Coherent (COHR -2.24%) reported fiscal fourth quarter ended June 30, 2025, earnings on August 13, 2025, reporting record revenue of $1.53 billion in the fiscal fourth quarter, up 16% year-over-year, and full-year fiscal 2025 revenue of $5.81 billion, up 23% year-over-year, with non-GAAP EPS for fiscal 2025 increasing 191% to $3.53. Non-GAAP gross margin expanded by 358 basis points in fiscal 2025 to reach 37.9%, driven by strong growth in AI data center and communications segments, key production milestones, and a major portfolio optimization through the announced $400 million aerospace and defense divestiture. The following analysis covers the company’s historic capacity scaling, transformational customer agreements, and renewed focus on core photonics markets.
Coherent achieves world’s first six-inch indium phosphide ramp
Coherent began production of the industry’s first six-inch indium phosphide wafer line at its Sherman, Texas plant in August 2025, supporting photonic component scaling for high-speed data center and optical networking products. Tripling indium phosphide capacity year over year has supported increased internal production of EML (electro-absorption modulated laser) and CW (continuous wave) lasers, which accounted for the majority of datacom revenue and are critical for emerging transceiver formats such as 1.6T.
"I'm pleased to announce that we will begin production this month of our new six-inch indium phosphide line in Coherent's Sherman, Texas facility. This is the world's first six-inch indium phosphide production platform and is expected to provide us significant advantages in terms of both lower cost and higher volume production, and it will further enhance our industry-leading supply chain resiliency."
-- Jim Anderson, CEO
This large-scale, vertically integrated manufacturing capability strengthens Coherent’s cost leadership and fortifies the company’s defense against geopolitical or tariff risks.
Major multiyear Apple agreement expands U.S. photonics footprint
The company secured a new multiyear supply partnership withApple(NASDAQ:AAPL) for next-generation VCSEL (vertical-cavity surface-emitting laser) products, all manufactured in Sherman, Texas, with revenue contribution beginning in 2026. This partnership follows Apple's public endorsement of Coherent’s American manufacturing, enabling site utilization synergies as VCSEL and indium phosphide volumes scale.
"we've entered into a new multiyear agreement with Apple for a new generation of VCSEL products that support Apple's iPhone and iPad products. We expect revenue from this expanded partnership to begin in 2026. The VCSELs for Apple are manufactured in our Sherman, Texas facility and will help support the long-term growth and utilization of the site."
-- Jim Anderson, CEO
By securing multiyear, onshore supply agreements with top-tier OEMs, Coherent expects to benefit from increased revenue and improved gross margins and leverages capacity investments across photonics technologies.
Coherent exits aerospace and defense to focus on higher-margin photonics
Coherent announced the divestiture of its aerospace and defense business for $400 million, exiting 10 sites and streamlining its resource base by 550 employees. The segment had averaged approximately $50 million in quarterly revenue with gross margins below the company average over the past four quarters.
"As part of our portfolio optimization, today we announced an agreement to sell our aerospace and defense business for $400 million. We expect to close this transaction this quarter. On closing, we plan to use the proceeds of the sale to pay down additional debt, and we expect the sale to be accretive to our EPS. We made the decision to sell our A and D business because it was not aligned with our long-term strategic focus areas and it did not support our long-term financial targets."
-- Jim Anderson, CEO
This immediately boosts non-GAAP earnings per share upon closing of the aerospace and defense business sale, and demonstrates disciplined execution on long-term portfolio rationalization.
Looking Ahead
Management projects fiscal first quarter 2026 revenue of $1.4 billion to $1.6 billion, non-GAAP gross margin of 37.5% to 39.5% for the fiscal first quarter 2026, and non-GAAP EPS of $0.93 to $1.13 for the fiscal first quarter 2026, excluding approximately $20 million in expected divested aerospace and defense revenue from fiscal first quarter 2026 guidance. The company anticipates sequential growth in data center and communications segments for the current quarter. Flat-to-down performance is expected in the industrial segment sequentially in the near term (Coherent guidance, fiscal quarters), and continued non-GAAP gross margin improvement is expected, driven by product mix and margin expansion initiatives. The expanded Apple partnership is expected to contribute revenue beginning in the second half of calendar year 2026, with management confident in achieving the long-term non-GAAP gross margin target of 42%.
