Coherent Posts Record Q4 Revenue

Coherent reported robust fiscal year 2025 results, achieving record revenue and significant non-GAAP EPS growth, primarily driven by its AI data center and communications segments. Strategically, the company divested its lower-margin aerospace and defense business for $400 million, aiming to enhance EPS and reduce debt. Concurrently, Coherent commenced production at the world's first six-inch indium phosphide wafer line and secured a new multiyear supply agreement with Apple for next-generation VCSEL products, both leveraging its Sherman, Texas facility. These actions underscore Coherent's focused pivot towards higher-margin photonics markets, strengthening its manufacturing capabilities and supply chain for sustained growth in critical technology sectors.

Analysis

Coherent reported exceptionally strong fiscal 2025 results, with full-year revenue climbing 23% to $5.81 billion and non-GAAP EPS surging 191% to $3.53, underscoring significant momentum in its core markets. This performance was driven by a 358 basis point expansion in non-GAAP gross margin to 37.9%, fueled by high demand from AI data center and communications clients. The company's strategic execution is evident through three key initiatives: the divestiture of its lower-margin aerospace and defense business for $400 million, a move expected to be immediately accretive to EPS and used for debt reduction; the launch of the world's first six-inch indium phosphide production line, which triples a key manufacturing capacity and strengthens its cost leadership in high-speed optical components; and a new multiyear supply agreement with Apple for next-generation VCSELs, securing long-term revenue visibility from 2026. Management's guidance for the first quarter of fiscal 2026 projects revenue between $1.4 billion and $1.6 billion with continued margin strength, reinforcing confidence in achieving its long-term 42% non-GAAP gross margin target.

Key Decisions for Investors

• Investors should recognize that the combination of record earnings, a sharpened focus on high-growth photonics, and an accretive $400 million divestiture significantly strengthens Coherent's investment thesis.
• The successful launch of the industry-first six-inch indium phosphide line represents a critical competitive advantage, positioning the company to capture disproportionate share in the AI and high-speed networking supply chain.
• Monitor progress toward the 42% long-term gross margin target, as its achievement will be a key valuation catalyst, driven by the new Apple agreement revenue stream beginning in 2026 and the operational efficiencies from scaled-up production.