Live: Why Coherent (COHR) Dropped 17% After Q4 Earnings

Here’s a summary of every question Wall Street asked and management’s response:

1) Can the data-center business keep growing fast next year?

• Why investors asked: Hyperscale cloud companies are increasing capital spending, so the street wants to know if Coherent can keep pace.

• Management’s answer: Demand outlook is “very strong.” They expect data center and communications to grow again sequentially in the current quarter. Growth drivers are 800-gigabit transceivers rising through 2025–2026, 1.6-terabit transceivers ramping on top of that, the optical circuit switch moving from first revenue toward scale, and continued strength in data-center-interconnect.

2) What is special about the new six-inch indium-phosphide line and U.S. manufacturing?

• Why investors asked: Capacity and cost determine how much share Coherent can win in next-gen optics; U.S. production can be a strategic advantage amid tariffs and supply risk.

• Management’s answer: The six-inch line began production in August and should deliver higher volume at lower cost. Coherent emphasizes a broad U.S. footprint (20+ sites, 13 states) as a differentiator for large customers; the Apple laser agreement is cited as proof of that value. Apple revenue should start in 2H26.

3) Which pieces are down sequentially in Q1 guidance, and why?

• Why investors asked: To reconcile total guidance and identify any soft spots.

• Management’s answer: Data center and communications should be up sequentially. Industrial is likely flat to down near-term (even excluding the ~$20M Aerospace & Defense step-down) due to macro uncertainty and tariff noise. Long-term, management still expects industrial to grow, aided by recurring service revenue.

4) How healthy is the optical-circuit-switch pipeline, and what is the edge versus mechanical switches?

• Why investors asked: This is a new product in a potentially large market; investors want adoption proof.

• Management’s answer: Pipeline is “very healthy.” The switch uses non-mechanical digital liquid-crystal technology (not moving parts) which offers much higher reliability—critical in artificial-intelligence data centers. Capacity is being added to support the ramp.

5) What does the Apple deal really mean for revenue certainty and margins?

• Why investors asked: Coherent’s Apple exposure fell a few years back; investors want clarity on durability and profitability now.

• Management’s answer: It is a multi-year expansion for a new generation of lasers used in iPhone and iPad, manufactured in Texas. Revenue begins 2H26. Management expects the arrangement to benefit gross margin and provide solid plant utilization.

6) Why did sequential growth in data center/communications moderate versus some peers?

• Why investors asked: To assess relative share and trajectory as artificial-intelligence builds accelerate.

• Management’s answer: Quarter-to-quarter lumpiness is normal (timing of orders, supply, transitions from 400-gigabit to 800-gigabit). Over FY25 the business grew more than 60% and management believes they gained share, with strong demand ahead from 800-gigabit, 1.6-terabit, the optical circuit switch, and data-center-interconnect.

7) Can foreign-exchange headwinds derail margin progress, and can Coherent reach a 40-plus percent gross margin?

• Why investors asked: Q4 gross margin dipped sequentially on currency; the long-term model targets above 42%.

• Management’s answer: The Q4 dip was mainly foreign exchange; cost reductions and price optimization were strong. Without the currency hit, Q4 would have exceeded the top end of guidance. Management is confident in the >42% long-term margin target.

8) Any geographic or customer-mix risks inside industrial lasers?

• Why investors asked: To gauge near-term volatility.

• Management’s answer: No unusual concentration. The caution is macro-driven, not customer-specific. In FY25, service contracts (recurring) grew faster than product sales, which is a margin tailwind. Near-term cautious; long-term constructive.

9) How strong is demand in data-center-interconnect, and what is driving it—training or inference?

• Why investors asked: Inter-data-center traffic is exploding as artificial-intelligence clusters spread.

• Management’s answer: Very strong—especially for coherent 100/400/800-gigabit transceivers. Demand is mostly driven by traffic spanning multiple data centers, not just within one facility.

10) Will Chinese optical makers pressure prices and share as speeds move to 800-gigabit and 1.6-terabit?

• Why investors asked: Rising Chinese competitors can compress margins and take share.

• Management’s answer: Coherent believes it gained share in FY25, particularly at higher speeds. The technology road map (800-gigabit now; three laser paths for 1.6-terabit; progress toward 3.2-terabit) and supply-chain resiliency (U.S. manufacturing plus internal indium-phosphide and laser capacity) are their defense. Pricing trends are as expected—no unusual pressure.

11) Will Coherent fully self-supply lasers as the six-inch line ramps?

• Why investors asked: Internal supply can protect margins and availability.

• Management’s answer: The company will continue a mix of internal and external sourcing. Over half of transceivers ship with electro-absorption modulated lasers, and over half of those lasers are internally made today.

12) Vietnam facility and silicon-carbide outlook?

• Why investors asked: To understand global capacity and a previously weak end market.

• Management’s answer: The Vietnam site supports materials businesses, including silicon carbide. Coherent exited pre-revenue devices/modules and is focusing on wafers and epitaxy. After a weak FY25, demand has stabilized; no FY26 headwind expected.

Coherent’s call is over and we’ll post an update shortly with our notes. Simply leave this live blog open and the update should appear automatically.

Coherent’s call is nearly finished, shares are still down about 17% as of 6 p.m. ET.

We’ll post our notes shortly from the call, but it is worth noting that nothing that was said materially changed the company’s share price.

That’s different than Cisco, which saw shares rally during the company’s conference call.

Here’s what Coherent CEO James Anderson had to say about the company’s ability to withstand tariffs on the company’s earnings call:

Over the past months, you’ve heard me stress the importance of Coherent’s dynamic, flexible global manufacturing footprint as a competitive advantage and a hedge against geopolitical risks. Our U.S. footprint is a key part of that strategy. Coherent has a long industry of advanced manufacturing in the United States, leading U.S. manufacturing innovation since our founding more than 50 years ago, beginning with the company’s first manufacturing site in Saxonburg, Pennsylvania, which remains our company headquarters.

Today, our U.S. manufacturing footprint extends across more than a 8 U.S. manufacturing locates in 13 states. Across those U.S. manufacturing locations, we employ thousands of people. These sites lead the industry in technical innovation, manufacturing, and we continue to invest in our U.S. manufacturing footprint.

We’ve included Coherent in our $500,000 AI Portfolio at 24/7 Wall St. and are positive long-term on the company. So let’s look at this quarter from the bull/bear framework.

Bullish!

• Revenue guidance came in light but EPS fro next quarter at the midpoint matched Wall Street’s expectations.
• The company is beginning its 1.6T module ramp, which should be a large revenue driver in 2026.
• Coherent emphasized gross margin expansion during the year, they’re clearly focusing on their opportunities in the AI space in an outsized way.

Bearish!

• The company had run up 121% since April 21st. If a stock runs that fast and issues disappointing guidance, it’s going to fall almost 100% of the time.
• While Coherent’s networking business is doing great, its laser business continues to post middling results. The materials business is also seeing significant revenue declines.

Coherent’s conference call starts at 5 p.m., we’ll listen in and post notes.

Shares are currently down 19%.

One interesting note is that guidance excludes $20 million for assets being sold off. You wonder if that revenue was included whether the reaction after hours would have been this severe.

In their release Coherent highlighted:

• First Revenue from 1.6T Datacom Transceivers. Commenced revenue shipments of our 1.6T transceiver products, enabling high-performance AI datacenter applications.

The growth of 800g and 1.6T modules is part of the bull case for Coherent so its encouraging to see revenue beginning to flow from these products. We’d expect more commentary on this during the company’s earnings call.

Jim Anderson, CEO, said, “We delivered a strong fiscal 2025 with revenue growth of 23% and non-GAAP EPS expansion of 191%. We believe we are well positioned to continue to drive strong revenue and profit growth over the long-term given our exposure to key growth drivers such as AI datacenters. We also continue to optimize and focus our portfolio with the recently announced agreement to sell our Aerospace and Defense business. As we enter a new fiscal year, we are excited about the growth opportunities ahead of us.”

COHR | Coherent Corp. Q4’25 Earnings Highlights:

• Adj. EPS: $1.00 [✅]; UP +96% YoY
• Revenue: $1.53B (Est. $1.51B) [✅]; UP +16.4% YoY
• Adj. Gross Margin: 38.1% [✅]; UP +220 bps YoY
• Net Income: $0.19B [✅]; UP +73.6% YoY
• GAAP Loss Per Share: $(0.83)
• Operating Income: $0.28B (Est. $0.28B) [✅]; UP +35.8% YoY

Q4’25 Outlook:

• Revenue: $1.46B to $1.60B [➖]
  • Excludes approximately $20 million in Aerospace and Defense revenue expected after the sale closes.
  • Continued focus on AI datacenters and other growth drivers.

Q4 Segment Performance:

• Networking Revenue: $0.95B (Est. $0.95B) [✅]; UP +39% YoY
• Materials Revenue: $0.24B (Est. $0.24B) [✅]; DOWN -15.5% YoY
• Lasers Revenue: $0.35B (Est. $0.35B) [✅]; UP +8.5% YoY

Other Key Q4 Metrics:

• Adj. Operating Income: $0.28B (Est. $0.28B) [✅]; UP +35.8% YoY
• Adj. Operating Expenses: $0.31B [➖]; UP +14.2% YoY
• R&D Expenses: $0.16B [➖]; UP +23.0% YoY
• Free Cash Flow: $0.63B; UP +16.1% YoY
• Effective Tax Rate: 36.9% (vs. 11.1% YoY)
• Debt Repayment: Approximately $437 million repaid in FY25.

CEO Commentary:

• Jim Anderson: “We delivered a strong fiscal 2025 with revenue growth of 23% and non-GAAP EPS expansion of 191%. We believe we are well positioned to continue to drive strong revenue and profit growth over the long-term given our exposure to key growth drivers such as AI datacenters. We also continue to optimize and focus our portfolio with the recently announced agreement to sell our Aerospace and Defense business. As we enter a new fiscal year, we are excited about the growth opportunities ahead of us.”

CFO Commentary:

• Sherri Luther: “In fiscal 2025, in addition to strong revenue growth, we achieved gross margin expansion of 358 basis points on a year-over-year basis. Revenue growth and margin expansion drove improvement in our operating cash flow, which enabled us to repay approximately $437 million of our outstanding debt for the full fiscal year.”

Coherent shares have bounced slightly off the bottom but are trading down about 16% as of 4:28 p.m. ET. It looks like the company is about to give up a sizable percent of its recent gains.

If you own Coherent you’re probably wondering why shares are dropping.

The company beat revenue expectations last quarter ($1.53 billion) and EPS expectations ($1 in adjusted EPS vs. $.92 of expectations).

The problem is the revenue guid for next quarter is $1.46 billion to $1.60 billion, at the midpoint that’s lower than Wall Street expectations of $1.55 billion.

When a stock has run up as much as Coherent has, even a ‘small’ miss on guidance like this is usually punished severely.

Guidance is below expectations and shares are down 15% after hours.

Coherent will report after the bell today. We expect their earnings should hit newsires at about 4:15 p.m. ET.

As a reminder, new updates will post on this live earnings blog automatically. You don’t have to do anything except leave this page open.

Here’s where Wall Street consensus stands headed into earnings:

Q4 FY2025 Consensus Estimates:

• Revenue: $1.51 billion
• EPS (Normalized): $0.92

Full-Year FY2025 Estimates:

• Revenue: $5.79 billion
• EPS: $3.50

With Coherent shares having seen a strong run, they’ll likely need to top these numbers by a decent margin for shares to rise tomorrow.

Free Access to Our $500,000 AI Portfolio

One more note before Coherent reports. We’ve added the company to the $500,000 Portfolio we manage for free as part of our AI Investor Podcast.

If you’re looking for the best AI investing ideas that are seeing sales boom alongside Coherent, you’ll want to catch our latest episodes. We’ve embdedded a recent episode below, you can listen in to recent news about the AI space and also subscribe if you’d like to get alerts for future episodes in the future.

Consensus Rating:

• 19 analysts
• 11 Buy | 5 Hold | 3 Strong Buy
• Net rating: Buy

Price Targets:

• Average: $105.06
• High: $127.00 | Low: $77.00
• Current Price: $118.25
• Implied downside to average PT: –12.5%

Despite outperforming targets, analysts remain cautious on valuation — with Coherent trading above its consensus price, execution and outlook must remain strong to support the multiple.

Earnings History

After two quarters of strong upside reactions, COHR has developed breakout momentum, particularly when EPS surprise exceeds 20%+.