Coherent Corp. Q2 FY2025 earnings call

Management Statement and Operational Highlights:

• Revenue Growth: Fiscal second quarter revenue was a record $1.43 billion, up ~6% sequentially and 27% year-over-year.
• Gross Margin: Non-GAAP gross margin was 38.2%, an improvement of 146 basis points QoQ and 363 basis points YoY, driven by higher revenue volumes, cost reductions, and improved manufacturing yields.
• Product Segments:
  • Data Center and Communications: Q2 revenue up 6% QoQ and 58% YoY, with datacom revenue at record levels driven by AI demand, and telecom revenue up 16% QoQ and 11% YoY.
  • Industrial Markets: Aggregate revenue up 7% QoQ but flat YoY, with display capital equipment and semi cap equipment showing growth.
  • Strategic Portfolio Optimization: Progress on divesting non-strategic product lines, including evaluating alternatives for advanced lithium-ion battery recycling technology.

Segment Performance:

• Networking: Revenue increased 7% sequentially and 56% year-over-year, driven by strong AI data center demand and telecom recovery.
• Laser: Revenue increased 8% sequentially and 6% year-over-year, primarily due to demand for excimer annealing lasers in display capital equipment and semi cap equipment.
• Materials: Revenue increased 3% sequentially but decreased 4% year-over-year, mainly due to weak automotive end-market demand.

Guidance:

• Third Quarter Fiscal 2025:
  • Revenue expected between $1.39 billion and $1.48 billion.
  • Non-GAAP gross margin expected between 37% and 39%.
  • Total operating expenses expected between $285 million and $305 million.
  • Non-GAAP tax rate expected between 17% and 19%.
  • Non-GAAP EPS expected between $0.75 and $0.95.

Risks:

• Tariffs: Dynamic situation, but current Q3 guidance factored in no significant impact, and the company has a resilient supply chain with geographic diversity and vertical integration.
• Industrial Markets: Cautious near-term outlook for broad-based industrial end markets, particularly automotive for materials.

Question and Answer: Q: Thoughts on telecom market sustainability?

A: Cautiously optimistic, with sequential growth continuing, driven by data center interconnect and new product ramps.

Q: OCS addressable opportunity?

A: First customer order received, expect initial revenue in 2025, with more details at Investor Day in May.

Q: CPO impact?

A: CPO is an accelerator of data center optical networking TAM, Coherent well-positioned in pluggable transceivers and ingredient technologies.

Q: VCSELs, EMLs, silicon photonics?

A: Coherent has broadest portfolio, works with customers to choose optimal technology, and invests in key technologies.

Q: Tariffs mitigation?

A: Resilient supply chain with geographic diversity and vertical integration, no signs of demand pull-forward.

Q: Lasers and materials market outlook?

A: Cautious near-term, but display capital equipment and semi cap equipment showing growth.

Q: 200-gig VCSEL update?

A: Progressing on engineering efforts, with strategy to deploy optimal technology for applications.

Q: Datacom margin and OpEx?

A: Focus on yield improvements and R&D investment, with OpEx increases driven by R&D spend.

Q: Transceiver market and supply chains?

A: Stable pricing, focus on gaining share, and supply chain resiliency valued by customers.

Q: Yield improvements in datacom?

A: Range of activities including materials, manufacturing, and ongoing improvements.

Q: Sales and marketing changes?

A: Shifting resources to greatest growth and margin opportunity areas.