Bernstein: Coherent’s data-center business beats expectations; second-quarter revenue guidance raised

First-quarter revenue meets expectations; how did the business mix change?

Coherent’s first-quarter revenue in fiscal 2027 was 2.37 billion dollars, in line with Bernstein’s forecast and above the market consensus of 2.32 billion dollars listed on the front page. EPS was 2.09 dollars, also above Bernstein’s forecast of 2.05 dollars and the consensus of 2.02 dollars.
Revenue diverged by business: data-center and communications revenue was 2 billion dollars, above Bernstein’s forecast of 1.87 billion dollars; industrial revenue was 400 million dollars, below its forecast of 500 million dollars. The former’s beat offset the latter’s shortfall.
First-quarter gross margin was 40.6%, below Bernstein’s forecast of 41.0%; the firm said the margin performance disappointed investors.

The company expects second-quarter revenue in fiscal 2027 of 2.55 billion to 2.75 billion dollars, with a midpoint of 2.65 billion dollars, above Bernstein’s forecast of 2.61 billion dollars and the market consensus of 2.55 billion dollars. EPS guidance is 2.28 to 2.48 dollars, with a midpoint of 2.38 dollars, above Bernstein’s forecast of 2.28 dollars and the consensus of 2.24 dollars.
The company also expects revenue growth of more than 60% in fiscal 2027. Second-quarter gross-margin guidance is 40% to 42%, with a midpoint of 41%, in line with Bernstein’s forecast. Operating-expense guidance is 430 million to 450 million dollars, below Bernstein’s forecast of 457 million dollars but above the market consensus of 410 million dollars.

Bernstein believes that bottlenecks in indium phosphide (InP) supply have given Coherent and its peers strong pricing power. Changes in materials supply will affect whether this pricing power can be sustained. The firm also cautioned that wider adoption of CW lasers and silicon photonics, easing InP bottlenecks, could weaken the pricing power of Coherent and Lumentum.
On margins, investors are watching how much of an impact the ramp-up of six-inch wafer capacity will have on margins, as well as the company’s broader scope for margin improvement.
After Marvell and Lumentum announced plans to merge, Bernstein said mergers and acquisitions are generally favorable for competitors and could also put Coherent more firmly on potential acquirers’ radar. Some investors, however, worry that Lumentum chose to sell at an industry peak.

Bernstein maintains an Outperform rating and a $350 price target. The target is based on its forecast of fiscal 2028 EPS of $16, at about 22 times earnings.
On new products, Coherent has demonstrated a VCSEL solution for scaling interconnects and launched the PHOTONLINK platform. Bernstein is watching for further product details and adoption of the VCSEL solution.