Fabrinet reported its fourth quarter and full fiscal year 2026 results on 17 August, after the close in New York.
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What the Company Does
Fabrinet does not sell a product of its own. It is a contract manufacturer of advanced optical packaging and precision optical and electro-mechanical components, producing for original equipment makers - components and modules for optical communications, industrial lasers, medical devices and automotive parts. Headquartered in Bangkok, with manufacturing concentrated in Thailand, and listed in New York.
And the company has an Israeli presence. Per the annual report for fiscal 2025, Fabrinet operates a new product introduction centre in Yokneam Illit. And beyond that: $993.0 million of its revenue that year was attributed to Israel - 29.0% of the total. The filing states that the attribution follows the customer's bill-to location rather than the place of manufacture, and the proof is in the filing itself: Fabrinet's long-lived assets in Israel stood at just $2.7 million, against $338.1 million in Thailand.
The Quarter
| $ millions | The quarter | A year ago | Change |
|---|---|---|---|
| Revenue | 1,315.8 | 909.7 | +44.6% |
| Cost of revenues | 1,157.7 | 798.4 | +45.0% |
| Gross profit | 158.1 | 111.3 | +42.0% |
| Gross margin | 12.0% | 12.2% | |
| Selling, general and administrative | 23.7 | 22.2 | +6.9% |
| Operating profit | 134.2 | 89.1 | +50.7% |
| Operating margin | 10.2% | 9.8% | |
| Interest income | 7.0 | 7.8 | |
| Other income, net | 57.4 | -0.1 | |
| Pre-tax profit | 199.7 | 93.2 | +114.2% |
| Tax expense | 60.5 | 6.0 | |
| Net income | 139.3 | 87.2 | +59.7% |
| Diluted earnings per share | $3.83 | $2.42 | +58.3% |
| Non-GAAP earnings per share | $4.10 | $2.65 | +54.7% |
Against the Company's Own Guidance
This is the clean way to read the report, because Fabrinet gives explicit numerical ranges every quarter:
| Fourth quarter | Guidance of 4 May | Actual | |
|---|---|---|---|
| Revenue | $1.25-1.29 billion | $1.316 billion | above the range |
| GAAP diluted EPS | $3.48-3.63 | $3.83 | above the range |
| Non-GAAP diluted EPS | $3.72-3.87 | $4.10 | above the range |
And this is not a one-off. It is the fourth consecutive quarter in which revenue has passed the top of the range the company set itself:
| Guidance | Actual | |
|---|---|---|
| First quarter | $910-950 million | 978.1 |
| Second quarter | $1,050-1,100 million | 1,132.9 |
| Third quarter | $1,150-1,200 million | 1,214.3 |
| Fourth quarter | $1,250-1,290 million | 1,315.8 |
The Full Year
| $ millions | 2026 | 2025 | Change |
|---|---|---|---|
| Revenue | 4,641.1 | 3,419.3 | +35.7% |
| Gross profit | 556.5 | 413.3 | +34.6% |
| Gross margin | 12.0% | 12.1% | |
| Operating profit | 462.9 | 324.4 | +42.7% |
| Operating margin | 10.0% | 9.5% | |
| Pre-tax profit | 555.1 | 355.2 | +56.3% |
| Tax expense | 82.1 | 22.7 | |
| Net income | 473.0 | 332.5 | +42.3% |
| Diluted earnings per share | $13.05 | $9.17 | +42.3% |
| Non-GAAP earnings per share | $14.09 | $10.17 | +38.5% |
Three Lines Worth Reading Slowly
The first - the gross margin did not rise, it fell. 12.0% in the quarter against 12.2% a year ago, and 12.0% for the full year against 12.1%. Revenue grew 44.6% and gross profit 42.0% - meaning cost of revenues grew slightly faster than revenue. That is the structure of a contract manufacturer: growth comes from volume, not from pricing.
The second - $57.4 million of other income. That line was nil in the year-earlier quarter, and minus $0.2 million for the whole of last year. On its own it accounts for about 43% of the quarter's pre-tax profit.
And the third - the tax. $60.5 million on pre-tax profit of $199.7 million, an effective rate of 30.3% - against 6.5% in the year-earlier quarter.
And those two lines are linked in the release itself.
In its definition of the non-GAAP measures, Fabrinet added a new exclusion this year: charges arising from the implementation of the OECD global minimum tax framework, known as Pillar Two. That wording does not appear in the corresponding release of August 2025.
And why it matters at Fabrinet specifically: the company is incorporated in the Cayman Islands, manufactures in Thailand and enjoys a tax incentive there. The corporate rate at its Thai subsidiary is 20%, and the Cayman Islands levy no tax on income. A global minimum tax regime bears directly on a structure like that.
What can be said: the effective tax rate jumped from 6.4% last year to 14.8% this year, and to 30.3% in the quarter. And what cannot: which item created all of the jump. The release does not set out the tax reconciliation.
And the Line Most Worth Noticing
The cash.
| $ millions | 2026 | 2025 |
|---|---|---|
| Net cash from operating activities | 256.7 | 328.4 |
| Purchases of property, plant and equipment | 252.5 | 121.1 |
| Free cash flow | 4.2 | 207.3 |
Net income rose 42.3%, and operating cash flow fell 21.8%.
And at the same time, capital expenditure more than doubled - from $121.1 million to $252.5 million. Together the two leave free cash flow of $4.2 million for a full year, against $207.3 million in the year before it.
This is the picture that does not appear in the release headline, and it deserves explaining.
A company adding $1.22 billion of revenue in a single year has to fund that growth - inventory, receivables and production lines. Accounting profit is booked when the product is sold; the cash arrives later.
So a jump in capital expenditure is in itself a sign of expansion, not of weakness. The question is not whether the investment is justified, but what happens to cash when the growth rate moderates - because by then the spending has been made, and the revenue is meant to follow it.
That is the number I will read first next quarter.
First Quarter 2027 Guidance
| First quarter 2027 | |
|---|---|
| Revenue | $1.375-1.425 billion |
| GAAP diluted EPS | $3.39-3.54 |
| Non-GAAP diluted EPS | $4.10-4.25 |
| Fully diluted shares | about 36.3 million |
The midpoint, $1.40 billion, is growth of about 43% against $978.1 million in the year-earlier quarter.
And one line in that table stands out: the GAAP diluted earnings guidance, $3.39 to $3.54, is below the $3.83 the company has just reported. At the same time the non-GAAP guidance, $4.10 to $4.25, begins exactly where the quarter closed.
That is to say, the gap between the two measures is set to widen. In the quarter just reported it was 27 cents a share; in next quarter's guidance it is 71 cents - at both ends of the range.
The Concentration, and It Is a Risk the Company Itself Flags
Per the annual report for fiscal 2025, two customers together accounted for 45.8% of Fabrinet's revenue:
| 2025 | 2024 | 2023 | |
|---|---|---|---|
| NVIDIA | 27.6% | 35.1% | 12.5% |
| Cisco | 18.2% | 13.4% | 15.6% |
The filing states explicitly that the market Fabrinet serves is highly concentrated, and that it expects a significant share of its revenue to continue coming from a small number of customers. The fiscal 2026 figures will appear in the forthcoming annual report.
A note on the price: the report was published after the close of trading. Monday's close preceded it and is not a reaction to it - the response will only be visible in Tuesday's session.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
This report is a clear case where the headline is true and the picture is more complicated than it.
The headline is entirely accurate: record revenue, above guidance for a fourth straight quarter, and annual growth of 36%. A company that adds $1.22 billion of revenue in a single year is doing something right, and guiding to 43% growth for the next quarter says management sees it continuing.
And what I read underneath that is three numbers.
The gross margin fell. 12.0% against 12.2%. In contract manufacturing that is not a shock - the model is a thin margin on large volume - but it says growth is buying volume rather than pricing power. A company growing 44% without widening its margin is a supplier, not a brand owner.
Net income leans on a one-off line. $57.4 million of other income against nil a year ago, and against it a tax charge of $60.5 million. The two items nearly offset each other - and that is precisely what makes this quarter hard to compare. Operating profit, $134.2 million, is the figure I prefer - it comes from the activity rather than from items below the line.
And free cash flow is $4.2 million. In a year when net income was $473 million. That is not a sign of trouble - it is the sign of a company in the middle of heavy investment, and that investment doubled this year. But it does mean accounting profit and cash went in opposite directions this year, and that is a distinction worth holding.
And what I would follow: the global minimum tax. Fabrinet is incorporated in the Caymans and manufactures in Thailand under a tax incentive, and that is exactly the structure Pillar Two was written for. The fact that the company added it this year to the exclusion list of its non-GAAP measures is a sign it expects this to recur, rather than being a single quarter's event.
(An important note: this is my personal opinion only, and nothing here is a recommendation to take any action.)
