Damo Dianping Coherent (COHR.US) Q1 Earnings Report: Imperfect but “sufficient”; the $20 billion long-term agreement is the real highlight

The Zhitong Finance App learned that on November 5, Morgan Stanley published a review on the first quarter report of optical device manufacturer Coherent (COHR.US) for the 2027 fiscal year, maintaining a “in sync with the market” rating and a target price of $325. The research report pointed out that revenue and profit for a single quarter exceeded expectations, and for the first time, an NPO (Near Package Optics) long-term agreement with a potential size of 20 billion US dollars was clarified for the first time starting in 2028; however, gross margin continued to rise more slowly than peers, and real profit margin flexibility would not be until 2028. Damo also sharply raised its profit forecast for FY2027 to FY2029.

The performance itself: “Not a perfect score, but enough to surprise the judges”

CoherentFQ1's revenue was $2.37 billion, higher than the forecast of $2.32 billion; non-GAAP gross margin of 40.6% and earnings per share of $2.09 were better than expected. AI is still the main engine: revenue in the data center and communications sector increased 79% year over year, accounting for 82% of total revenue, and data center interconnection (DCI) revenue exceeded 200 million US dollars in a single quarter. Management expects FY2027's revenue growth rate to exceed 60%, and FY2028 to reach the $4 billion mark in a single quarter. Since the stock price has been drastically adjusted in the past week, and the increase during the year has basically returned to zero, Damo believes that the negative position will be released early, and the stock price reaction is expected to be lackluster after the earnings report.

The biggest incremental message: a potential $20 billion long-term agreement

The real highlight of the research report is the visibility of orders in 2028 and beyond: the new NPO long-term agreement (LTA) mentioned earlier has now been quantified — starting in the 2028 calendar year, for a period of five years, with a potential scale of 20 billion US dollars. The company currently has more than 10 CPO (co-packaged optics) projects, more than 10 NPO projects, and more than 5 inter-chip interconnection projects; scale-out CPO revenue is expected to exceed 100 million US dollars in FQ3 and 250 million US dollars by the end of 2027. As to whether the 400 milliwatt CW laser, which is being debated in the market, can enter Nvidia's complete machine plan — the certification has not been officially confirmed. The company insisted that the relevant revenue will be realized from 2027, but Damo did not include it in definitive logic.

Gross profit margin: investors' “heart disease”, management's “forward checks”

Gross margin climbed slower than peers, which is where Coherent was criticized the most. Management issues a “forward check”: Achieve a gross profit margin of over 45% by 2028 calendar year. Damo clearly distinguishes the caliber: most of the improvements will fall in 2028 and will be released along with the CPO. On the supply chain side, progress exceeded expectations — indium phosphide (InP) production capacity doubled year-on-year in the first quarter, one quarter ahead of schedule. Based on this, Daima raised the FY2027/2028/2029 earnings forecast to 10.07/15.19/18.98 US dollars (+9%/+14%/+13%), and the FY2028 forecast has nearly doubled during the year.