Coherent (COHR.US) Q1 Earnings Call: Finalizes US$20 Billion AI Optics Mega-Order, Raises Gross Margin Target to Above 45%

Coherent (COHR.US) Q1 Earnings Call: Finalizes US$20 Billion AI Optics Mega-Order, Raises Gross Margin Target to Above 45% Photonics company Coherent (COHR.US) held its fiscal 2027 first-quarter (quarter ended September) earnings call after the U.S. market close on November 4 Eastern Time. Quarterly revenue reached a record US$2.37 billion, up about 50% year-over-year, above analysts' expectations of about US$2.31 billion; Non-GAAP earnings per share (EPS) were US$2.09, up 80% year-over-year, beating expectations of about US$2.02; the company also guided the December quarter to revenue of US$2.55 billion to US$2.75 billion and EPS of US$2.28 to US$2.48, with both midpoints above market expectations (US$2.55 billion, US$2.24). Following the report, the stock surged 7.67% after hours to US$210.06. The most closely watched information from the call: the company signed a five-year long-term agreement (LTA) worth approximately US$20 billion for its PhotonLink integrated optics platform with a leading AI company, and raised its gross margin target from above 42% to exceeding 45% by the end of calendar 2028. CEO Jim Anderson said, "Calendar 2027 is essentially booked out, and customers are now booking 2028," and the company "does not see any signs of demand weakening." Management believes the company is on track to achieve its first US$3 billion revenue quarter by the end of fiscal 2027, with full-year revenue growth exceeding 60%, and has given a clear line of sight to its first US$4 billion revenue quarter in fiscal 2028. Focus and Response The core focus of the call was the commercialization cadence and gross margin upside of the PhotonLink integrated optics platform: management disclosed the US$20 billion LTA and unusually raised a gross margin target set only 18 months earlier, with multiple analysts pressing on the ramp path and sustainability. Anderson responded that the US$20 billion LTA is anchored on 400-milliwatt continuous-wave (CW) lasers but covers higher-level complete solutions, with revenue beginning to materialize from early calendar 2028; PhotonLink itself ramps earlierrevenue will exceed US$100 million in the March quarter, exceed US$250 million per quarter by the end of calendar 2027, and ultimately become a "multi-billion-dollar product line." CFO Sherri Luther ranked the gross margin DRIVEs as: new product ramp, full operating leverage of the 6-inch indium phosphide line, pricing optimization, and cost reductions. In market commentary, multiple media outlets characterized both the results and guidance as beating expectations; news of the proposed Lumentum-Marvell merger also became a focus of Q&A, with Anderson using the occasion to emphasize Coherent's strategic value as an "independent photonics supplier." Performance Characterization: Strong Start, Profit Growth Far Outpacing Revenue Anderson characterized the quarter as a "strong start" to fiscal 2027: revenue up 16% sequentially and 56% year-over-year (pro forma), with Non-GAAP EPS up 80% year-over-year, reflecting continued gross margin expansion and operating leverage. CFO Luther said the "compounding effect" of accelerating revenue, structural gross margin expansion, and significant operating leverage drove EPS growth significantly outpacing revenue growth while maintaining balance sheet flexibility. Data Center & Communications: Fourth Consecutive Quarter of Acceleration, 82% of Total Data Center & Communications segment revenue rose 21% sequentially and 79% year-over-year, the fourth consecutive quarter of sequential and year-over-year acceleration, rising to 82% of total company revenue. Within that, data center revenue rose 17% sequentially and 85% year-over-year, while communications revenue rose 34% sequentially and 84% year-over-year. Management expects the segment to continue strong sequential and year-over-year growth this quarter, with order coverage "extremely strong." PhotonLink: US$20 Billion LTA Secured, March Quarter Revenue to Top US$100 Million PhotonLink was the biggest incremental information from the call. Following its prior LTA with NVIDIA Corporation (NVIDIA), the company signed a five-year LTA worth approximately US$20 billion with a leading AI company, with revenue ramping from early calendar 2028. In addition to the two anchor customers, the company has more than 10 CPO (co-packaged optics) projects, more than 10 NPO (near-packaged optics) projects, and more than 5 chip-to-chip projects. Management expects PhotonLink revenue to exceed US$100 million in the March quarter and exceed US$250 million per quarter by the end of calendar 2027, becoming a multi-billion-dollar product line over the long term; the CPO, NPO, and chip-to-chip optical interconnect market opportunity is approximately US$30 billion in 2030, bringing the segment's total market opportunity to approximately US$90 billion. Scale-Across Data Center Interconnect: Annualized Run Rate Near US$1 Billion The main growth engine of the communications segment is scale-across data center interconnect (DCI): first-quarter revenue exceeded US$200 million, up 53% sequentially and nearly fourfold year-over-year, with an annualized run rate approaching US$1 billion, making it one of the fastest-growing businesses. Multi-rail solutions will begin ramping in the March quarter, and management expects that by the end of calendar 2027, quarterly revenue for this business will roughly double from first-quarter levels. Customers include equipment makers and hyperscale cloud providers, with products spanning multiple value chain layers from pump lasers to modules, line cards, subsystems, and complete solutions. Indium Phosphide Expansion: Capacity Doubling Completed One Quarter Early The company's internal indium phosphide output capacity doubled year-over-year in the first quarter, one quarter ahead of plan, and set a record for quarterly EML (electro-absorption modulated laser) production. Yields at the 6-inch lines in Texas and Sweden continue to exceed those of the 3-inch lines, and the Zurich line is expected to come online in the first half of calendar 2027. Management reiterated that capacity will more than double again by the end of calendar 2027, that key inputs such as substrates are locked in, and that further expansion is planned beyond 2027; most of the gross margin benefit from the indium phosphide expansion is "still ahead." Gross Margin Target Raised to Above 45% The company's Non-GAAP gross margin reached 40.6% this quarter, up 37 basis points sequentially and 184 basis points year-over-year. Management announced a raised target: a first quarter with gross margin above 45% by the end of calendar 2028300 basis points above the "above 42%" target given at its investor day 18 months earlier. The CFO made clear that 45% is not the endpoint, "just a stop along the way," and the company does not believe there are structural factors preventing further gross margin expansion. OCS and Industrial: Expanding Capacity to Meet Demand, Industrial to Return to Growth Optical circuit switch (OCS) customer engagement is expanding from scale-out to scale-across and scale-up networks, and the company is expanding capacity at two sites in parallel; management estimates the OCS market opportunity at no less than US$4 billion by 2030. Industrial segment revenue was flat sequentially and year-over-year (pro forma), with strong orders led by semiconductor capital equipment customers, and growth is expected to resume this quarter; AI infrastructure (CO2 laser drilling) and fusion energy are near-term drivers, while xPU thermal materials and quantum technology are long-term opportunities. Competitive Landscape: Responding to Proposed Lumentum-Marvell Merger Asked about the proposed Lumentum-Marvell merger, Anderson said it confirms that "optics and photonics are becoming a critical part of data center architecture," and emphasized that no company globally has a broader or deeper technology portfolio across the complete optical signal chain from light generation to transmission to detection than Coherent; customers need an independent photonics supplier, and Coherent "has no competitive conflict" and can serve both hyperscale cloud providers and semiconductor customers. On competition from Chinese laser makers, he said in 400-milliwatt-class ultra-high-power CW lasers there is "almost only one competitor." Capex and Balance Sheet First-quarter capex increased significantly sequentially to US$776 million (US$556 million in the prior quarter, US$104 million in the year-ago period), and is expected to grow again sequentially in the second quarter; management said capacity can be converted efficiently across multiple product lines, and customer LTAs generally include prepayments or NRE (non-recurring engineering) fees, with customers funding or co-funding capacity construction. Cash at quarter-end was US$2.34 billion, with debt leverage of 1.1x. Next-Quarter Guidance The company expects fiscal 2027 second-quarter revenue of US$2.55 billion to US$2.75 billion (expected US$2.55 billion), Non-GAAP gross margin of 40% to 42% (expected 40.8%), Non-GAAP operating expenses of US$430 million to US$450 million, a Non-GAAP tax rate of 18% to 20%, and Non-GAAP diluted EPS of US$2.28 to US$2.48 (expected US$2.24). The following are the details of Coherent's fiscal 2027 first-quarter earnings call: Management Remarks Paul Silverstein (Senior Vice President, Investor Relations, Coherent): Welcome to Coherent's fiscal 2027 first-quarter earnings webcast. Joining today are CEO Jim Anderson and CFO Sherri Luther. The call will review fiscal 2027 first-quarter financial and business performance and provide an outlook for fiscal 2027 second quarter. The earnings press release has been posted in the Investor Relations section of the company's website. This call may contain forward-looking statements subject to significant risks and uncertainties, and actual results may differ materially; please refer to today's earnings press release, the latest Forms 10-K and 10-Q, and Form 8-K filings for related risk factors. All statements are based on information available as of November 4, 2026. This call will discuss non-GAAP financial measures; reconciliations to GAAP are available in the earnings press release and investor presentation materials. Jim Anderson (Chief Executive Officer, President, and Employee Director, Coherent): Thank you, Paul, and thanks everyone for joining today's call. The first quarter was a strong start to fiscal 2027. Revenue grew 16% sequentially and 56% year-over-year (pro forma). Non-GAAP EPS grew 80% year-over-year, reflecting continued gross margin expansion and operating leverage. Strong customer demand and our rapid capacity expansion are underpinning this growth, with recent orders and newly signed long-term agreements (LTAs) providing multi-year visibility. We remain on track to achieve our first US$3 billion revenue quarter by the end of fiscal 2027. We expect full-year pro forma revenue growth to exceed 60%, more than double our fiscal 2026 pro forma growth rate. We also have a clear line of sight to our first US$4 billion revenue quarter in fiscal 2028. Coherent is a photonics platform company that brings together technology across the complete optical signal chain from materials and components to subsystems and complete solutions. Our breadth enables us to serve customers in Datacenter & Communications networking. We are at the center of an extraordinary expansion of optical networking infrastructuredriven by the rapid growth of AI, the transition from copper to optical interconnect, and rising bandwidth and energy efficiency demands from increasingly large and complex data center architectures. Our established businesses continue to grow rapidly, with first-quarter data center revenue up 85% year-over-year. At the same time, new growth areas are ramping. For example, scale-across interconnect revenue is growing rapidly, up about fourfold year-over-year in the first quarter, with an annualized revenue run rate approaching US$1 billion. In addition, PhotonLink, our newly launched integrated optics platform, is beginning to ramp, and we expect PhotonLink revenue to exceed US$100 million in the March quarter. Accelerating revenue growth, continued gross margin expansion, and operating leverage position us to deliver profit growth faster than revenue growth. We expect fiscal 2027 to be an extraordinary year for Coherent. Turning to the Data Center & Communications segment. Revenue grew 21% sequentially and 79% year-over-year, the fourth consecutive quarter of accelerating growth on both a sequential and year-over-year basis. The segment now represents 82% of Coherent's total revenue. Near-term demand remains strong, and our visibility into long-term demand continues to improve. Calendar 2027 order coverage is extremely strong, and customer orders increasingly extend into calendar 2028. We signed multiple new LTAs in the first quarter, with customer LTAs typically extending to the end of this decade. We do not see any signs of demand weakening. Within the segment, data center revenue grew 17% sequentially and 85% year-over-year, the fourth consecutive quarter of double-digit sequential growth. We expect another quarter of strong sequential and year-over-year growth this quarter. In data center transceivers, we are ramping 1.6T products with multiple customers while continuing to grow 800G revenue. We expect strong transceiver revenue growth in the second quarter, driven by both 1.6T and 800G. We expect 1.6T revenue to continue ramping rapidly over the coming quarters, while 800G revenue continues to grow into calendar 2027. At ECOC in September, we demonstrated progress beyond 1.6T: a 3.2T OSFP pluggable transceiver built with our 400G differential EMLs and photodiodes. We expect pluggable transceivers to remain the dominant form factor for scale-out networks for years to come. Coherent is helping shape the ecosystem for emerging formats, demonstrating XPO at OFC and supporting the new USFP form factor. Turning to OCS (optical circuit switching). Customer engagement is expanding across scale-out, scale-across, and scale-up networks, covering our 320x320 platform and higher-density configurations. We are expanding capacity at two sites to meet demand. As capacity ramps, we expect OCS to become an increasingly important contributor to revenue growth and gross margin expansion. At ECOC in September, we launched PhotonLink, our new integrated optics platform. The platform is designed to address the AI data center transition from copper to optical interconnect, creating a significant opportunity for Coherent. We estimate the market opportunity for CPO, NPO, and chip-to-chip optical interconnect at approximately US$30 billion by 2030, bringing our total market opportunity in Data Center & Communications to approximately US$90 billion in 2030. PhotonLink brings together Coherent's photonics technologies and manufacturing capabilities as an end-to-end platform spanning the complete optical signal chain from light generation and shaping, to transmission and detection, to conversion to electrical signals. The platform addresses a broad range of architectures and applications, including CPO and NPO, scale-out and scale-up networks, and chip-to-chip (scale-in) links. It includes lasers, laser modules, complex fiber assemblies, and other optical components, supporting indium phosphide-based CW lasers and VCSEL-based technologies. We believe this breadth and depth is our differentiation. For a 100-terabit-per-second xPU or switch chip, we estimate our content opportunity can reach approximately US$15,000 per chip. Customer engagement is validating this opportunity. In the first quarter, we signed another significant PhotonLink LTA with a large AI company. The LTA has total revenue value of approximately US$20 billion over five years, with revenue beginning to ramp from early calendar 2028. This is in addition to the previously announced LTA with NVIDIA. Beyond these two anchor customers, we have more than 10 additional CPO projects, more than 10 NPO projects, and more than 5 chip-to-chip projects. We expect PhotonLink revenue to ramp rapidly over the coming quarters. We expect revenue to exceed US$100 million in the March quarter and exceed US$250 million per quarter by the end of calendar 2027. Expected shipments this quarter include a range of CPO products, including our ultra-high-power 400-milliwatt CW lasers, fiber assembly solutions, and other products. PhotonLink is initially deployed in CPO scale-out applications. We expect to begin shipping PhotonLink products for CPO and NPO scale-up applications in the second half of calendar 2027. Over time, we expect PhotonLink to become a multi-billion-dollar product line for Coherent. Expanding indium phosphide capacity is key to growth in both indium phosphide pluggable transceivers and indium phosphide-enabled PhotonLink solutions. Our 6-inch indium phosphide expansion is progressing well. In the first quarter, our internal indium phosphide output capacity doubled year-over-year, one quarter ahead of plan. The first quarter was our highest-ever quarter of EML production, including 100G and 200G devices. The ramp is contributing significantly to data center growth, and we expect it to continue to be an important revenue and gross margin DRIVE. Most of the gross margin benefit from the indium phosphide expansion is still ahead of us, as the expansion will allow us to increase the proportion of internally supplied indium phosphide componentswhich carry a significant cost advantage. We remain on track to more than double internal indium phosphide output capacity again by the end of calendar 2027. We have secured the substrates and other key inputs needed to support this ramp, and given the strength of customer demand, we are planning additional expansion beyond 2027. Our 6-inch lines in Texas and Sweden are producing EMLs, CW lasers, and high-speed photodiodes, with yields continuing to exceed the 3-inch lines. Products include the 400-milliwatt CW laser for CPOcovered by our NVIDIA partnership and expected to begin generating revenue this quarter. We remain on track to start 6-inch indium phosphide production in Zurich in the first half of calendar 2027, further extending what we believe is a meaningful manufacturing advantage. Turning to the communications business. Revenue grew 34% sequentially and 84% year-over-year, and we expect another quarter of strong sequential and year-over-year growth this quarter. Traditional telecom continues to grow, but the primary growth DRIVE is scale-across data center interconnectwhich has quickly become the largest revenue source within the communications business. Over the past year, we have expanded our data center interconnect (DCI) portfolio to help customers connect data centers with greater capacity and efficiency. Building on our leadership in pump lasers and broad component portfolio, we have introduced higher-level products, including modules, line cards, subsystems, and our new multi-rail solutions. These products are seeing strong customer demand, helping customers better utilize existing fiber while extending high-capacity links between distributed AI data centers. In the first quarter, scale-across revenue exceeded US$200 million, up 53% sequentially and nearly fourfold year-over-year. The business has an annualized revenue run rate approaching US$1 billion and is one of our fastest-growing businesses. With multi-rail solutions beginning to ramp in the March quarter, we expect scale-across quarterly revenue to roughly double from first-quarter levels by the end of calendar 2027. Turning to the industrial business. First-quarter revenue was flat sequentially and year-over-year (pro forma). Orders are strong, led by semiconductor capital equipment customers. We expect growth to resume this quarter. Near-term growth is driven by semiconductor capital equipment, AI infrastructure, and fusion energy. In semiconductor equipment, our lasers, precision optics, and engineered materials serve front-end applications, and orders are rising strongly. In AI infrastructure, our CO2 lasers and zinc selenide optics are used to drill advanced circuit boards for AI servers. Demand is also growing for pulsed laser deposition systems used to produce high-temperature superconducting tape (serving magnetic confinement fusion). Longer term, we see significant opportunities in data center xPU thermal management and quantum technology. For AI data centers, our Thermadite materials can improve xPU performance and token generation. We are delivering prototypes to multiple strategic customers this quarter and expect revenue to begin ramping in the second half of calendar 2027. In quantum, we supply lasers and materials to leading quantum technology developers and participate in next-generation projects. Given multiple growth areas, we expect the industrial segment to return to growth and build momentum over the coming quarters. In summary, the first quarter demonstrated the strength of our growth momentum and the breadth of our opportunities. Demand remains strong, customer commitments continue to deepen our visibility, and we are expanding capacity ahead of demand. Our established businesses continue to grow rapidly, and new growth areas are ramping quickly. Our focus is execution: expanding capacity, delivering for customers, and improving profitability as we grow. We believe this combination will deliver continued growth for Coherent in fiscal 2027 and beyond. I want to thank the team for their outstanding work this quarter. I'll now turn it over to Sherri. Sherri Luther (Chief Financial Officer and Treasurer, Coherent): Thank you, Jim. I am very pleased with the excellent first-quarter financial results. First-quarter results are a strong continuation of our growth trajectory, characterized by accelerating revenue momentum, durable structural gross margin expansion, and significant operating leverage. The compounding effect of these operating drivers drove Non-GAAP EPS growth significantly outpacing revenue growth. We achieved this strong performance while maintaining balance sheet flexibility and strategically investing capital in targeted capacity expansion and product roadmap investments to support strong AI data center and communications demand. Here are the results summary. First-quarter revenue was a record US$2.37 billion, accelerating 16% sequentially and growing 50% year-over-year. This performance was driven by continued AI infrastructure buildout in the Data Center & Communications business. On a pro forma basis, excluding the financial impact of the aerospace and defense business and the Munich, Germany product division divested during fiscal 2026, revenue grew 16% sequentially and 56% year-over-year. First-quarter Non-GAAP gross margin was 40.6%, up 37 basis points sequentially and 184 basis points from the year-ago period. This continued expansion reflects durable pricing optimization and structural cost improvements, particularly in the Data Center & Communications segment. The sequential and year-over-year gross margin improvement was primarily driven by pricing optimization, lower product input costs, and improved manufacturing yields. We made significant progress on our pricing optimization strategy, ensuring we price highly differentiated products according to their customer value. Gross margin levels also benefited from the transition to 6-inch indium phosphide, where we continue to expand production capacity. Given the progress over the past few years and the current trajectory, it is clear we needed to raise our gross margin target. We now expect to achieve our first quarter with gross margin above 45% by the end of calendar 2028. We believe the DRIVEs for this gross margin expansion include continued pricing optimization, ramping new growth platforms, full operating leverage of 6-inch indium phosphide capacity, and other cost improvements. I would also note that the new above-45% target is 300 basis points above the long-term target we gave the investment community just 18 months ago. First-quarter Non-GAAP operating expenses were US$412 million, compared with US$377 million last quarter and US$304 million in the year-ago period. Non-GAAP operating expenses as a percentage of revenue declined significantly to 17.4%, down from 18.4% last quarter and 19.2% in the year-ago period. This improvement reflects stronger operating discipline and highlights the significant operating leverage embedded in our business. From an R&D perspective, we are strategically allocating capital to the high-confidence long-term growth DRIVEs Jim described. This disciplined approach ensures investments are concentrated in areas that generate the highest financial returns and drive sustainable revenue growth. First-quarter Non-GAAP operating margin rose to 23.2%, compared with 21.8% last quarter and 19.5% in the year-ago period. The sequential and year-over-year improvement was driven by strong revenue growth, gross margin expansion, and structural expense discipline. First-quarter Non-GAAP diluted EPS was US$2.09, up 20% sequentially and 80% year-over-year. Earnings growth continues to outpace revenue growth, demonstrating that gross margin expansion and operating leverage are accelerating our bottom-line profitability. Turning to the balance sheet. We ended the quarter with a healthy cash balance of US$2.34 billion, compared with US$2.59 billion at the end of last quarter and US$1.55 billion at the end of the year-ago period. Debt leverage at the end of the first quarter was 1.1x, and we continue to maintain a highly resilient and flexible balance sheet. Consistent with our capital allocation priorities, we are strategically investing in opportunities that will drive long-term growth and profitability. First-quarter capex increased sequentially to US$776 million, compared with US$556 million last quarter and US$104 million in the year-ago period. These investments directly support future growth in the Data Center & Communications business and carry excellent financial returns. Our confidence in deploying this capital at a faster pace comes from excellent customer visibility, a strong backlog pipeline, and additional multi-year supply agreements. In addition, this capacity is highly fungible, and our infrastructure can be efficiently repurposed to support multiple product lines. Given strong visibility and record backlog, we expect capex to increase again sequentially in the second quarter. With a strong balance sheet and earnings trajectory, we have the scale and flexibility to continue investing capital in high-return growth projects while supporting customer demand. Turning to fiscal 2027 second-quarter guidance. We expect revenue of US$2.55 billion to US$2.75 billion; Non-GAAP gross margin of 40% to 42%; Non-GAAP total operating expenses of US$430 million to US$450 million; a Non-GAAP tax rate of 18% to 20% for the quarter; and Non-GAAP diluted EPS of US$2.28 to US$2.48. In summary, fiscal 2027 is off to a strong start, with strong financial momentum underpinned by deep demand visibility. Our focus remains on rapidly ramping capacity to meet demand, expanding gross margins, fully leveraging the significant operating leverage in our business model, and executing a disciplined capital allocation strategy centered on maximizing returns and driving long-term shareholder value. That concludes my prepared remarks; operator, please open the line for questions. Q&A Session Joseph Cardoso (J.P. Morgan Research): Thank you very much for some of the disclosures you provided this quarter. I want to start with PhotonLink and the initial visibility you provided. Given the US$20 billion agreement you highlighted, could you provide more detail on the ramp itself? I have a follow-up. Jim Anderson: Thanks, Joe. First, we're really pleased with the momentum in PhotonLinkwhether measured by customer engagement, by the LTAs you mentioned, or by the revenue outlook I mentioned in my prepared remarks. As a reminder, PhotonLink is arguably a one-stop shop for integrated optics: it's essentially our platform that lets customers implement an end-to-end optical linkthe complete optical signal chain and all the technologies along that path. As mentioned in the prepared remarks, more than 10 CPO projects, more than 10 NPO projects, more than 5 chip-to-chip projectscustomer engagement is very broad and growing. You asked about that LTA. We're very proud of that large AI customer, and as said, the LTA is five years and US$20 billion in total, with revenue beginning in early calendar 2028. But PhotonLink revenue ramps earlier than that: there will be a small amount of PhotonLink revenue this quarter, and we expect shipments exceeding US$100 million in the March quarter, then exceeding US$250 million per quarter before the end of calendar 2027 (note: transcript here marks the voice transcription as '25, should be '27). All of this progress is very satisfying. I'd also add one point: looking further out, we expect it to become a multi-billion-dollar product line over time. PhotonLink's initial shipments are all around CPO in scale-out networks. But when we begin shipping PhotonLink products for CPO and NPO in scale-up networks, I think that will bring another big wave of demand for this technologythat will be a much larger adoption. We expect to begin shipping to CPO and NPO applications in scale-up around the end of calendar 2027. So yes, we're excited about the progress and look forward to it becoming an important product line for us. Joseph Cardoso (J.P. Morgan Research): Similarly, I want to talk about the scale-across DCI opportunity. You gave a revenue outlook of doubling by the end of next calendar yearhow should we think about the customers and products behind that? Jim Anderson: Okay. This has been a very good growth area for us over the past year, and in fact it has grown so fast it has surprised even us a bit. Overall, DCI and scale-across fall within the communications part of our businessthat is, all communications outside the data center. Looking at the entire communications segment, it grew 84% year-over-year, with telecom growing, but the vast majority of growth driven by DCI. The underlying dynamic: large AI workloads are spanning multiple data centers, which is driving demand for greater bandwidth and optical interconnect between data centersthat's the fundamental market dynamic driving growth. You asked about customers and products. On customers, it includes both equipment makerswe sell to multiple equipment makers whose equipment is used in scale-across applicationsand direct sales to hyperscale cloud providers, so both types of customers. On products, interestingly, we sell at multiple layers of the value chain in this market: at the bottom, components such as pump lasers that go into various types of equipment; one layer up, subsystems and modules such as ZR/ZR+ modules, line cards, amplifiers, reconfigurable optical add-drop multiplexers (ROADMs), and so on; and further up, in some cases we sell complete solutions to customers. Selling across multiple value chain layers, I think, has helped us maximize growth here. As mentioned in the prepared remarks, first-quarter revenue exceeded US$200 million, the annualized run rate is now about US$1 billion, and first-quarter revenue grew fourfold year-over-year. Using the first quarter as a baseline, we expect revenue to double again by the end of calendar 2027. And the growth so far has come before the multi-rail rampmulti-rail is a great solution and technology, and we expect its revenue to begin ramping in the March quarter. This is a very good growth area, and we expect it to remain a very good growth area over the coming quarters. Simon Leopold (Raymond James): Jim, first, thanks for the increased transparency on slide 7I know I've probably been nagging you about that. Thank you. But that page doesn't mention OCS. I know you discussed this product group in your prepared remarks; could you update us on the progress and expectations for this business? I have a follow-up. Jim Anderson: Sure, thanks Simon, and as always thanks for the feedbackwe're always improving. On OCS, as mentioned in the prepared remarks, it falls within the data center part of our businessand to reiterate, first-quarter data center revenue grew 85% year-over-year. OCS continues to make good progress. We have very broad customer engagement and are seeing that engagement continue to expand into more applicationsnot just scale-out, but also scale-across and scale-up applications. On products, we cover the 320x320 system (already shipping) as well as higher-density configurationshigher-density configurations will be used more in scale-up applications. We are ramping capacity at two sites in parallel precisely to meet demand. Our technology is very differentiated: liquid crystal-based, non-mechanical, with better energy efficiency and reliability than MEMS-based approaches, so we believe we are very well positioned. We are ramping capacity and expect it to become an increasingly large contributor to revenue growth over the coming quarters. One final point: we believe the OCS market opportunity is no less than US$4 billion by 2030, and potentially larger. Simon Leopold (Raymond James): A follow-up on what I think is a difficult question, but one I suspect you expected: what does the proposed Lumentum-Marvell merger mean for you? Jim Anderson: Thanks Simon. I don't think it's a difficult question at allhappy to answer. A few thoughts. First, it does demonstrate that optics and photonics are becoming an absolutely critical part of data center architecture. Looking ahead, as scale-up networks and even chip-to-chip communication links transition from copper to optics, photonics will be essential to enabling all of this and to driving data center architecture innovation. So I think it's a proof point about the criticality of optics and photonics. Second, for Coherent, it highlights the enormous strategic value of Coherent's portfolio. I believe there is no other company on earth with a broader and deeper portfolio of photonics and optical technologies than Coherent. Looking at the complete optical signal chainfrom light generation, to transmission through our own fiber cables, to detection at the other endI don't think any other company has a better technology portfolio. So this really highlights the strategic importance of our technology platform. Then from the customer perspective, I think for many customers, having an independent optics supplier and partner is very important. That makes us very well suited to be that independent optics supplierwith no competitive conflicts, able to support multiple different customers, both hyperscale cloud providers and semiconductor customers. So I think it positions us very well to be the industry's partner of choice in optics. In short, whether from a technology, manufacturing, or strategic standpoint, we are extremely well positioned and are on a very good growth trajectorysome of which is already reflected in the PhotonLink technology and PhotonLink revenue ramp. Thomas O'Malley (Barclays Research): First question: why give longer-term forecasts now? You've been holding back on thisfirst you gave the US$3 billion quarter, then next year's US$4 billion. Second, are these forecasts backed by supply? How can you have visibility that far out? Is this already booked? Can you say what proportion is already backed by supply, or does it require new capacity to achieve? Jim Anderson: Thanks Tom. It is a bit differentwe're giving longer visibility than usual. I think behind it is the extraordinary level of visibility we have in the businesslooking at backlog and bookings, we have both near-term and long-term visibility. Just looking at the backlog we hold, calendar 2027 is essentially booked out, and customers are now booking 2028. So from a near-term order demand standpoint, we have good visibility. We signed multiple new LTAs last quarterI mentioned one big one in my PhotonLink prepared remarksand LTAs also give us good visibility because they contain very high-quality long-term forecasts. With such good visibility, that gives us confidence. You also mentioned supply, which is critical. We've done a lot on the supply side to ensure supply is in place. So yes, whether it's this year's US$3 billion quarter or next year's US$4 billion quarter, these views are backed by supply agreements. Also remember we are highly vertically integrated, and much of this is supported by internal supply we are ramping. Looking back over the past year to year and a half, one of the constraints was indium phosphide. I'm very pleased with the team's execution on ramping indium phosphide outputwe pulled the capacity doubling forward by a quarter, which gives me confidence the team can deliver the plan to more than double capacity again by the end of calendar 2027. Putting it all together, we feel very good about the outlook and visibility for the business. Thomas O'Malley (Barclays Research): Very helpful. A follow-up on that LTA: US$20 billion over five years is a pretty substantial number. Could you talk about the customer? Although it's called PhotonLink and spans a lot of your products, given the customer's size, any more specific information would be very helpful. Jim Anderson: Sure. I can clearly say this is a leading AI data center customer you would certainly recognize, and we're proud of this partnership. The entire US$20 billion LTA is around PhotonLink technology. I'd call itanchored on our lasers, the 400-milliwatt CW laser, which is the anchor of that LTA. But we're not just selling that laser; we're selling a higher-level solution than that. So we're very, very pleased. As mentioned, we expect revenue to begin materializing in early 2028 and to ramp over subsequent quarters and years. Given our engagement on PhotonLink across many customers and many solutions, we certainly expect to sign more PhotonLink long-term agreements and partnerships over the coming quarters. George Notter (Wolfe Research): I want to ask about the above-45% gross margin outlook by the end of 2028. What assumptions does it make about the transceiver business? To achieve it, does it require limiting transceiver supply or the ramp? Or does gross margin naturally reach 45% with all businesses ramping at their natural pace? Jim Anderson: Thanks George. Let me answer first, and see if Sherri has anything to add. We are not assuming artificially limiting the transceiver businessno such assumption. We assume the transceiver business grows at what we consider a reasonable rate. On top of that, we have new products ramping: PhotonLink, a range of new products in data center interconnect, OCS ramping over time. These products ramp over time and are accretive to the company's margins, and the new product ramp helps. Also on the cost side, we are pursuing multiple cost initiatives, but one important one is the additional gross margin leverage from the indium phosphide ramp. As briefly mentioned in the prepared remarks, most of the benefit from the indium phosphide expansion is still ahead of us, and I think a substantial portion of gross margin expansion is supported by the indium phosphide expansion. George Notter (Wolfe Research): So longer term, is it possible for company gross margin to exceed 45%? I'll use Lumentum as an exampletheir margin expansion has been considerable, and their fastest-growing businesses are exactly the areas you're counting on for growth. Is 45% just a stop in a bigger picture, or is it the endpoint? How do you think about it? Jim Anderson: I don't think there are any structural barriers preventing us from pushing gross margin