Fabrinet Revenue Hits Record as Optical Demand Surges, Margins Hold
The contract manufacturer posted $1.316 billion in fourth-quarter revenue, a 45% jump from a year earlier, and projected further growth ahead.
Fabrinet (FN), the contract manufacturer for optical and industrial companies, reported fourth-quarter fiscal 2026 revenue of $1.316 billion, a record that topped the company's own guidance by as much as $66 million and marked a 45% increase from $909.7 million a year earlier. The result capped a fiscal year in which sales climbed 36% to $4.64 billion, propelled by accelerating demand across the company's optical networking customer base.
The trajectory tells the sharper story. Revenue stepped up each quarter through fiscal 2026 — from $978 million in Q1 to $1.133 billion, then $1.214 billion, and finally the $1.316 billion fourth-quarter mark — with the final three-month period delivering the largest sequential dollar increase of roughly $101 million. Management guided first-quarter fiscal 2027 revenue to $1.375 billion–$1.425 billion, implying a further 4% to 8% sequential gain and year-over-year growth of 41% to 46%.
Profitability kept pace with the top line even as gross margins narrowed. GAAP earnings per share rose 58% to $3.83, and non-GAAP EPS climbed 55% to $4.10, outstripping the revenue growth rate. Net income on a GAAP basis surged 60% to $139.3 million. The leverage came from the operating line: GAAP operating margin expanded to 10.2% from 9.8% a year ago, and non-GAAP operating margin widened to 10.9% from 10.7%, even as non-GAAP gross margin slipped to 12.2% from 12.5%. For the full year, the pattern held — operating margins improved while gross margins contracted modestly.
The margin dynamics reflect the cost of scaling. Fabrinet more than doubled capital expenditures to $252.5 million in fiscal 2026 from $121.1 million the prior year, pushing property, plant, and equipment up 62% to $615 million. That investment, combined with a 76% surge in inventories to $1.021 billion and a 34% rise in trade receivables to $1.018 billion, consumed cash. Free cash flow collapsed to $4.2 million for the full year from $207.3 million in fiscal 2025; in the fourth quarter alone, free cash flow was negative $36.9 million as capex hit $91.9 million. Share repurchases slowed to $5.2 million for the year, down from $125.7 million, as the company prioritized capacity expansion over buybacks.
The balance sheet absorbed other new items tied to the company's growth. An $89.1 million investment in non-marketable equity securities appeared for the first time, generating a $56.7 million gain recorded in other income. Separately, a $57.4 million tax provision related to the OECD Pillar Two global minimum tax appeared in fiscal 2026 results, adding $1.58 to GAAP EPS as a non-GAAP adjustment. Interest income, meanwhile, fell 19% to $32.4 million as short-term investment balances declined to $528 million from $628 million, reflecting the cash demands of the ramp.
First-quarter non-GAAP EPS guidance of $4.10 to $4.25 suggests margins may flatten even as revenue grows, a signal that the operating leverage that powered fourth-quarter earnings could moderate in the near term. The company is investing through the cycle — doubling capex, building inventory, and absorbing new tax obligations — to meet demand that has accelerated for four consecutive quarters. Whether the optical networking upswing sustains that pace will determine how quickly those capital outlays convert into the cash generation that defined Fabrinet's profile before this expansion began.