Fabrinet (FN) Q4 2018 Earnings Conference Call Transcript

Fabrinet (FN -0.26%)
Q4 2018 Earnings Conference Call
Aug. 20, 2018 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Welcome to Fabrinet's financial results conference call for the fourth quarter of fiscal-year 2018. [Operator instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Garo Toomajanian, Investor Relations.

Garo Toomajanian -- Investor Relations

Thank you, operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the fourth quarter of fiscal-year 2018, which ended June 29, 2018. With me on the call today are Tom Mitchell, Fabrinet's founder and chairman of the board; Seamus Grady, chief executive officer; and TS Ng, chief financial officer. This call is being webcast and a replay will be available on the investors section of our website located at investor.fabrinet.com.

Please refer to our website for important information, including our earnings press release and investor presentation, which include a GAAP to non-GAAP reconciliation. I would like to remind you that today's discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinion only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law.

For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-Q filed on May 8, 2018. We will begin the call with remarks from Tom, Seamus and TS, followed by time for questions. I would now like to turn the call over to Fabrinet's chairman, Tom Mitchell. Tom?

Tom Mitchell -- Founder and Chairman of the Board

Thank you, Garo, and good afternoon, everyone. I am pleased that we exceeded our revenue expectations for the fourth quarter, and I am proud of the company's performance under Seamus' leadership as our CEO. As you may have seen from recent filings, I have stepped away from my operational role at Fabrinet as Executive Chairman. This marks the completion of the CEO transition we started several quarters ago.

However, I plan to remain highly involved as Chairman of the board at Fabrinet. I'd like now to turn the call over to Seamus for his remarks.

Seamus Grady -- Chief Executive Officer

Thank you, Tom, and good afternoon, everyone. I'm pleased to share with you that our fourth-quarter revenue came in above the top end of our guidance at $345 million, with non-GAAP net income of $0.81 per share, also above the high end of our guidance range. Operating cash flow was $48 million in the fourth quarter. And for all of fiscal-year 2018, we generated operating cash flow of $138 million and free cash flow of $104 million.

We enter the quarter anticipating modest growth across most of the markets we serve. And I'm pleased to report that we experienced strong growth in our non-optical communications revenue and modest but still positive growth in our optical communications revenue. Moreover, as TS will detail, we anticipate that this sequential growth will continue as we enter fiscal-year 2019. With increasing demand, certain components came under supply constraints during the fourth quarter.

And we were able to successfully mitigate these shortage risks during the quarter, and we will continue to take appropriate steps to manage these supply challenges. Looking at our fourth quarter performance by end markets. Our performance was in line with expectations. Overall, optical communications revenue of $242 million was up marginally by $1 million from the third quarter.

Within optical, telecom revenue of $156 million represented 2% sequential growth, more than offsetting a 1% sequential decline in datacom revenue. We're particularly pleased with the growth we saw from non-optical communications programs. Both our industrial laser and automotive businesses saw all-time record quarterly revenue, with industrial laser revenue growing 36% from a year ago and 8% from Q3 to $47 million and automotive revenue increasing 34% from a year ago and 20% from Q3 to $26 million. Overall revenue from non-optical communications programs was $103 million, up 30% from a year ago and up 13% from Q3.

While we expect there to be some quarter-to-quarter variation as we look ahead, we remain optimistic about our long-term prospects in the non-optical communications space. Revenue from new customers and new programs from existing customers grew to $125 million in the fourth quarter, 36% of total revenue increasing over $9 million from the prior quarter. New business growth in the fourth quarter came from both optical programs, as well as from non-optical programs such as industrial lasers and new automotive applications. Silicon photonics-based products saw their first sequential increase in the year, contributing $70 million to revenue in the fourth quarter, up 5% from Q3.

QSFP28 transceivers, which are both silicon photonics and non-silicon photonics based, also saw their first sequential growth in the year, with revenue of $45 million, up 20% from Q3, as increased volumes of lower price variance have now more than offset price decreases. By data rate, 100G programs continue to dominate optical communications production and represented 39% of total revenue in Q4, consistent with last quarter. 400G and 1.2-terabyte products are in the early stages of ramping, each representing 2% to 3% of total revenue. Our new product introduction or NPI services are an important on-ramp for new business, with their investments at Fabrinet West and Fabrinet U.K.

playing a critical role. Last quarter, we introduced strategic plans to establish our next NPI facility in Israel, and we look forward to sharing more on that as we progress beyond these early stages. In addition to continued progress in industrial lasers and automotive, we also won a number of medical programs, which we expect will contribute over time as they ramp into volume production. We're expanding our advanced packaging capabilities at Fabrinet West to further strengthen our NPI manufacturing solutions for new and emerging technology-based products such as LIDAR, 3D sensing and laser-based lighting products for the automotive industry.

We're optimistic our core competencies and manufacturing solutions for products and systems requiring precision optical, mechanical and electrical assemblies will continue to enable our expansion into these new markets. In summary, we're pleased to have exceeded our revenue and earnings expectations in the fourth quarter, and we continue to generate solid and predictable cash flow. We're enthusiastic about the first quarter and beyond, with stabilizing or improving trends across the markets we serve. And we're excited about the many opportunities ahead.

Now let me turn the call over to TS to discuss the details of our fourth quarter performance and our outlook. TS?

Toh-Seng Ng -- Chief Financial Officer

Thank you, Seamus, and good afternoon, everyone. I will provide you with more details on our performance by end market and our financial results for Q4 and fiscal-year 2018, as well as our guidance for Q1 for fiscal year 2019. Total revenue in the fourth quarter of fiscal-year 2018 was $345.3 million, above the high end of our guidance range. Non-GAAP net income was $0.81 per share and was also above our guidance range.

Net income in the fourth quarter benefited by $0.03 per share from a partial reversal of deferred tax asset valuation allowance, which was partially offset by $0.02 unrealized loss from a mark-to-market foreign exchange adjustment. Excluding the positive $0.01 impact of this adjustment, non-GAAP net income was still above the high end of our guidance range. For the full year, revenue was $1.372 billion and non-GAAP net income was $2.98 per share. Looking at the fourth quarter in more detail.

As Seamus mentioned, we saw modest sequential growth from optical communication program in fourth quarter, with a small sequential increase in telecom revenue, slightly offsetting a modest decline in datacom's revenue. Our strong 13% sequential growth in non-optical revenue to $103 million was a highlight in Q4, as this set a quarterly record, driven primarily by growth in industrial lasers and automotive revenue. For the fourth quarter, optical communication represented 70% of revenue in the quarter, and non-optical communication was 30% of revenue. Now turning to the details of our P&L.

A reconciliation on GAAP to non-GAAP measure is included in our earnings press release and investor presentation, which you can find on our website. Non-GAAP gross margin in the fourth quarter was 11.8%, slightly below our target range of 12% to 12.5%. We expect non-GAAP gross margin to return to within our target range during fiscal-year 2019. Non-GAAP operating expense was $10.8 million in the fourth quarter, an increase on the third quarter, primarily due to a one-time reversals of management bonus accrual in Q3, as we discussed last quarter.

Non-GAAP operating income in the fourth quarter was $29.7 million, a small decrease from Q3, though operating margin declined slightly to 8.6%. Taxes in the quarter were a net credit of $0.9 million. And our normalized effective tax rate was less than 5%, due primarily to strengthening of Thai baht, which created losses on U.S. dollar-denominated liability that are tax deductible.

For all of FY '18, our effective tax rate was approximately 5%. We anticipate that our effective tax rate will return to 6% to 7% for fiscal-year 2019. Non-GAAP net income was $30.7 million in the fourth quarter or $0.81 per diluted share compared to $0.71 in Q3 and $0.86 a year ago. On a GAAP basis, which includes share-based compensation expenses and amortization of debt issuing cost, net income for the fourth quarter was $22.8 million or $0.60 per diluted share compared to $27.4 million or $0.72 per diluted share in the fourth quarter of fiscal-year 2017.

Turning to the balance sheet and cash flow statement. At the end of the fourth quarter, cash and investment was $335.7 million. This represents an increase of $20.3 million from the end of the third quarter, primarily from the operating cash flow of $48.3 million, offset by a CAPEX of $5.6 million, share repurchase of $20 million and repayment of long-term bank loans of $1 million. Free cash flow, which is operating cash flow less CAPEX, was $42.7 million in the fourth quarter.

For all of fiscal-year 2018, operating cash flow was $138.1 million. After subtracting CAPEX of $33.8 million, free cash flow for the year was $104.3 million, representing a significant increase from fiscal-year 2017 due to a meaningful decrease in CAPEX and improving working capital. During the fourth quarter, we were active in our share repurchase program and bought back approximately 551,000 shares at an average price of $36.3 per share. As of the end of the fourth quarter, $17.6 million remain in our repurchase authorization.

I would now like to turn to our guidance for the first quarter of fiscal-year 2019. With improving demand from optical communication customers and continuous momentum in our non-optical business, we're looking forward to another quarter of sequential revenue growth. Note that with the discussions of tariff on product manufactured in China in the news, we currently do not expect a meaningful impact of our revenue, as Chinese component represent the minimum portions of total values of our manufactured products. In addition, we'll be adopting ASC 606 as of the first quarter of fiscal-year 2019 using the modified retrospected transition method.

Our revenue guidance today is being provided on an ASC 605 basis, and we will provide a reconciliation from ASC 606 to ASC 605 when we discuss our first quarter results. With that in mind, we anticipate first quarter revenue to be in the range of $347 million to $365 million. From earnings perspective, we anticipate non-GAAP net income per share in the first quarter to be in range of $0.80 to $0.83 and GAAP net income per share of $0.58 to $0.61 based on approximately 37.9 million fully diluted shares outstanding. Keep in mind that in Q1, we will bear the additional cost of annual merit increases resulting in seasonal pressures on our gross margin.

Before I conclude my remarks today, on a personal note, I would like to announce that at my request, the company had initiated a search for a new CFO as part of our leadership succession plans to assume my duty at an appropriate time. After being with Fabrinet for an exciting 12 year and age catching up, I had decided it is time to search for and identify a qualified replacement who'll be ready to take on the new and ever-changing challenges in our fast-moving business. There's no time line for this transition as I'm not going anywhere. And I will continue to support Seamus and the management team in the day-to-day operations of the company.

In addition, I'll be actively involved in and supporting the search and the eventual transition of my duty to the best fit CFO replacement for the company. In summary, we are pleased to have delivered fourth-quarter financial results that exceeded our expectations. We are encouraged to see improving demand dynamic among our optical communication customers and are optimistic that we will enter fiscal-year 2019 with another quarter of sequential growth and believe we are well-positioned to strengthen our presence in both the optical and non-optical communication market as we look ahead. Operator, we would now like to open the call for questions.

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Troy Jensen of Piper Jaffray. Your line is open.

Troy Jensen -- Piper Jaffray -- Analyst

Hey, gentlemen, congrats on a great result.

Seamus Grady -- Chief Executive Officer

Thank you, Troy.

Troy Jensen -- Piper Jaffray -- Analyst

I guess, Seamus, you made a comment that silicon photonics grew sequentially and QSFP28 also grew sequentially. I'm curious to know, was that the same customer that drove that results?

Seamus Grady -- Chief Executive Officer

It's across a number of customers actually. It's across a number of customers.

Troy Jensen -- Piper Jaffray -- Analyst

OK. All right, fair. And then how about three months ago, when you gave us guidance for this quarter, you talked about the ZTE sales ban impacted sales by $7 million. Just curious when you look at the guidance for this upcoming quarter, is there a dollar amount that will still be impacted? Or you expected kind of a full recovery?

Seamus Grady -- Chief Executive Officer

So -- yes, so looking back at last quarter, yes, we had guided -- we had mentioned last quarter that there was about $7 million impact to ZTE factored into our guidance. We have no way to know really what the sales actually would have been without the sanctions. But we think about $7 million was the right ballpark based on the conversations we had with our customers at that time. Then for this quarter, we don't expect to see the full impact of the sanctions being lifted in fiscal Q1.

Remember, the sanctions were officially lifted in mid-July, and it takes a little bit of time for orders to restart. So we would expect much less than $7 million of a benefit in Q1, let's say.

Troy Jensen -- Piper Jaffray -- Analyst

OK. But -- so then the recovery is probably post that, understood.

Seamus Grady -- Chief Executive Officer

Yes.

Troy Jensen -- Piper Jaffray -- Analyst

And how about -- Seamus, on the automotive sector, I mean -- I think you said 22% sequential growth. So just confirm that. And then how many customers do have in the automotive category that can move the needle like that?

Seamus Grady -- Chief Executive Officer

We have a number of customers. And the growth in our automotive business, we've about four customers approximately that represent the majority of our automotive revenue. The growth that we're seeing is predominantly on what we refer to kind of internally as new automotive applications. And it's across a number of customers, and it's in some of the newer technology in the lighting space and in the LIDAR space in particular.

Troy Jensen -- Piper Jaffray -- Analyst

OK. Well, TS -- sorry to see -- hear you're leaving. But I wish you the best. And gentlemen, keep up the good work.

Toh-Seng Ng -- Chief Financial Officer

OK.

Seamus Grady -- Chief Executive Officer

Thank you, Troy.

Toh-Seng Ng -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Alex Anderson of Needham. Your line is open.

Alex Henderson -- Needham & Company -- Analyst

Great. Thank you very much. And I agree with that last statement, TS, we'll miss you when you leave.

Toh-Seng Ng -- Chief Financial Officer

Thank you.

Alex Henderson -- Needham & Company -- Analyst

Congratulations on a great career. So the first question I wanted to ask you is when you're looking at the mix of business for the upcoming quarter, you said that optical would improve. Can you give us a little granularity between datacom and telecom? And within the datacom, what are you seeing in terms of pricing pressure? How should we be thinking about that? It looks like pricing in datacom's moderated somewhat.

Toh-Seng Ng -- Chief Financial Officer

Yes, Alex. In the guidance last quarter, we were kind of expecting telecom to grow faster than datacom. But as it turned out, telecom grew a little bit, offset by the datacom flat and down a little bit. So in terms of datacom, we have six or seven customer.

In fact, most of them are growing, with the exception of one to two customer-specific program, maybe due to the [Inaudible] transitions and so on, and they're down. So of our overall datacom, excluding the customer, seems like everybody is growing. So on -- in terms of pricing, it's mostly set by our customer, because we are, again -- we're not really involved with the pricing. We look at our cost and then put appropriate markup to cover our margin.

So -- but then, suffice it to say that most of our customers had transitioned to the low-cost variance within the QSFP28, for example. And that low-cost variance transition has meaningfully offset -- countered that volume increase, OK? So the transition to a low-cost volume has been mitigated, so to speak.

Alex Henderson -- Needham & Company -- Analyst

OK. And going back to the baht for a second. It's pretty clear that there's been a pretty significant move in that exchange rate. It takes a little while for that to matriculate through your numbers.

But I would assume -- if we assume a flat exchange rate at the current levels, that it's a considerable positive going forward for the next couple of quarters. Is -- can you quantify or give us some sense of the degree to which that's helpful?

Toh-Seng Ng -- Chief Financial Officer

Yes. The baht fluctuated quite a bit, OK? And you're right, recently, it kind of depreciated to THB 33 -- THB 33.5 or so level. But again, remember, we hedged six months. I hedged forward just to protect the downside.

So if there's any upside, assuming you sustain, assuming the baht stay at this level, I will see the benefit at least one and a half quarters out. So not in the immediate quarter, because in an immediate quarter, I bought all this baht about three to six months ago. So yes, if baht continues to stay at this level, I'll see some tailwind into the gross margin and into the P&L.

Alex Henderson -- Needham & Company -- Analyst

So would that be more of a CY 4Q, FY 2Q and CY 2H '19, back half of FY '19 benefit?

Toh-Seng Ng -- Chief Financial Officer

Yes. I will say, it will be CY 2018 November, December, I might get some benefit, right? Right now, I still hedge some -- spending less on hedge, OK? And then, of course, in March quarter, if I buy today, assuming I can lock in today, you will see the benefit. That's correct, yes.

Alex Henderson -- Needham & Company -- Analyst

Yes. And the last question I'll ask you before -- you had made a comment, I think, on the gross margin non-GAAP improving somewhat as we go forward to normal level. Can you remind us what you consider your normal level? And within the context of the forward guidance, I know you don't want to give specifics on 606, but what do you think the dynamics are? Is it helpful or hurtful to your revenues, helpful or hurtful to your margins? Can you give us a little bit of taste of what you think might occur?

Toh-Seng Ng -- Chief Financial Officer

OK. On the gross margin, we always mention ourselves within 12% to 12.5%. We see that all the time in our conference call. And if you look at our track record here, we were at 11.6% last quarter, F Q3, I mean.

And then F Q4, we inched out to 11.8%. We are not quite at the 12% yet, OK, but we believe that in FY 2019, within the fiscal year, we'll return to 12%, at least to 12%. So that's internal management goal to get to 12%. Then again, F Q1, we see some headwind again, because we give merit increase once a year, and we will see some seasonal pressure on the gross margin F Q1.

But we expect, moving forward, we'll fully recover through the learning curve and the cost-reduction efforts and so on. In terms of 606, I just look at the July closing a little bit. There's really no major impact. If there's any impact, it will be in the tune of about maybe $3 million to $5 million revenue stream.

And in terms of margin, no, it'll be very, very slow impact on that. So -- but we'll report in September earning call to show you how big is the gap. But as of today, we don't expect any material impact to the revenue line and gross margin line.

Alex Henderson -- Needham & Company -- Analyst

OK. Great. Thank you very much.

Toh-Seng Ng -- Chief Financial Officer

Thank you, Alex.

Seamus Grady -- Chief Executive Officer

Thanks, Alex.

Operator

Thank you. Our next question comes from Tim Savageaux of Northland Capital. Your question, please.

Tim Savageaux -- Northland Securities, Inc. -- Analyst

Hi, good afternoon, and I'll add my congratulations to TS.

Toh-Seng Ng -- Chief Financial Officer

Thank you, Tim.

Tim Savageaux -- Northland Securities, Inc. -- Analyst

Following up on that last response. To the extent -- and I don't know if you already hit this, but I think you just indicated you expect some seasonal pressure on gross margins in Q1 from Q4 levels. If that's the case, do we -- are you looking for a pretty sharp decline in OPEX sequentially from elevated levels in Q4? And is there any further tax benefit kind of in forming the EPS guide for Q1?

Toh-Seng Ng -- Chief Financial Officer

Tim, good question. The seasonal impact is coming from merit increase we give to our folks in Thailand once a year and actually [Inaudible] once a year. The impact will be mitigated by other area, obviously. It's part of our business.

We try to find -- offset to the merit increase and may not necessary recover within the quarter, OK? It typically -- you will get history. It will take at least about close to two quarters to recover that, yield improvement, OPEX reduction, that's what you said and so on. So we have spending control just to offset the merit increase. So yes, I -- we don't guide gross margin, but you can see that some of the foreign exchange loss we experienced in the past hopefully will subside a little bit, because we see the baht now become cheaper.

Tim Savageaux -- Northland Securities, Inc. -- Analyst

OK. Thanks. And kind of moving on to the product side. I want to touch on datacom again in fiscal Q4, just to see if we can understand the moving parts a bit better.

You did report a sequential increase in silicon photonics and a pretty sharp sequential increase in QSFP28. You did see modest declines in the overall datacom segment. I guess, my first question, what would be offsetting the QSFP28 growth principally?

Seamus Grady -- Chief Executive Officer

So Tim, this is Seamus. I think we saw a nice increase in our telecom business. Our datacom business, as you said, was flat to down, very slightly down about 1%. And that's on an aggregate basis when you -- when we add up all the customers and all the products.

What I would say is the reductions were isolated to one or two customers who are maybe going through combination of product transitions and a little bit of price pressure. So we had some reductions on one or two customers. But the majority of the customers, I would say, probably 90% of the customers, we did see some nice growth on. So while the number in aggregate is down a little bit, we wouldn't want to give the impression that datacom is down.

Datacom, we think, is actually quite strong, and the reductions were limited to one or two customers.

Tim Savageaux -- Northland Securities, Inc. -- Analyst

OK, great. And that follows right into my last question, which is, as you look forward -- and I think you might have said you expect sequential growth across the businesses. You obviously had a pretty sharp increase on the noncommunication side. In Q4, in terms of kind of relative performance across the business segments, it sounds like you might expect datacom to resume sequential growth, though I'm not sure if you have any comments on that in datacom versus telecom or within both of those, silicon photonics, or whether you might expect noncommunications to maybe flatten out for a bit as the communications stuff catches up in Q1.

Seamus Grady -- Chief Executive Officer

Yes. I think we're -- we were very happy with the growth, as you say, in the non-optical communications business in Q4. If you look at TS' remarks, optical communications business is now 70% of our business, down from 72% historically. And it was actually a high of, I think, 78% at one point.

So we're making nice, steady progress there, growing our non-optical communications business, but at the same time, growing our optical communications business. It's always a challenge when they're both growing, we want both things to happen. We want to go all of the business, but we also want to reduce the percentage of the optical communications business. As we look out to Q1, I think it'd be fair to say we're seeing solid growth in the communications business -- the optical communications business, and it's across both telecom and datacom, and then continued growth in the non-optical.

The laser business remains very strong. Industrial laser business remains very strong as does the -- the automotive business is quite strong. So it's really across the board, Tim. Thankfully, we're kind of benefiting from some nice growth across a number of sectors that we're participating in right now.

Toh-Seng Ng -- Chief Financial Officer

And Tim, this is TS. If you listen to our customer earnings call recently, right, most of them are pretty upbeat on the optical communications. So we hope to ride on that optimism on that. One of the big customers is talking about really robust in ROADM and so on and also their fiber laser and their laser business.

And other datacom guy is talking about really robust in the datacom. So we hope our customer is right and then we are riding on those things.

Tim Savageaux -- Northland Securities, Inc. -- Analyst

OK. Thanks very much. I'll pass it along.

Toh-Seng Ng -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Alex Henderson of Needham. Your line is open.

Alex Henderson -- Needham & Company -- Analyst

[Inaudible] than expected. I just wanted to ask about the Lumentum plant that's being built next to your facility and the conversations you've had relative to that. There's been a lot of speculation on whether that's a good thing for you or a bad thing for you. And I was hoping you might just give us some sense of what your read is relative to the relevance of that plant.

I know that Lumentum has said that they're moving substantial portion of business out of China's Sanmina facilities into that plant and to Thailand. But I was hoping you can give us a little bit of clarity around it.

Seamus Grady -- Chief Executive Officer

I mean, I would say, Alex, we've kind of talked about this before. Lumentum uses a number of contract manufacturers. We're by no means their only contract manufacturer. They use a number of them.

And our understanding is that their plan is that they're consolidating manufacturing at some of their suppliers in China. And for the most part, that business is moving to Thailand. We're not the sole beneficiary of that. Some of that business, we understand, they're moving into their own facility.

But they're our No. 1 customer. They're our biggest customer. And they're a really excellent customer.

Their business is just really strong at the moment, and we're really very fortunate to have them as a customer and to be able to participate with them. Our relationship with them remains strong. Our business with them is growing, I would say. Yes, they have established their own facility in Thailand, and it's actually near, quite close to our Pinehurst campus.

So we do believe that this signals a closer rather than a more distant cooperation between the two companies. So overall, we see it as a positive in the sense that the -- they're moving business to Thailand. Yes, they're moving business into their own facility. But for the most part, the business that's coming to Thailand is coming from Chinese suppliers.

So we see that as a positive.

Alex Henderson -- Needham & Company -- Analyst

Great. Thank you.

Seamus Grady -- Chief Executive Officer

Thanks, Alex.

Operator

Thank you. We have a follow-up question from Tim Savageaux of Northland Capital. Your line is open.

Tim Savageaux -- Northland Securities, Inc. -- Analyst

OK. And maybe following on that response briefly. And I realize this is -- information is going to be in your annual filings. But you mentioned that Lumentum is your largest customer.

I wonder, given that we're at the end of the year, if you might quantify that or tell us how many 10% type customers you had for the year. And then maybe if you were to look at Lumentum and Oclaro together, given the pending merger, how significant would they be as a combined customer.

Toh-Seng Ng -- Chief Financial Officer

Tim, this is TS. In two days' time, you will see our K. But again, I can tell you that Lumentum is our No. 1 customer last year.

We only have one 10% customer. Lumentum is 17% of the revenue. When Oclaro merger go through, it will be 23%, 17% plus 6%.

Tim Savageaux -- Northland Securities, Inc. -- Analyst

Perfect. Thank you.

Toh-Seng Ng -- Chief Financial Officer

Yes. Thank you.

Seamus Grady -- Chief Executive Officer

Thank you, Tim.

Operator

Thank you. As there are no further questions in queue, I'd like to turn the call back over to Seamus Grady for any closing remarks. Sir?

Seamus Grady -- Chief Executive Officer

Thank you. Thanks, everyone, for joining our call today and for your continued interest in Fabrinet. We're optimistic about the improving dynamic that we're seeing in the markets. And we look forward to speaking with you all again on our next earnings call in November.

For those of you attending the Jefferies investor summit in Chicago next week and the Piper Jaffray Tech Select conference in Southern California the week after, we look forward to seeing you. Thanks again, and goodbye.

Operator

[Operator signoff]

Duration: 36 minutes

Call Participants:

Garo Toomajanian -- Investor Relations

Tom Mitchell -- Founder and Chairman of the Board

Seamus Grady -- Chief Executive Officer

Toh-Seng Ng -- Chief Financial Officer

Troy Jensen -- Piper Jaffray -- Analyst

Alex Henderson -- Needham & Company -- Analyst

Tim Savageaux -- Northland Securities, Inc. -- Analyst

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