Coherent's FY2026 revenue rose 22.5% to $7.1B as AI transceiver demand lifted Datacenter & Communications 40%; GAAP EPS swung to $4.12 from a loss with help from one-off gains, while an inventory build cut operating cash flow to $80M.
Revenue
$7.1B
+22.5% YoY
Net income
$770M
Diluted EPS
$4.12
Operating margin
12.6%
Overview
Coherent's fiscal 2026 (the year ended June 30, 2026) was split in two. The Datacenter & Communications segment grew revenue 40% to $5,275 million, driven by what the 10-K calls "continued strong AI datacenter demand, driven primarily by transceivers." A transceiver is the module that converts electrical signals into light and back so servers can talk over fiber. The Industrial segment shrank 10% to $1,844 million, and the filing attributes that "primarily" to two businesses Coherent sold during the year, not to weaker demand. Total revenue rose 22.5% to $7,118 million.
On the bottom line, net earnings available to common shareholders were $770 million, or $4.12 per diluted share, against a loss of $81 million (-$0.52) in fiscal 2025. That swing overstates how much the core business improved. The GAAP result includes about $198 million of one-off gains, an unusually low 7% tax rate, and a much smaller preferred-stock dividend after those shares converted into common stock. Behind the profit, cash flow went the other way: operating cash flow fell to $80 million from $634 million because Coherent built $1.18 billion of inventory, and capital spending more than doubled to $1.10 billion.
Key metrics
Operating income here is Coherent's own definition from its earnings release: earnings before income taxes, interest expense and other income/expense. It includes restructuring, impairments and the gain on businesses sold.
Metric
FY2026
FY2025
YoY Change
Revenue
$7,118.2M
$5,810.1M
+22.5%
Datacenter & Communications revenue
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"Net earnings available to common shareholders" is profit after the $18 million loss belonging to minority partners in the Silicon Carbide subsidiary is added back, and after $35 million of Series B preferred dividends are deducted ($130 million in FY2025). Before the preferred dividends, net earnings attributable to Coherent were $805 million vs. $49 million. Non-GAAP figures and the gross-margin percentages are from the August 12, 2026 earnings release (8-K Exhibit 99.1). Everything else is from the 10-K.
Takeaway: The AI optics business is growing fast and getting more profitable. Datacenter & Communications segment profit rose 47%, faster than its 40% revenue growth. But Coherent is paying for that growth up front: after $1.1 billion of capex and a $1.2 billion inventory build, cash from operations didn't come close to covering investment. What funded the gap was NVIDIA's $2 billion equity purchase, not internally generated cash.
Datacenter & Communications: transceivers carry the year
Segment
FY2026 revenue
FY2025 revenue
Change
FY2026 segment profit
FY2025 segment profit
Change
Datacenter & Communications
$5,275M
$3,755M
+40%
$1,330M
$904M
+47%
Industrial
$1,844M
$2,055M
-10%
$423M
$407M
+4%
The 10-K credits the Datacenter half of the segment to AI demand, "driven primarily by transceivers." It lists 800G and 1.6T transceivers (the numbers are data rates, 800 and 1,600 gigabits per second), co-packaged optics and optical circuit switches among its product development areas. The MD&A does not break out revenue by transceiver speed, so the filing doesn't show how much of the growth came from 800G versus 1.6T. The Communications half grew on "increased demand for datacenter interconnect, scale across and traditional telecom applications," helped by what the MD&A calls "elevated demand for our new ZR/ZR+ transceivers." Those are long-reach modules that link datacenters to one another.
The segment accelerated through the year. Fourth-quarter Datacenter & Communications revenue was $1,615 million vs. $1,018 million a year earlier, up about 59% (earnings release, Table 5).
Segment profit is Coherent's internal measure. It excludes share-based pay, amortization, restructuring and unallocated corporate costs. It grew 47%, faster than revenue, even though the filing says the segment was absorbing "increased R&D investments." Company-wide R&D rose 24% to $723 million.
Supply is now a limit. The 10-K describes an "industry-wide shortage" of indium phosphide, the semiconductor material used to make the lasers inside these modules, and says Coherent is expanding its indium phosphide capacity in Sherman, Texas. Two customers each accounted for more than 10% of revenue. The filing doesn't name them.
Industrial: a smaller segment, and not directly comparable
Most of Industrial's 10% revenue decline comes from businesses that are no longer in the company, so it isn't a like-for-like comparison:
Aerospace and defense, sold September 2, 2025 for about $400 million, for a $115 million gain.
The Munich, Germany materials-processing tools division, sold January 30, 2026. The total loss was $96 million, mostly already booked as impairments: $81 million in Q4 FY2025, $13 million in Q1 FY2026 and $11 million in Q2 FY2026. A small $9 million gain was recorded at closing.
Because the divested units had lower margins, Industrial segment profit still rose 4% to $423 million. The filing credits the divestitures, "pricing optimization initiatives and lower manufacturing costs." The MD&A also notes "strong demand in semiconductor capital equipment," meaning the machines used to make chips, within Industrial. The shrinkage continued into Q4, when Industrial revenue was $431 million vs. $511 million a year earlier. The release's headline says Q4 revenue grew 42% on what it calls a "pro forma basis," versus 34% as reported. The gap reflects how much the divestitures weigh on reported comparisons.
Margins: real improvement, with some one-offs mixed in
Gross margin, the share of revenue left after manufacturing costs, rose 233 basis points (2.33 percentage points) to 37.5%. The MD&A attributes this to "cost reductions in product input costs, efficiency gains from improved cycle times... as well as yield improvements" in Datacenter & Communications, along with pricing, lower intangible amortization and the Industrial divestitures. On the company's non-GAAP basis, gross margin was 39.4% vs. 37.9%.
Operating margin rose from 5.0% to 12.6%, but a few items in that figure won't repeat:
$124 million gain on sale of businesses (aerospace and defense, Munich). This alone adds about 1.7 points of margin. Without it, operating margin would have been roughly 10.9%.
Restructuring charges fell to $63 million from $160 million. FY2025 included site closures and the Newton Aycliffe sale.
Impairment of assets held for sale was $64 million vs. $85 million, for businesses Coherent is still selling. This includes one business newly put up for sale in Q4 FY2026, which the filing doesn't name.
Below operating income, "interest and other, net" fell to $50 million from $196 million. That included a $74 million gain on selling an equity investment, $53 million less interest expense and $34 million smaller currency losses. The effective tax rate was 7%, down from 68%. The 10-K attributes this to releases of uncertain tax positions, stock-compensation tax benefits and German tax-law changes. None of these is a recurring source of earnings.
The company's non-GAAP view strips out stock compensation, amortization, restructuring, impairments and gains. On that basis, net earnings rose 58% to $1,097 million and EPS rose from $3.53 to $5.61 (earnings release). GAAP EPS of $4.12 is below non-GAAP EPS despite the one-off gains. The main reason is that non-GAAP also excludes recurring non-cash costs, such as intangible amortization ($280 million in FY2026) and share-based compensation.
Per-share mechanics: preferred conversion and NVIDIA
Two capital events changed the share count and what each share is entitled to:
Series B preferred conversion. In Q2 FY2026 all Series B-1 and B-2 preferred stock converted into 30.1 million common shares. Preferred shareholders had been collecting a 5% dividend ahead of common shareholders. That deduction fell from $130 million to $35 million and ends from here on.
NVIDIA's $2 billion investment. On March 2, 2026, NVIDIA bought 7,788,161 shares at $256.80 alongside a multi-year strategic agreement. The 10-K describes that agreement as including "a multi-billion-dollar purchase commitment" and capacity rights. The filing warns it "may require incremental investments in equipment, labor, and working capital" through 2030 and "could affect revenue concentration, gross margin, and capital expenditures."
As a result, diluted weighted shares rose to 195.4 million from 154.8 million. Future EPS growth will have to come from profit growth spread across a larger share base.
Cash, inventory and debt
Operating cash flow of $80 million vs. $634 million. The MD&A blames "a significant increase in inventory levels to support higher revenue growth." Inventory rose to $2,581 million from $1,438 million on the balance sheet.
Capex of $1,103 million vs. $441 million, for capacity expansion. Operating cash flow minus capex was therefore about -$1.0 billion (our calculation).
Debt fell to $3,222 million from $3,687 million. The company repaid $509 million of term loans, $502 million of it voluntarily, and refinanced its revolving credit line and term loans in September 2025 at lower spreads. Interest expense fell to $190 million from $243 million. No revolver borrowings were outstanding at year-end.
Liquidity at June 30, 2026: $1,162 million of cash plus $825 million of short-term investments, both funded largely by NVIDIA's purchase, and $664 million of undrawn revolver. Another $606 million of restricted cash, mostly in the Silicon Carbide subsidiary, can only be used by that unit. On August 12, 2026, a foreign subsidiary added a roughly $945 million unsecured credit facility, undrawn as of the filing date.
Purchase commitments to vendors totaled about $11.8 billion at year-end. This number shows how much supply Coherent has locked in for the ramp ahead.
One risk flag in the 10-K: the Lasers reporting unit, which carries about $3.1 billion of goodwill (the premium paid in past acquisitions, held on the balance sheet), has a fair value only about 8% above its carrying value. A modest miss in that business's forecasts could force a write-down.
Outlook
The earnings release gives guidance for one quarter, Q1 fiscal 2027 (the quarter ending September 2026), not the full year:
Q1 FY2027 guidance (non-GAAP except revenue)
Range
Revenue
$2.2B - $2.4B
Gross margin
39.5% - 41.5%
Operating expenses
$400M - $420M
Tax rate
18% - 20%
EPS
$1.85 - $2.05
The midpoint of $2.3 billion would be about 12% above Q4's $2,046 million. The midpoint gross margin of 40.5% would be slightly above Q4's 40.2% non-GAAP margin. Note the guided tax rate of 18-20%, far above FY2026's 7% GAAP rate. Some of FY2026's GAAP earnings came from tax items that won't recur.
Our read: The demand side looks solid on the filing's own evidence. Datacenter & Communications grew 59% in Q4, there's an $11.8 billion purchase-commitment book and a multi-year NVIDIA agreement, and supply (indium phosphide lasers) is described as the constraint rather than orders. The questions for FY2027 are about execution and cash. Can new capacity in Sherman and elsewhere come online fast enough to turn the inventory build into sales and get operating cash flow back above capex? Can gross margin keep rising as the NVIDIA volume ramps, given the company's own warning that the agreement "could affect... gross margin"? Industrial will likely shrink further as the remaining held-for-sale businesses are sold, which makes Coherent even more dependent on datacenter spending.