Coherent Locks In Indium Phosphide Supply as Data-Center Demand Fuels 60% Growth Target

Coherent has moved to shore up the raw-material backbone of its optical networking buildout, signing a letter of intent for indium phosphide substrates worth at least $601 million in expected business volume, according to media reports. The agreement, inked on Friday, would supply the company's plants in Switzerland and Sweden from 2027 through 2029, centered on six-inch wafers.

The deal is not yet binding. It hinges on the partners finalizing a definitive supply contract and the supplier securing the necessary export license. Should that approval fail to materialize, the arrangement could go unfulfilled or be terminated, the reports said. Pricing and volume terms, meanwhile, remain subject to negotiation, with an option to extend the collaboration if the two sides reach agreement.

Capacity Already Doubled Ahead of Schedule

The supply move lands as Coherent pushes hard into optical connectivity for AI data centers. Management says it has already doubled its six-inch indium phosphide capacity year over year, hitting that milestone a quarter earlier than planned. Substrates needed to double capacity again by the end of 2027 are already secured, according to the company.

That expansion rests on demand that has become heavily concentrated in data centers and communications — a tailwind for the optical buildout, but also a source of dependence on the capital-spending decisions of a handful of large customers. How quickly Coherent converts the letter of intent into firm orders, wins customer qualification for its products, and ramps production will determine whether the growth story holds.

First-Quarter Beat Sets the Tone

The fiscal 2027 opening quarter underscored the momentum. Coherent posted revenue of $2.37 billion, up 49.9% from a year earlier and ahead of expectations. Data center and communications revenue climbed 79% year over year to $1.95 billion, accounting for 82% of group sales.

Non-GAAP diluted earnings per share came in at $2.09.

The heavy buildout carries a cost. Capital expenditures of $776 million in the quarter left operating cash flow at negative $93 million and free cash flow at minus $868 million — a reminder that the expansion is consuming liquidity even as demand accelerates.

Guidance Raised, With a 2028 Backlog

On the strength of that quarter, Coherent lifted its outlook: pro-forma revenue growth of more than 60% is now expected for fiscal 2027, and the order book already stretches into calendar 2028, according to the company.

For the second quarter of fiscal 2027, management guided revenue to a range of $2.55 billion to $2.75 billion, with non-GAAP diluted EPS of $2.28 to $2.48 — both above the levels just reported. That forecast now becomes the near-term yardstick for the raised annual target.

Analysts Weigh In

Citi raised its price target to $440 from $420 on Friday while keeping a Buy rating, lifting its mark after the quarterly results. Northland, for its part, pointed to the strategic value of photonics capabilities that Marvell Technology's proposed acquisition of Lumentum brings into focus. The firm had upgraded Coherent from market perform to outperform on November 2, holding its $280 price target.

With a higher growth outlook, fresh analyst support and a long-term materials agreement in the works, the next quarterly report — and the fine print of the substrate contract — will show whether Coherent can deliver on the targets it has set.