Fabrinet tanks after warning of supply chain issues in its Nvidia-linked business

Fabrinet, a maker of optical communication devices with many use cases (including in AI data centers!), is tumbling after management said that sales in its data communication business are expected to fall in the current quarter.

The warning came after Fabrinet delivered its Q4 report, with financials for the three months ended June 27 that were just peachy: both adjusted earnings per share and revenues exceeded analysts’ expectations.

The company counts Nvidia and Cisco as major customers and Amazon as a future big buyer (and also a warrant holder with significant equity exposure).

During the conference call following the release of earnings, Chief Financial Officer Csaba Sverha cited supply constraints as the cause of the anticipated drop-off in revenues for this segment:

“In Datacom, we are excited to see growing demand, especially for next-generation products. However, the surging demand has resulted in near-term supply constraints for some critical components, and as a result, we expect to see a sequential dip in Datacom revenue in Q1. We are working with our customer and suppliers to resolve these supply issues, which we expect to be temporary.”

Those “next-generation products” refer to Nvidia’s transition to 1.6-terabit networking technology.

CEO Seamus Grady later offered more detail, saying:

“We’re pretty confident we’re pursuing multiple paths with our customer and with the supply base to help remedy the constraints in order to meet the strong demand, and we believe the supply issues will be temporary. But they will take a little bit of time to fully resolve, maybe one or two quarters, but we do think it’s a short-lived problem. But it’s one we have to deal with right now.”

Even with these challenges, management still offered first-quarter guidance for adjusted earnings per share and sales that were ahead of what the Street had penciled in, but that’s of little solace to any shareholders today.