Coherent Guides to $3 Billion Quarterly Revenue as Indium Phosphide Ramp Outpaces Plan and CPO Demand Accelerates, Not Slows
Fiscal Q4 2026 earnings call, August 12, 2026
Coherent closed out fiscal 2026 with a quarter that decisively rebuts the market's recent anxiety about optical component demand cooling or CPO timelines slipping. Pro forma revenue for the fourth quarter rose 42% year-over-year and 14% sequentially to $2.05 billion, while non-GAAP EPS jumped 74% year-over-year to $1.74. For the full fiscal year, revenue reached a record $7.12 billion, up 28% on a pro forma basis, with EPS growing 59%, nearly twice the pace of revenue. The company is guiding fiscal Q1 2027 revenue to $2.2 billion to $2.4 billion and EPS of $1.85 to $2.05, both comfortably ahead of where the Street had been modeling.
The $3 Billion Quarter Target Is the Headline Number
The most consequential disclosure on the call was CEO Jim Anderson's confirmation that Coherent expects to post its first quarter exceeding $3 billion in revenue by the end of fiscal 2027, a target he acknowledged sits "well above current consensus," according to Raymond James analyst Simon Leopold. That would represent close to 50% growth from the Q4 2026 run rate within roughly a year. Anderson attributed the ramp primarily to the Datacenter & Communications segment, which already represents 80% of revenue, with 800-gig transceivers still growing robustly, 1.6T transceivers ramping "even faster than what we thought three months ago," and contributions layering in from optical circuit switching, co-packaged optics, and multi-rail systems. He added a telling detail: "I'm trying to think if there's any product line we're not supply constrained on. The demand is robust across almost every single product across data center and comms."
Indium Phosphide Capacity Ramp Running Ahead of Schedule
Coherent will double its internal indium phosphide output capacity year-over-year by the end of the current quarter, a milestone Anderson said is now one quarter ahead of the original plan. He offered a concrete proof point: indium phosphide laser production in the June quarter grew 80% year-over-year, and those lasers feed directly into 800-gig and 1.6T transceiver shipments in the current quarter, implying data center transceiver revenue growth should exceed that 80% rate. Critically, 6-inch wafer yields are now running ahead of the legacy 3-inch lines across all three device types in production, CW lasers, EMLs and photodiodes, which CFO Sherri Luther clarified is less about yield and more about cost structure: 6-inch wafers produce 4x the output of 3-inch wafers at half the cost. The company plans to more than double indium phosphide capacity again by the end of calendar 2027 and is already planning additional capacity beyond that, with a third 6-inch line coming online in Zurich in the first half of calendar 2027.
CPO Demand Is Pulling In, Not Pushing Out
Addressing what Anderson called "noise" around potential CPO delays and NPO substitution, he was unambiguous: "We've seen absolutely no pushout of CPO demand. In fact, it's been the opposite. We've seen demand increase and demand request from customers getting pulled in." He also directly rebutted online speculation, seemingly from Substack commentary, that Coherent's CPO laser was running into technical trouble, telling analyst Michael Genovese of Rosenblatt Securities that Coherent has already started production wafers for December-quarter shipments and that the customer "continues to tell us to please ship more as fast as possible." Revenue from CPO for scale-up applications is still expected to begin in the second half of calendar 2027, while CPO tied to the Nvidia partnership begins ramping in fiscal Q2. Engagement intensity across both CPO and NPO has risen markedly over the past three to six months, with Anderson noting nearly every strategic customer is now engaged in one or the other, and that dollar content per device is comparable across both form factors since Coherent supplies the full signal chain rather than a single component.
PhotonLink: A New Integrated Optics Platform Launching in September
Coherent plans to unveil a new platform called PhotonLink at the ECOC industry event in September, positioned as a full-stack solution spanning light generation, beam shaping, retransmission, detection and conversion back to an electrical signal, supporting CPO, NPO and other integrated optics architectures. Anderson said the platform responds directly to customer feedback: "What we were seeing with customers around CPO and NPO is customers not wanting to just buy a point individual ingredient like a laser or an isolator, but really wanting help bringing the full solution." Initial PhotonLink-related revenue is expected in the December quarter, with further detail promised at a dedicated launch event on September 21.
Gross Margin Trajectory Toward 42% and Beyond
Non-GAAP gross margin reached 40.2% in Q4, up 215 basis points year-over-year, and 39.4% for the full fiscal year, up 152 basis points. Luther pointed out that Coherent has expanded gross margin in eight of the last nine quarters, an accumulated 660 basis points of improvement, and reiterated the Investor Day target of above 42%, noting the company remains "early" in that expansion given that the bulk of the 6-inch indium phosphide ramp, along with new product ramps in 1.6T, OCS, CPO and multi-rail, are all still ahead. She added a pointed comment for margin skeptics: "Once we get to our target of greater than 42%, we will no doubt raise the target." Operating expenses as a percentage of revenue have already fallen below the company's 18% target model, with further leverage expected from R&D even after significant SG&A efficiency gains from a regional shared-services restructuring.
Order Visibility Extends Through the Decade
Bookings hit another record in the quarter, with backlog now essentially fully booked through calendar 2027 and customer purchase orders extending into calendar 2028. Long-term agreements stretch out through the end of the decade and, according to Anderson, typically include committed volumes that increase annually, locked-in pricing, and minimum demand guarantees structured as take-or-pay commitments. Genovese pressed on how long laser pricing could keep rising given capacity additions and potential Chinese competition; Anderson said LTA pricing is fixed for the duration of the agreements, in many cases through the rest of the decade, giving Coherent unusually long-dated visibility on both volume and price.
Potential Tariff and Reshoring Tailwind
Raymond James' Leopold raised press reports of potential U.S. import restrictions on optical transceivers tied to domestic jobs policy. Anderson called the reports speculative but said Coherent, as the largest U.S. transceiver supplier with more than 20 U.S. production facilities, would benefit and is already fielding inbound customer interest. "We have seen there's a number of customers that have reached out to us and have engaged in a discussion around manufacturing and exploring different options," Anderson said, adding the company would be open to expanding U.S. capacity further if needed.
Industrial Segment Lagging, Emerging Applications Still Early
The Industrial segment remained roughly flat for the year, with semiconductor and display capital equipment growing while broader industrial markets stayed weak. Longer-dated optionality exists in Thermadite thermal materials for XPU cooling, with revenue expected to begin ramping in the second half of calendar 2027, alongside nascent opportunities in fusion energy, quantum technologies and micro LED display equipment. These remain diversification stories rather than near-term financial drivers.