Exchange: NYSE | Sector: Technology | Industry: Hardware Equipment Parts
Q4 2024
Published: Aug 20, 2024
Earnings Highlights
Revenue of $753.26M up 14.9% year-over-year
EPS of $2.22 increased by 34.1% from previous year
Gross margin of 12.3%
Net income of 81.07M
"Datacom revenue grew over 120% while telecom revenue declined more than 20% for the year, due to the protracted inventory digestion across the telecom industry." - Seamus Grady
Fabrinet (FN) Q4 2024 Results Analysis: Record Revenue and EPS Driven by Datacom; Strategic Capacity Expansion Underpins Long-Term Growth
Executive Summary
Fabrinet delivered a record-breaking fourth quarter for fiscal year 2024, with revenue of $753.3 million, up 15% year over year and 3% quarter over quarter, and non-GAAP diluted EPS of $2.41. For the full year, revenue reached a record $2.9 billion, up 9% vs. 2023, with non-GAAP EPS of $8.88, a 16% gain. The company highlighted robust datacom demand, led by 800G+ and AI-related applications, while telecom revenue declined due to ongoing inventory digestion. Automotive and non-optical segments posted solid sequential gains. Fabrinet signaled a continued datacom workforce and capacity pull-forward into fiscal 2025 and beyond, forecasting Q1 FY2025 revenue of $760–$780 million and EPS of $2.33–$2.40, with broader growth expected across major product lines. Management also announced a strategic building expansion (Building 10) at the Chonburi campus, targeting approximately $110 million of capex and ~2 million square feet of new capacity to support long-term demand. The combination of strong cash generation, deleveraging balance sheet, and multiple growth vectors (datacom, system telecom, automotive lasers) supports a constructive long-term investment thesis, albeit with near-term macro and customer-concentration risks to monitor.
Key Performance Indicators
Revenue
753.26M
QoQ: 2.97% | YoY:14.85%
Gross Profit
92.45M
12.27% margin
QoQ: 1.66% | YoY:12.34%
Operating Income
73.31M
QoQ: 2.81% | YoY:19.39%
Net Income
81.07M
QoQ: 0.19% | YoY:33.36%
EPS
2.24
QoQ: 0.45% | YoY:34.13%
Revenue Trend
Margin Analysis
Key Insights
Q4 2024 revenue: $753.261 million, up 15% YoY and 3% QoQ; gross profit: $92.449 million; gross margin: 12.27% (rounded from 0.1227). Operating income: $73.309 million; operating margin: 9.73%. Net income: $81.066 million; net income margin: 10.76%. Non-GAAP net income: $88.0 million; non-GAAP EPS: $2.41; diluted EPS: $2.22.
Full-year FY2024: Revenue $2.9 billion, up 9% YoY; non-GAAP EPS $8.88, up 16% YoY.
Share repurchases: Q4 2024 ~21k shares repurchased at $170 on average ($3.5 million); FY2024 ~212k shares repurchased at $186 on average ($39 million). Free cash flow (FY2024): $368 million; operating cash flow: $413 million (up 94% YoY).
Balance sheet and liquidity
Cash and short-term investments: $858.6 million (cash $409.97 million); net cash position: net debt ≈ -$405 million.
Total assets: $2.338 billion; total liabilities: $0.593 billion; total stockholders’ equity: $1.7457 billion.
Financial Highlights
Revenue and profitability
- Q4 2024 revenue: $753.261 million, up 15% YoY and 3% QoQ; gross profit: $92.449 million; gross margin: 12.27% (rounded from 0.1227). Operating income: $73.309 million; operating margin: 9.73%. Net income: $81.066 million; net income margin: 10.76%. Non-GAAP net income: $88.0 million; non-GAAP EPS: $2.41; diluted EPS: $2.22.
- Full-year FY2024: Revenue $2.9 billion, up 9% YoY; non-GAAP EPS $8.88, up 16% YoY.
- Share repurchases: Q4 2024 ~21k shares repurchased at $170 on average ($3.5 million); FY2024 ~212k shares repurchased at $186 on average ($39 million). Free cash flow (FY2024): $368 million; operating cash flow: $413 million (up 94% YoY).
Balance sheet and liquidity
- Cash and short-term investments: $858.6 million (cash $409.97 million); net cash position: net debt ≈ -$405 million.
- Total assets: $2.338 billion; total liabilities: $0.593 billion; total stockholders’ equity: $1.7457 billion.
- Leverage: very low debt (total debt $4.99 million) and strong liquidity metrics; cash conversion and cash flow generation remain robust.
Guidance and outlook
- Q1 FY2025 revenue guidance: $760–$780 million; EPS guidance: $2.33–$2.40; expect sequential growth across major product areas; margin headwinds from merit increases, with anticipated offsetting efficiencies; FX headwinds noted due to Thai Baht strength.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
753.26M
14.85%
2.97%
Gross Profit
92.45M
12.34%
1.66%
Operating Income
73.31M
19.39%
2.81%
Net Income
81.07M
33.36%
0.19%
EPS
2.24
34.13%
0.45%
Key Financial Ratios
currentRatio
3.61
grossProfitMargin
12.3%
operatingProfitMargin
9.73%
netProfitMargin
10.8%
returnOnAssets
3.47%
returnOnEquity
4.64%
debtEquityRatio
0
operatingCashFlowPerShare
$2.3
freeCashFlowPerShare
$1.94
priceToBookRatio
5.07
priceEarningsRatio
27.29
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management themes from the QQ4 2024 earnings call:
- Strategy and growth trajectory: Datacom remains the growth engine; 800G+ products and AI-related applications are the key drivers of growth, with 1.6T transceivers under consideration by customers (timing not disclosed). Seamus Grady noted that 800G demand is broad and sustainable, while 1.6T ramp timing is up to customers. The company also signaled potential new telecom system program wins contributing in H2 FY2025 and beyond. Quote: 'In datacom, 800 gig products for AI and related applications remain the biggest revenue contributor.'
- Capacity expansion and capital allocation: Building 10 at the Chonburi campus will be 2 million square feet; capex ~ $110 million; ramp expected ~18 months after breaking ground; the expansion is driven by overall pipeline and cost-optimized scale rather than a single customer.
- Customer and product mix dynamics: NVIDIA accounted for 35% of FY2024 revenue; Cisco 13%; top 10 customers accounted for 86% of revenue. Ciena’s win (modem and optics for next-gen network) is expected to ramp into FY2026, underpinning telecom and systems growth. Quote: 'We have the conviction in the pipeline and the upside opportunity is significant.'
- Telecom vs datacom and DCI: Telecom revenue declined ~1% in Q4 2024; DCI and data center interconnect products helped offset weakness. Management emphasized recovery signals in telecom and ongoing strength in DCI, including ZR/DUAL ZR adoption. Quote: 'In telecom, ongoing inventory digestion continues to dampen revenue from traditional telecom products.'
- Financial discipline and capital structure: Record free cash flow and a strong balance sheet; maintenance of a disciplined buyback program; management noted no dividend, focusing on growth investments and returns via buybacks. CFO highlighted mid-single-digit tax rate guidance for FY2025, and a focus on cost control and operating leverage. Quote: 'We generated record operating cash flow of $413 million, a remarkable increase of 94% from fiscal 2023.'
Datacom revenue grew over 120% while telecom revenue declined more than 20% for the year, due to the protracted inventory digestion across the telecom industry.
— Seamus Grady
Building 10 will be 2 million square feet in size. Capital expenditures for construction of the 2 million square foot facility will be approximately $110 million.
— Seamus Grady
Forward Guidance
Near-term outlook remains constructive but modestly hedged by seasonality and FX headwinds. The company guided Q1 FY2025 revenue of $760–$780 million and EPS of $2.33–$2.40, anticipating sequential gains across datacom, telecom (driven by DCI), automotive, and laser segments. Management also acknowledged merit-related margin pressure in Q1 due to annual raises, offset by operating efficiencies through the year. The Building 10 expansion signals a multi-year capacity expansion to capture upside from datacom demand, 1.6T/800G, and potential new telecom system programs. Key risk factors include: (1) telecom inventory digestion continuing into early FY2025 and potential variability in data center capex; (2) dependence on a handful of large customers (NVIDIA, Cisco, and prospective Ciena involvement) and potential concentration risks; (3) execution risk and integration of Building 10; (4) foreign exchange headwinds (noted in Q1 guidance). Monitoring points: quarterly datacom growth rates and 800G/400ZR/ZR demand, ramp trajectory of Ciena-related programs, utilization of Building 9 before Building 10 fully comes online, and the extent of telecom recovery into FY2025.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
FN Focus
12.27%
9.73%
4.64%
27.29%
PLXS
10.30%
5.13%
3.11%
22.51%
JBL
9.52%
4.57%
7.94%
24.23%
ROG
32.90%
14.90%
1.84%
26.46%
APH
33.10%
20.70%
6.16%
28.82%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Fabrinet remains well positioned to capitalize on the secular shift toward higher-speed optical interconnects and AI-driven data-center requirements. The QQ4 2024 results reflect resilient performance in datacom (800G+), with sustained demand and a heterogeneous mix that supports earnings resilience. The Building 10 expansion underscores a disciplined capex strategy to capture multi-year growth, with estimated capacity contributing meaningfully to revenue in FY2026 and beyond. The near-term guidance for Q1 FY2025 (revenue $760–$780M; EPS $2.33–$2.40) indicates continued momentum but acknowledges margin headwinds from merit-based compensation; management projects efficiency gains to offset these effects. Relative to peers, Fabrinet shows a strong margin profile (gross margin ~12.5% in Q4) and robust cash generation, though it faces elevated customer concentration and telecom cycle risk. From a valuation standpoint, FN trades at a P/E around 27x based on the provided multiple data, with a price-to-book around 5.1x, suggesting a premium justified by strong growth drivers and a high-IRR expansion plan if execution stays on trajectory. Overall, the investment thesis favors a constructive stance with ongoing monitoring of datacom demand, telecom revival signals, Ciena ramp timing, and Building 10 execution.
Key Investment Factors
Growth Potential
- Datacom growth driven by 800G+ transceivers and AI-related data center demand; potential scale from 1.6T transceivers when customer timing aligns, with 800G expected to remain a long-term growth driver.
- Capacity expansion (Building 10, 2 million sq ft) supports multi-year revenue upside (estimated capacity target around $2.4B revenue at full utilization).
- System-level telecom opportunities (e.g., Ciena win) and new telecom programs expected to contribute in FY2025–FY2026, complementing datacom strength.
- Automotive and laser segments offer non-optical growth opportunities as inventory digestion resolves and demand recovers.
Profitability Risk
- Customer concentration: NVIDIA (~35% of FY2024 revenue) and Cisco (~13%); Ciena becoming a larger program, but ramp timing remains uncertain.
- Telecom cycle volatility and inventory digestion risks; potential slower-than-expected rebound could temper near-term top-line growth.
- Execution risk and capex intensity related to Building 10; reliance on timely permitting, procurement, and staffing.
- FX sensitivity (noted headwinds in Q1) and potential macro slowdown affecting capex cycles.
Financial Position
- Strong liquidity: cash and short-term investments of ~$858.6M; net cash position (~$405M) with total debt of ~$5.0M; low leverage (debt/equity ~0.003) supports ongoing buybacks and capacity investments.
- Operating cash flow solid: $413M for FY2024 with free cash flow $368M; Q4 free cash flow $70M.
- Conservative capital structure allows rapid deployment of capital toward growth initiatives while preserving optionality for future buybacks.
SWOT Analysis
Strengths
Record quarterly revenue and EPS in Q4 2024; four consecutive quarters of revenue and EPS records across the year.
Datacom leadership with strong demand for 800G+ and AI-related applications; clear long-term growth trajectory.
Healthy balance sheet: net cash position, robust operating cash flow, and minimal debt.
Diversified customer base with strategic wins (NVIDIA, Cisco; Ciena) and a broad product mix (datacom, telecom systems, automotive lasers).
Weaknesses
High customer concentration: NVIDIA 35% and Cisco 13% of FY2024 revenue; reliance on a small number of large customers.
Telecom weakness due to inventory digestion; potential volatility in traditional telecom product demand.
Significant capital expenditure needed for Building 10; execution risk and potential 18-month ramp.
FX exposure in near term (Thai Baht headwinds) impacting margins.
Opportunities
1.6T transceivers potential; continued broad adoption of 800G and future high-speed data-rate products.
Expansion of data center interconnect (DCI) activity and ZR/200ZR/400ZR product opportunities.
Ciena relationship expanding into a larger portion of their modem optics and system integration, with ramp into FY2026.
Automotive laser and non-optical segments offering upside as inventory normalization continues.
Threats
Macro and sector cyclicality in telecom; unpredictable timing of 1.6T ramp and customer programs.
Competitive intensity in merchant transceivers; pricing pressure and margin headwinds if pricing normalization slows.
Execution delays or cost overruns related to Building 10; potential utilization risk if demand shifts.