thank you. Thanks for taking my questions.

Seamus Grady: No problem. Yeah. So for us, co-packaged optics is really an evolution from silicon photonics and the precision photonics packaging capabilities we have developed over many years. We have and will continue to invest heavily and work closely with our customers to align our capabilities with their roadmaps. For many years, co-packaged optics has been just on the horizon, but right now, it is much more real than it has ever been, and we are in an excellent position to benefit from that. We believe we are far ahead of most of our competitors in the space in making this technology a reality, and we are already seeing some CPO revenue, although the amounts are relatively small right now. We are working on co-packaged optics programs with three different customers.

It is not just one customer, Samik. It is three different customers. The specific timings on when the revenue would become more material depend on our customers’ roadmaps and schedules, but we are very excited about CPO. Again, we do not really want to speak on our customers’ behalf, but rest assured, we are quite excited that we have several products that we are working on or projects with our customers. As for the second question, as with other customers, we would expect to see the impact in line with or slightly ahead of our customers’ production schedule. On optical circuit switching, we are engaged on a number of fronts, and again, it is a completely new product category. We are quite excited about it and looking forward. Nothing, again, nothing to announce, but it really will depend on our customers’ ramp schedules, which we are working on a couple of projects in that space, and we are quite excited about OCS as a technology.

We think it has a significant role to play in the future.

Samik Chatterjee: Okay. Great. Thank you. Thanks for taking my questions.

Operator: Thank you. Our next question is from Karl Ackerman with BNP Paribas. Please proceed.

Karl Ackerman: Yes. Good afternoon, gentlemen. Two questions for me, please. First off, do you remain supply constrained on datacom transceivers? Because I would have thought that you might be maybe improving datacom mix as large capacity comes online. I guess as you address that question, could you speak to the growth opportunities you see within that segment across high scale and across merchant transceiver OEMs? Any update on that would be helpful. Another follow-up, please.

Seamus Grady: Yeah. Thanks, Karl. So, yeah, we have been, as you say, constrained in our datacom, particularly on the leading-edge products at 200 gig per lane, both 800 gig and 1.6. Demand continues to outstrip supply, and we continue to ship significant volumes to our main customer, but of course, could ship more if we had more components. We did get approval for a second source for the EML for the laser, which has been the main cause of the constraints. So we were able to get a second source. Our customer was able to approve a second source for the laser during the quarter, and that should benefit us this quarter and in future quarters. So we are making good progress there. We have always felt that that supply constraint will resolve itself, and we are starting to see that resolution come through now.

The mix between 800 gig and 1.6 at that 200 gig per lane node, it is really not that relevant to us. We do not mind which the customer orders. We are happy to ship what they need from us. So, again, good progress, and we are making good progress there. As regards other potential growth drivers in the datacom space, again, we have several projects that we are working on, both with hyperscale direct and with other potential product companies who need our services. So several projects that we are working on, several we are nothing to announce yet, but several that we are working on. Again, both hyperscale direct and other, let us say, merchant transceiver manufacturers.

Karl Ackerman: Got it. Very helpful. Perhaps if I could talk about telecom development, you know, over the $80 million sequential increase, was that evenly split between Satcom and the core telecom or optical line system business? Just trying to get a relative mix of Satcom business there. And then as you addressed that, do you believe that your Satcom business opportunity could be similar to your high-performance computing opportunities over time? Thank you.

Seamus Grady: I mean, as you call it, the satellite communications business has been growing steadily for us. It has been a meaningful contributor for a while. We have not really broken it out separately. A lot of the growth in the quarter was more on the DCI, I think. DCI has been very strong for us. We have a number of customers there, and really, mostly 400 ZR and 800 ZR modules. That business has been growing very nicely for us. So we, again, we are very optimistic, as I say, about telecom generally, both from a satellite communications point of view and the DCI point of view. And also, you know, to complete network systems or network system business continue to grow as well. So really solid growth, I think, on all fronts in our telecom business.

Karl Ackerman: Thank you.

Operator: Thank you so much. Our next question comes from the line of Christopher Rolland with Susquehanna. Hi, guys. Thanks so much for the question. I guess my first one is around CPO switches as opposed to scale-up. Are you hearing about increased desire for CPO switches? Is this perhaps upsiding your capacity plans? And just generally your outlook for CPO switches versus, you know, the typical transceiver setup, how do you think this might move over time?

Seamus Grady: Yeah. I mean, we are involved in the CPO, let us say, supply chain. We are in the ecosystem there. We have not actually talked about exactly what we are doing, but certainly, CPO switches and a number of the products that our customers are working on are very exciting for us. We have not really, like I said, we have not really talked about the switch, the CPO switch opportunities in detail. But, yeah, certainly something we are excited about. But I really would not want to go much deeper than that at this point, Christopher.

Christopher Rolland: Understood. Perhaps as a follow-up, DCI seemed a little bit disappointing versus at least our model. And then non-DCI under telecom has some upside. If you could perhaps address the, at least the DCI portion, what is going on there? Is that also laser and supply-based? Or is there, is that a pure demand dynamic?

Seamus Grady: No. It is, you know, the demand remains very strong. You know, we can continue to see great momentum in our DCI module business. We grew 59% year-over-year. And we have all of the market-leading customers in the space. We do believe the long-term demand is durable, and as we work with the customers on the next generation, 800 ZR products, which are yet to ramp, like any leading-edge, leading technology products, there are always going to be constraints here and there. So, you know, with new products and leading technology products, it is not always straight. You know, all the components have to line up. The designs have to work. Everything has to go perfectly. But the demand remains very strong. Telecom revenue growth was particularly strong as we started to ramp, you know, Sienna’s new system program as well as other new program wins that we are particularly excited about.

But we are still in the early part of those. Specifically on DCI, you know, we broke out our DCI revenue. We talked, we want to be clear that in reporting our DCI revenue, it is for coherent telecom modules that we have high confidence are being used in data center interconnect applications. And these include both, you know, 400 and 800 ZR modules and their variants, as well as some embedded coherent line card modules as well. So our DCI revenue does not include telecom systems. That is our pure DCI coherent module business. But overall, I think we remain very optimistic about DCI. There will always be puts and takes. It will not always grow in a straight line, again, as I said, when you are dealing with leading-edge products, there are always going to be challenges here and there, but nothing we are concerned about.

The demand remains very robust.

Christopher Rolland: Thanks, Seamus.

Operator: Thank you. Our next question comes from the line of George Notter with Wolfe Research. Please proceed.

George Notter: Hi, guys. Thanks very much. I just wanted to kind of lean in on new customer opportunities on the telecom side of the business. Like, I think you are kind of suggesting that you are working with other customers. Are these, like, OEM customers that are in the marketplace and shifting existing business from other manufacturers to Fabrinet, or are these new product categories? I guess I am just trying to understand, you know, what you guys are looking at in terms of new opportunity. And, you know, I noticed from Nokia’s earnings call, they talked about expanding their optical manufacturing capacity. I am just wondering if you guys are involved in that. Thanks a lot.

Seamus Grady: Yeah. I think, you know, we are very excited about, obviously, not just the strength in the business, but also the new opportunities. It is a really good pipeline we have that we are looking at that is in front of us. And we are always pursuing new opportunities, both with potential new customers as well as existing customers. The kinds of opportunities that we have talked about and continue to pursue include things like, you know, the datacom opportunities we have talked about, you know, including producing transceivers directly for hyperscalers and also building transceivers for merchant vendors. And on the telecom opportunities, it would include additional systems wins and further penetrating existing customers and also, you know, new customers or maybe new to Fabrinet customers.

So we have had some success. We think we have a winning formula where we are able to deliver, we believe, superior technology, excellent delivery quality, responsiveness at a lower cost because we do not margin stack, and we also do not have our own products, which is very important to our customers. We are a pure contract manufacturer, and we do not have any of our own products. And that is actually a positive for many of our customers. They do not want us to have our own products. So, you know, overall, we have several new opportunities there that we are pursuing, George, including existing customers and some new customers that we are trying to win. They take time, though. You can go and take time. We also have additional high-performance compute customers that we are pursuing and additional CPO.

So several growth drivers that we are working on right now.

George Notter: Great. And then you mentioned potential transceiver designs for hyperscalers and other merchant vendors. I guess at one point, I kind of thought that was maybe a number of quarters away, but I am just curious, like, programs like that, assuming you guys have success, is that a quarter away, multiple quarters away, multiple years away? Like, what do you think the timeline would look like? Thanks.

Seamus Grady: I would say, you know, we are quarters away. I do not think it is years away. I think it is quarters away. We have been working on it for well over a year, probably eighteen months at this stage. And we are, I would say, quarters away rather than years away, George, from that turning into meaningful revenue.

George Notter: Got it. Super. Thanks very much.

Operator: Thank you. One moment for our next question. It comes from the line of Steven Fox with Fox Advisors. Please proceed.

Steven Fox: Hi. Good afternoon. I guess I had two questions. First of all, on the hyperscale business, the ramp is obviously substantial. You mentioned that maybe improving from a second source position was possible. From the outside looking in, it looks like it is ramping very well. Like, you do not see any sort of in margins or anything like that. Can you just give a little bit more color on your chances of doing that? And also, I thought there was potentially a second program with that customer that was going to ramp. Can you just comment on that as well? And then I had a follow-up.

Seamus Grady: Yeah. So I will take the second question first. So the second program, there are multiple programs. I mean, there are no programs excluded from what we are working on. We are working on current products and also new products. So we are ramping multiple products. You know, our chances of growing the business further, like I said in my previous answer, we have two lines, two production lines fully qualified and additional lines being qualified. We are a little bit more than halfway into the ramp to capacity on those production lines. We have ample capacity, and we can build more products. Our chances of growing the business more than that level, you know, we are reasonably confident, but we have to execute. It is really a case of earning the business by doing an excellent job for the customer.

Excellent job. Excellent delivery quality. Responsiveness, etcetera, at very competitive cost. So we enjoy the competition. The existing supplier is a very good supplier with a long relationship with the customer. But, you know, we are confident that we can continue to grow that business. Because the business is very strong, and we are performing very well. So both things we think are in our favor.

Steven Fox: Great. That is helpful. And then just as a follow-up, just on the dollar-bot currency issue. So 9¢ drag in the quarter you just reported. Any help on how the EPS drag looks this quarter versus maybe ninety days ago? Very much.

Csaba Sverha: Hi, Steve. This is Csaba. Yeah. Indeed, the exchange rate environment has been favorable for the last several quarters. So we called out about $3 million drag in the last quarter, and below the line. And also on gross margins, we have been seeing unfavorable headwinds. So based on our hedging program that we have in place, we continue to expect about the same impact going into the third quarter, from an exchange perspective. Obviously, we are not forecasting anything on the revaluation and below the line, but we do anticipate about 20 to 30 basis point headwind in the gross margin. Nevertheless, obviously, we have been able to deliver slight improvement on gross margin even last quarter. As well as, we drive continuous operating leverage.

So we are hopeful that we will be able to offset most of the exchange rate headwinds in operating leverage by keeping our OpEx in check. And as we grow the top line, we should see continued operating leverage on operating income. But we do not put any guides for exchange rate other than the color that based on the hedging program we have in place, we do anticipate similar headwinds in the gross margin as in the prior quarter.

Steven Fox: Great. That is very helpful. Thank you.

Seamus Grady: You are welcome.

Operator: Thank you. Our next question comes from the line of Mike Genovese with Rosenblatt Securities. Please proceed.

Mike Genovese: Great. Thanks, and congrats on the record results. Maybe my first question is more of a comment, but I think if you counted that Sienna business where that stuff was going in DCI, you would find the vast majority of your telecom growth was driven by DCI and that you had a huge sequential DCI quarter. But that is just, like, kind of a segmenting thing. Any thoughts on that?

Seamus Grady: Yeah. I think that is pretty accurate. You know, DCI has been very, very strong for us. The growth is not just DCI, but it is predominantly DCI. It has been very good, and it continues to grow. And the demand looks to be very durable. And it is not just Sienna, it is across multiple customers.

Mike Genovese: Yep. Now can you give any details on the data center side or 800 and 1.6 mix, whether in terms of, like, what the mix is or what the trends are, is one growing faster than the other? Anything you could tell us about that?

Seamus Grady: Not particularly. You know? I mean, it is predominantly, you know, 200 gig per lane. Almost all 200 gig per lane. 1.6 terabits, and 800 gig. The exact mix between the two, we do not really, you know, I will not say we do not care, but we do not put a huge amount of thought into it because it really is the decision that our customer makes and that our customers’ customers make. The exact, you know, puts and takes as to why the customers would want 800 gig, 200 gig per lane versus 1.6 200 gig per lane. It is not really something we are involved in. But we are producing, you know, everything we can with the components we have, and the demand remains very robust. But the mix again, the mix between 1.6 and 800 gig, we do not put too much emphasis on. Because it is not that important to us. They are both produced on the same production line. And very similar products.

Mike Genovese: Yeah. I guess just a final question. In datacom, I mean, when you understand you are projecting sequential growth through this quarter. You usually do not guide more than another, but would you continue, you know, more than one quarter of sequential growth and kind of how many in datacom do you foresee, do you have visibility to?

Seamus Grady: Well, you know, we have pretty good visibility, I would say our visibility right now, it is certainly the furthest that I have in my experience, I think we have more visibility now than we have ever had. Like you say, we guide one quarter at a time, but we are very optimistic. You know, we are adding capacity as Csaba mentioned in his remarks, we are converting significant, you know, office space and warehousing space into manufacturing space at our Pinehurst campus. We are accelerating the build-out of our 2 million square foot Building 10. In our Chonburi campus, we have 250,000 square feet completed by the middle of the year by June. And then the balance of that 2 million square feet would be ready by probably early 2026, January, February 2026.

So, you know, and there are other ways to expand the capacity that we are looking at. We will probably talk about it in our next earnings call, but there are a number of activities we have underway that should help us to add additional capacity. So, you know, we are pretty excited, Mike, about the demand we have in front of us. It is a very exciting time, I would say, when you look at what is going on with our customers and what they need from Fabrinet. It is a good place to be right now. We are pretty excited about it.

Mike Genovese: Okay. Thanks very much. Appreciate it.

Seamus Grady: Thank you, Mike.

Operator: Our next question comes from Ryan Koontz with Needham. Please proceed.

Ryan Koontz: Great. Thanks. Appreciate the updated milestones on Building 10. I wonder if you can share a little more color about where you are in that process, you know, what kind of shape the facility is in in terms of construction and where you are really in the procurement of all the materials you need as well as, you know, customers to outfit the building and what that process looks like over the balance of 2026. Thank you.

Seamus Grady: We are well underway. I was there a few weeks ago. We are well underway. The building is a phenomenal building, and it will be a real showcase when it is finished. You know, 2 million square feet. It is a lot of factory. It is a big factory. But we are well underway. You know, we have had no delays or anything like that with the availability of the material to build the factory going very, very well. And we will have about, like I say, about 250,000 square feet finished and ready to move into by June. So that is well ahead of the completion schedule for the full factory. Then the balance of the factory will complete as we go throughout the year. And I think we will probably take possession of the balance of the factory in, like, January 2027.

So it is going very well. You know, the customer demand to consume the factory, you know, again, we do not ask our customers to make a hard commitment. We have to have capacity in place ahead of demand. That is why we are, you know, moving so fast with this. We see, you know, strong demand and strengthening demand from our customers. So, you know, we will put the factory up, then the customers, we are optimistic, I would say, Ryan, about our ability to fill the factory. You know, when we built Building 8, it was 550,000 square feet. We filled it pretty quickly. Building 9 was 1 million square feet, and that is, you know, almost full. So, you know, we are pretty optimistic about Building 10. We also have room for Building 11 and Building 12 on the same campus.

So, lots of runway in terms of capacity in front of us.

Ryan Koontz: Really helpful. Appreciate the color.

Seamus Grady: Thank you. No problem.

Operator: Thank you. Our next question comes from Tim Savageaux with Northland Capital Markets. Please proceed.

Tim Savageaux: Hey, good afternoon and congrats on the results for me as well. Couple of questions. First, just on, I guess, continuing on the capacity front. So as you look to add that 250,000 square feet, I guess at this point where we are standing right now, and I do not know if this is a reference to transceivers being quarters away. Or do you have an idea about where that capacity is going, I guess, since it is coming online pretty soon? Any color on, you know, what drove that pull-in, and if there are any particular projects that are driving that? And as a quick aside to that, still on capacity, I wonder if you might be able to size the kind of Pinehurst repurposing in the context of the 250k that you are adding, I assume it is smaller, but anything you can give us there, it is, you know, you look like you are adding, what, $300 million in annual revenue capacity plus Pinehurst. So just wondering if we have any more visibility on where that is going. Thanks.

Seamus Grady: Yeah. So I will let Csaba cover the Pinehurst capacity addition in a moment. Yeah. Chonburi, we are, as you said, pulling in 250,000 square feet. That is six, eight months ahead of the original schedule. There are several customers, Tim. You know, we would not want to quantify them all here, but it is really, you know, several drivers. Again, our telecom business is very strong. And it is not just DCI. It is DCI, but it is not just DCI. There is also some additional new business and new customer wins that we are working on in the telecom space. Datacom, it is, you know, growth with our main customer, but also we are, you know, we are confident in our ability to win other new datacom customers. Both merchants and also hyperscale direct.

You know, our business overall, Tim, is just very strong. Our demand profile we have from our customers is very strong. For us, it is a relatively easy decision to add this capacity because the way we add this capacity, our balance sheet is very strong. As you know, we have a very strong balance sheet. Able to build these buildings and add this capacity with zero debt. The downside risk for us is very small. As we build Building 10, you know, it will be, I do not know, about $130 million of CapEx. Csaba can correct me if I am wrong on that, but $130 million of CapEx. This will add, you know, $2 billion, sorry, 2 million square feet and capacity for an additional, depends on the mix, but we said 2.5 in the past is probably a little bit north of that at the moment given the mix that we are looking at.

So the upside opportunity is huge. It is the, if you like, the operating profit that we can generate from that business. The downside risk is very small. The downside risk for us of building a factory that does not get consumed as quickly as we would like is probably 15 basis points. Something like that on a full-year basis. So 15 basis points gross margin headwind. So the downside risk is tiny because of the strong balance sheets we have, the way we are able to build these in a very efficient way with no debt. Downside risk is very small. The upside opportunity is huge. So it is a relatively easy decision for us to add this capacity. Coupled with that, you know, our ROIC is about 40%. So, really, the best return for us is to add capacity, fill that capacity, you know, with new business that is able to generate, you know, outsized margins for our industry and also outsized returns.

So it is a relatively straightforward decision for us, Tim.

Tim Savageaux: Great. Thanks. If I could follow-up. Sure. And you mentioned strength across the business demand-wise, sounds like that has not really changed as you have gone through the quarter and into the New Year here. But given where you are guiding the sharpness of that HPC ramp, well, say you expect telecom to grow, it seems like only slightly on a sequential basis. And relative to very strong results you just put up here in the quarter. And I guess I am, am I first, am I reading that right? And second, you know, do you attribute that to anything in particular, seasonality of customers or anything else? If indeed I am kind of working through the segments properly. Thanks.

Seamus Grady: I am sorry, Tim. I did not understand the question. Are you interpreting what correctly? I missed the question.

Tim Savageaux: Just your segment guidance. Basically, I am saying with HPC likely up another big chunk in the quarter, while you are talking about telecom and datacom growth, it seems like much slower sequential growth than you saw in December in terms of what you are forecasting in March.

Seamus Grady: Okay. I see. I see. Accurate, and why would that be? I guess would be the question.

Csaba Sverha: I think I will let Csaba add a little bit of color, but I think our HPC growth, you know, it is not in a straight line because we are dealing with some new products that do not always grow. That growth is a little bit lumpy, I would say. So HPC will not necessarily grow in a straight line. Looks like a nice straight line, really, we only have two data points, two quarters of revenue, and everyone knows, two data points is not a trend, so we have to wait until we have a little bit more HPC experience under our belt. Then maybe I will let Csaba talk about telecom and datacom and also the question you had about the capacity additions in Pinehurst.

Csaba Sverha: So, Tim, hi. So let me give you some pointers on the guidance. So as we mentioned, all the segments we anticipate to grow with the exception of automotive. So HPC, we had a nice bump of about $71 million sequentially last quarter. So that is not going to grow in that space. But we do anticipate double-digit growth in that area. Within telecom, we anticipate that the DCI is going to grow faster than we have seen in the past quarter. So that strength continues into our third quarter. And we also anticipate datacom to grow. So that is the color that we can provide at this stage. And automotive will probably be down in a similar way as it has been in the prior quarter. With regards to Pinehurst Campus, to answer your prior question, so we are able to create about 120,000 square feet of space or convert offices and warehouse space into manufacturing space.

A couple of years back, we were able to acquire an adjacent piece of land, which is in a zone that we are able to build office buildings on that land, but we are not able to build a factory. So we were able to cover some of the office and manufacturing space in the campus. So that adds up to about 120,000 square feet, which if you do the math again, it is highly dependent on mix. That should give us over $150 million revenue upside opportunity. Again, this is subject to mix. So overall, and again, in terms of customer requirements for additional space, obviously, Pinehurst is prime from that perspective because a lot of our legacy customers are there, and they would like to have more space in Pinehurst. So hence, we are doing the best we can to accommodate all those requirements.

Tim Savageaux: Great. And just very quick. And is the Pinehurst edition, is that on the same timeline as the Building 10 pull-in midyear? Or is that kind of happening now? Or

Csaba Sverha: Yes. It is happening now. Seamus does not have an office anymore in the campus, so we used to joke when he comes next time to Pinehurst, he will no longer have an office. So it is happening pretty directly.

Tim Savageaux: Thanks very much.

Seamus Grady: Thank you.

Operator: Thank you so much. And this will end our Q&A session, and I will pass it back to Seamus for closing comments.

Seamus Grady: Thank you for joining our call today. We are very pleased with our excellent second quarter performance and with continued momentum across our business. We are optimistic that we can deliver a very strong third quarter as we expand on our strong market position. We look forward to speaking with you in the future and to seeing those of you who will be attending the Susquehanna Conference later this month and the OFC Conference in Los Angeles next month. Thanks again, and goodbye.

Operator: And with that, we conclude our conference. Thank you all for participating. You may now disconnect.