Shares of Fabrinet (NYSE:FN) fell about 11% premarket on Tuesday despite fourth quarter results and fiscal first quarter outlook beating estimates, as analysts at Needham noted an expected slowdown in Datacom business.
Needham maintained its Buy rating and $350 price target on Fabrinet’s stock noting that the company’s telecom strength continues but Datacom could slow down again.
Analysts led by Ryan Koontz said that the company’s fourth quarter results beat consensus revenue/EPS by +3%/+$0.01, and first quarter guidance was above consensus by +1.4%/+$0.08.
The analysts added that fourth quarter strength was due to Telecom and data center interconnect, or DCI, (+45% year-over-year) and Auto segments (+49%). Datacom improved modestly (-12% year-over-year, +10% quarter-over-quarter) as Nvidia (NVDA) transitions 800G to 1.6T, the analysts noted.
“Unfortunately, supply chain constraints, including 200G/lane EMLs, are expected to result in another Datacom decline in F1Q which will likely disappoint investors. We remain bullish on FN over the mid-term with EML supply improving, new [Amazon] AMZN products ramping, and share gains at [Ciena] CIEN. Mgt [management] is considering accelerating its massive Building 10 expansion implying strong anticipated demand,” said Koontz and his team.