W.023Coherent spent $776M on capacity in a quarter, a third of its sales, as it signed a $20B deal that ramps in 2028
Coherent’s sales rose 50% to $2.37B in its quarter to September, with datacenter and communications products 82% of the total. Its capital spending rose to $776M, 7.5 times a year earlier, and cash from operations was negative, so operating cash flow less capex came to −$868M. It also disclosed an optics agreement valued at about $20B over five years, with revenue ramping in early 2028. The shares fell about 14% on November 5.
What Coherent reported
Sales grew 50%, carried by the products that go into AI data centers. Coherent reported revenue of $2,370.3M for the first quarter of its 2027 fiscal year, the three months to September, against $1,581.4M a year earlier and $2,045.5M in the quarter before. On what it calls a pro forma basis, growth was 56%. Its Datacenter & Communications segment, which sells transceivers, lasers and other optical parts for networks inside and between data centers, grew 79% to $1,951.7M, 21% more than in the June quarter. Industrial sales fell 15% on a year earlier as reported. The non-GAAP gross margin was 40.6%, and the non-GAAP operating margin 23.2%, against 19.5% a year earlier.
Coherent guided to another step up. It expects $2.55B to $2.75B for the quarter to December, a midpoint 12% above the September quarter, and pro forma growth of more than 60% for the fiscal year to June 2027. It set targets of a first $3 billion quarter by the end of that fiscal year and a first $4 billion quarter in the year after, 69% above the quarter just reported.
Datacenter products are 82% of sales
Coherent revenue by fiscal quarter, $ billions, by segment as reported: Datacenter & Communications (solid) and Industrial (grey). The last bar is the midpoint of guidance for the quarter to December 2026, outlined, labelled with the full range; Coherent does not guide by segment.
Data
| Quarter | Datacenter & Comms, $M | Industrial, $M | Total reported, $M | Capex, $M |
|---|---|---|---|---|
| Q1 FY26 (Sep 2025) | 1090.0 | 491.4 | 1581.4 | 104.0 |
| Q4 FY26 (Jun 2026) | 1615.0 | 430.5 | 2045.5 | 556.0 |
| Q1 FY27 (Sep 2026) | 1951.7 | 418.6 | 2370.3 | 775.5 |
Where the cash went
Profits did not turn into cash this quarter. Coherent booked GAAP net earnings of $384.7M, but its operating activities used $92.7M. The gap of $477M is non-cash items and changes in working capital together; we have not broken it down further. It then spent $775.5M on property, plant and equipment, so operating cash flow less capex was −$868.2M, or 37% of revenue. Coherent does not report that figure itself; it is our subtraction.
The spending is on capacity for its datacenter and communications business, management said. Capex was $776M, against $556 million in the June quarter and $104 million a year earlier, and management said it expects capex to rise again in the December quarter. The company said it doubled its internal indium phosphide capacity, the material used in its datacenter lasers, on a year earlier, and plans to more than double it again by the end of 2027. It held $1.75B of cash and short-term investments, plus $583M of restricted cash, against $4.00B of debt, for net debt of about $2.25B excluding the restricted cash.
−$868M after capex
Coherent, quarter to September 2026, $ millions. GAAP net earnings, the difference between net earnings and operating cash flow (non-cash items and working capital, net, our calculation), net cash from operating activities, and additions to property, plant and equipment, as reported. The last bar is operating cash flow less capex, our calculation.
Capex rose from 7% of sales to 33%
Coherent capital spending by fiscal quarter, $ millions, with its share of that quarter’s revenue. The quarter to September 2026 is additions to property, plant and equipment from the release; the two earlier quarters are as stated by management on the call.
A $20 billion agreement that starts in 2028
The new agreement is large, and late. Coherent’s slides describe a PhotonLink agreement with an unnamed customer, which management called a leading AI data center customer, “valued at ~$20B over five years”, with revenue beginning to ramp in early calendar 2028. PhotonLink is Coherent’s platform of lasers and optical assemblies for co-packaged and near-packaged optics, where the optics sit next to the switch or processor chip rather than in a pluggable module. Spread evenly, $20 billion over five years is $4.00B a year, or about 42% of Coherent’s sales at the September quarter’s rate. Coherent did not say whether this customer prepays; management said nearly every long-term agreement includes an upfront payment, either a prepayment or engineering fees, that helps fund the capex to build capacity for that customer.
The shares fell anyway. Coherent closed at $195.09 on November 4, before the report, and fell about 14% on November 5, closing at about $168.50, the day the Nasdaq fell more than 5% in a chip-stock selloff two days after the US midterm elections. Lumentum and Applied Optoelectronics, which also sell AI optics, fell too.
The $20B deal averages about $1B a quarter
Coherent quarterly revenue, $ billions: the September 2026 quarter as reported, guidance for the December quarter (solid to the low end, outlined to the high end), and the company’s targets for its first $3 billion and $4 billion quarters (outlined). The last bar is the PhotonLink agreement’s about $20 billion divided by 20 quarters, our calculation; its revenue starts ramping in early 2028, so the real path will be uneven.
What this changes on 06.ai
- Pack lead (How much compute does AI demand need by 2027?): co-packaged optics demand now has a dated, sized commitment, about $20 billion over five years, with revenue starting to ramp in early 2028, on top of Lumentum’s more than $5 billion of purchase commitments for its own second co-packaged optics win.
- Series lead: capex as a share of revenue at the AI optics makers (Coherent, Lumentum, Applied Optoelectronics), as a read on how far suppliers are funding capacity ahead of their customers.
- Watch: whether the December quarter’s capex rises again, as management said it would, and whether Coherent discloses a prepayment under the PhotonLink agreement.
Sources and method
| Item | Figure | Source |
|---|---|---|
| Q1 FY27 | Revenue $2,370.3M (Q4 FY26 $2,045.5M; Q1 FY26 $1,581.4M), up 50% y/y and 56% y/y pro forma; Datacenter & Communications $1,951.7M, Industrial $418.6M and prior quarters; gross margin GAAP 39.1%, non-GAAP 40.6%; operating margin GAAP 15.9%, non-GAAP 23.2%; GAAP net earnings $384.7M; operating cash flow −$92.7M; additions to PP&E −$775.5M; cash $1,552.9M, short-term investments $200.0M, restricted cash $583.4M; current debt $19.9M, long-term debt $3,980.7M; Q2 guidance $2.55B–$2.75B, non-GAAP gross margin 40%–42%; FY27 pro forma growth expected to exceed 60%; first $3B quarter by end of FY27, first $4B quarter in FY28; non-GAAP gross margin above 45% before the end of calendar 2028 | Coherent release, Nov 4 |
| PhotonLink | A PhotonLink agreement “valued at ~$20B over five years”, revenue beginning to ramp in early CY2028; PhotonLink an integrated optics platform for co-packaged, near-packaged and chip-to-chip optics | Coherent earnings slides (8-K exhibit 99.2), Nov 4 |
| Call | Customer described as a leading AI data center customer, not named; capex $556M in Q4 FY26 and $104M a year earlier; capex expected to rise again in Q2; indium phosphide capacity doubled on a year earlier and to more than double again by end of CY2027; total cash about $2.34B; non-GAAP operating margin 19.5% a year earlier; nearly every long-term agreement includes an upfront payment (prepayment or NRE) that helps fund capacity capex | Q1 FY27 call transcript, Motley Fool, Nov 5 |
| Shares | Closed at $195.09 on Nov 4, before the report (heygotrade); down 13.72% to $168.33 at 11:15 a.m. ET on Nov 5; closed down about 13.63%, near $169 (Yahoo Finance) | GuruFocus via TradingView, Nov 5 |
| Lumentum | Its second major co-packaged optics win “backed by purchase commitments exceeding $5 billion” | Lumentum release, Nov 2 |
| Market | Nasdaq fell more than 5% on Nov 5 as chip stocks sank | Yahoo Finance, Nov 5 |
| Shares | Coherent down about 14% at midday on Nov 5, with Applied Optoelectronics and Lumentum also lower | 24/7 Wall St., Nov 5 |
Growth: 2370.3 ÷ 1581.4 − 1 = 49.9%; ÷ 2045.5 − 1 = 15.9%. Datacenter & Communications 1951.7 ÷ 1090 − 1 = 79.1%; share 1951.7 ÷ 2370.3 = 82.3%. Industrial 418.6 ÷ 491.4 − 1 = -14.8%. Guidance midpoint (2550 + 2750) ÷ 2 = 2650, 11.8% above 2370.3. $4B ÷ 2370.3 − 1 = 68.8%.
Cash: operating cash flow less capex -92.7 − 775.5 = −$868.2M, -36.6% of revenue; the residual between operating cash flow and net earnings -92.7 − 384.7 = −$477.4M. Capex share 775.5 ÷ 2370.3 = 32.7%; 775.5 ÷ 104 = 7.5×. Debt 19.9 + 3980.7 = $4,000.6M; cash and short-term investments 1552.9 + 200 = $1,752.9M; net debt $2,247.7M, excluding $583.4M of restricted cash.
PhotonLink: $20,000M ÷ 5 = $4,000M a year, ÷ 4 = $1,000M a quarter; against the September quarter at an annual rate, 2370.3 × 4 = $9,481.2M, that is 42.2%. Shares: $195.09 × (1 − 0.1363) = $168.50. Segment figures sum to the reported totals within $0.3M of rounding.
Wire reports are written within hours of the news, on a six-hour schedule. Each lists its sources and shows the arithmetic behind its figures. Not investment advice.