Fabrinet Sees AI Optical Demand Fueling Years of Growth, Expands Capacity

AI-driven optical demand is fueling Fabrinet’s growth: Data center interconnect products such as 400ZR, 800ZR and ZR+ reached a $1 billion annualized revenue run rate, with management expecting strong demand for several years. Fabrinet is diversifying beyond NVIDIA and communications: The company is expanding its datacom customer base while pursuing opportunities in automotive lidar, industrial lasers, optical circuit switching, satellites, and next-generation co-packaged optics. Major capacity expansion is underway: Building 10, a new Thailand facility and the Santa Clara operation are expected to increase capacity to about $9.8 billion by the March quarter—an 85% rise from fiscal-year-end levels—supported by roughly $250 million in annual capital spending.

Fabrinet NYSE: FN executives said demand across data center interconnect, datacom, automotive and industrial markets remains strong, with the company expanding manufacturing capacity to support what Chairman and CEO Seamus Grady described as substantial multi-year growth opportunities. Speaking at Rosenblatt Securities’ “The Age of AI” conference following the company’s earnings report, Grady said data center interconnect, or DCI, products including 400ZR, 800ZR and ZR+ optical technologies have become a major driver of growth. He said the business reached a $1 billion annualized revenue run rate at the end of the fiscal year after starting from only a few million dollars in revenue relatively recently.

Grady said DCI addresses power constraints facing large data centers by allowing operators to distribute facilities and connect them through high-speed optical links. “The demand is very strong and looks to be very strong for some considerable time to come,” he said, adding that Fabrinet sees demand increasing dramatically over the next several years. The company’s DCI business is spread across multiple customers, according to Grady, and Fabrinet manufactures both pluggable modules and component content used in those products. He said the combination makes the business relatively “sticky.”

Fabrinet is also working with several customers on multi-rail technologies, though Grady said it was too early to discuss customer product plans publicly. He described multi-rail as a potential growth driver in future years.

Grady said Fabrinet is broadening its datacom customer base beyond NVIDIA through direct hyperscale customers and merchant transceiver manufacturers. The company is already shipping to both groups, he said, and expects a second merchant transceiver customer to begin production in the December quarter. He said the initial opportunities with non-NVIDIA datacom customers are primarily in 800-gigabit short-reach transceivers, with a transition to 1.6T products expected later.

Fabrinet has decided to remain a pure-play contract manufacturer rather than become an original design manufacturer, or ODM. Grady said the company could access certain short-term opportunities by designing and owning products, but that approach could harm relationships with existing customers such as Ciena, Cisco and Nokia. “We believe there’s more than enough growth for us to work on as a pure-play contract manufacturer,” Grady said. He added that Fabrinet has won business in some cases because competitors chose to become ODMs, a move that some customers did not favor.