Fabrinet, a contract manufacturer of optical components, said its data center interconnect business hit $1 billion in annualized revenue.
The CEO expects demand to remain strong for years as large cloud providers need to connect distributed facilities.
The company is expanding capacity by 85% through new facilities and buildings.
What happened
Fabrinet's CEO Seamus Grady said the company's data center interconnect (DCI) business—which uses 400ZR, 800ZR and ZR+ optical technologies to connect distributed data centers—reached a $1 billion annualized revenue run rate by the end of the fiscal year, starting from only a few million dollars relatively recently. The company is expanding manufacturing capacity, including Building 10 (expected to add $3.5 billion of capacity when fully available), a new Nava Nakorn facility and a recently acquired Santa Clara operation (each adding about $250 million), which collectively would bring capacity to approximately $9.8 billion in the March quarter—an 85% increase.
Why it matters
DCI addresses power constraints in large data centers by distributing facilities and connecting them through high-speed optical links. Grady said demand is strong and expected to remain so for considerable time, with demand increasing dramatically over the next several years. The business is also considered 'sticky' because Fabrinet manufactures both the pluggable modules and component content used in DCI products, and is spread across multiple customers rather than concentrated with one buyer.
What to watch
Fabrinet's fiscal 2026 revenue growth was 36%, and Grady said it was 'not beyond the bounds of possibility' for fiscal 2027 growth to exceed that rate. Capital expenditures are expected to remain near $250 million in fiscal 2027 as the company completes Building 10 and adds equipment. The company is also seeing emerging opportunities in lidar (with a ramp now beginning), optical circuit switching (expected to ramp over the next 12 to 18 months), and low-Earth-orbit satellites (described as significant and rapidly growing).
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Fabrinet's growth is anchored in a specific infrastructure bottleneck: the power and connectivity demands of large cloud data centers. As hyperscalers build distributed facilities to manage workload and power consumption, they need high-speed optical links to bind those sites together—the exact problem DCI solves. The company's rapid climb from a few million dollars to $1 billion in DCI revenue highlights how quickly a focused niche can scale when it addresses a real constraint faced by the largest customers in the world.
Fabrinet's decision to remain a pure-play contract manufacturer rather than an original design manufacturer (ODM) is noteworthy. CEO Grady acknowledged that designing and owning products could unlock short-term opportunities, but the company has chosen not to compete with its customers (Ciena, Cisco, Nokia). In some cases, Fabrinet has won business because competitors chose to become ODMs, a move certain customers oppose. This strategy suggests the company sees more durable value in execution and customer trust than in product design control—a posture that has paid off as it diversifies beyond NVIDIA to direct hyperscale customers and merchant transceiver manufacturers.
The company's capacity build (an 85% increase to $9.8 billion by the March quarter) is being funded through a mix of cash flow, balance sheet, and new debt—a $75 million term loan with a Thai bank. Fiscal 2026 revenue grew 36%, and leadership did not rule out exceeding that growth rate in fiscal 2027, though Grady was careful to note this was not formal guidance. The company's stated priorities—maintaining capacity ahead of demand, securing components, and serving a growing and diversified customer base—suggest management believes the DCI ramp and adjacent opportunities (lidar, optical switching, satellites) will sustain double-digit growth beyond the current cycle.
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