Fabrinet (NYSE: FN) Q2 2026 Earnings Call dated Feb. 02, 2026
Corporate Participants:
Garo Toomajanian — Corporate & Investor Relations
Seamus Grady — Chairman & Chief Executive Officer
Csaba Sverha — Chief Financial Officer
Analysts:
Unidentified Participant
Samik Chatterjee — Analyst
Carl Ackerman with BNP Paribas. — Analyst
Stephen Fox with Fox Advisors. — Analyst
Michael Genovese — Analyst
Tim Savageaux — Analyst
Presentation:
operator
Good afternoon. Welcome to Fabrinet’s financial results conference call for the second quarter of fiscal year 2026. At this time, all participants are in a listen only mode. Later we will conduct a question and answer session and instructions on how to participate will be provided at that time. As a reminder, today’s call is being recorded. I would now like to turn the call over to your host, Garo Tumajanian, VP of Investor Relations. Please go ahead.
Garo Toomajanian — Corporate & 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 second quarter of fiscal year 2026 which ended December 26, 2025. With me on the call today are Seamus Grady, Chairman and Chief Executive Officer and Chaves Vera, Chief Financial Officer. This call is being webcast and a replay will be available on the Investors section of our website located@investor.fabrinet.com during this call we will present both GAAP and non GAAP financial measures. Please refer to the Investors section of our website for important information including our earnings press release and investor presentation which include our GAAP to non GAAP reconciliation as well as additional details of our revenue breakdown.
In addition, 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 opinions 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 10Q filed on November 4, 2025.
We will begin the call with remarks from Seamus and Chaba, followed by time for questions. I would now like to turn the call over to Fabrinet’s Chairman and CEO Seamus Raedy.
Seamus Grady — Chairman & Chief Executive Officer
Seamus thank you Garo Good afternoon everyone and thanks for joining our call. Today we had an excellent second quarter revenue and earnings significantly exceeded our guidance ranges with multiple large key strategic programs across our business, all contributing to our strong performance. Second quarter revenue was $1.13 billion, a new record for the company which represented growth of 36% from a year ago and is the fastest year over year growth we’ve achieved since our IPO over 15 years ago. Our remarkable top line performance also represents 16% growth from the prior quarter. Non GAAP EPS also set a new record at $3.36 per share, exceeding our guidance range despite stronger FX headwinds in the quarter.
Looking at our performance in greater detail, optical communications revenue grew 29% from a year ago and 11% from the prior quarter. Telecom revenue reached a new record, increasing 59% from last year, 17% from Q1. Within telecom, DCI revenue grew 42% from a year ago and 3% from Q1 as strong longer term growth trends remain firmly intact. Datacom revenue grew 2% sequentially while the year over year decline narrowed to 7% as demand continues to strengthen. In non optical communications, we delivered a very strong performance with revenue surging 61% from a year ago and up 30% from last quarter as high performance computing revenue soared to $86 million in the quarter.
We expect this strong sequential growth to continue in the near term, particularly as our second and third fully automated production lines get qualified Automotive revenue grew 12% from a year ago but was down slightly from Q1 as anticipated, while industrial later revenue demonstrated respectable growth of 10% from a year ago and 4% from last quarter. We are confident that the same growth drivers that contributed to our success in Q2 will extend into Q3. This includes growth in all major areas of our business with the possible exception of automotive. We are experiencing sustained telecom demand including strong DCI module growth, ongoing Datacom momentum and continued growth in HPC as our business ramps.
In addition, we continue to aggressively pursue new opportunities across all areas of our business. As our business scales, we remain focused on execution as well as strategic capacity expansion. Construction of Building 10, which will be a 2 million square foot facility, is still on track for completion at the end of calendar 2026. We are making progress on completing about 250,000 square feet of that by the middle of the calendar year. At the same time, we are creating additional manufacturing space at our Pinehurst campus by converting office space into manufacturing space and relocating those offices into a new building on that campus.
With this capacity expansion, we are well prepared to continue supporting our anticipated growth in 2026 and beyond. In summary, we delivered an impressive second quarter performance with numerous significant customer programs contributing to our outstanding results. We are well positioned to extend our track record of profitable growth and to meet the increasing level of demand we are experiencing in the third quarter and beyond. I’ll now turn the call over to CHABA for more financial details on our second quarter results and our outlook for the third quarter. CIABA.
Csaba Sverha — Chief Financial Officer
Thank you Seamus and good afternoon everyone. We are extremely pleased with our performance in the second quarter of fiscal year 2026, revenue exceeded our guidance range reaching a record $1.13 billion, up 36% from a year ago and 16% from Q1. Strong execution produced non GAAP EPS that also exceeded our guidance range at $3.36, which includes the negative impact of a $3 million or $0.09 per share FX revaluation loss. Turning to revenue performance by Market in the second quarter, optical communications revenue was $833 million, up a strong 29% from a year ago and 11% from Q1.
Within optical communications, telecom revenue grew to a record $554 million, surging 59% from a year ago and 17% from Q1. Within telecom, revenue from Data Center, Interconnect or DCI modules was $142 million. DCI module revenue delivered another strong year over year, performance increasing 42% and grew 3% from the first quarter. Datacom revenue was $278 million while revenue declined 7% year over year. It increased 2% sequentially and trends appear favorable for continued sequential growth. Turning to non optical communications, revenue in this category was $300 million, up a sharp 61% from a year ago and 30% from Q1.
This exceptional growth was primarily driven by high Performance Computing products which contributed $86 million to revenue in the quarter compared with $15 million in Q1, the first quarter in which we broke out this category. We are confident that our first HPC program will continue to grow rapidly and is on track to be fully ramped. Over the next two quarters. Automotive revenue of $117 million was up 12% from a year ago but was slightly down sequentially as anticipated. Industrial laser revenue grew 10% year over year and increased 4% sequentially, contributing $41 million to the non optical communications category. As I discussed, the details of our P and L, all expense and profitability metrics will be presented on a non GAAP basis unless otherwise noted. Gross margin in the second quarter was 12.4%, a 10 basis point improvement from Q1 and consistent with a year ago despite foreign exchange headwinds. At the same time, a modest increase in operating expenses combined with strong top line growth continued to drive operating leverage.
Operating margin reached 10.9% in second quarter, up 30 basis points from both Q1. And a year ago. Interest income was $9 million and was partially offset by a $3 million foreign exchange evaluation loss. The effective GAAP tax rate for the quarter was 5.9%. As a result, net income was $122 million or $3.36 per diluted share. Turning to our balance sheet, we ended the second quarter with cash and short term investments of $961 million, down $7 million from the end of Q1. Operating cash flow for the quarter was $46 billion. Capital expenditures of $52 million continued to run above maintenance capex levels, reflecting construction of Building 10 and capacity enhancements at our Pinehurst campus.
As a result, free cash flow was an outflow of $5 million for the quarter. Turning to our share repurchase program, during the second quarter we repurchased just over 12,000 shares at an average price of $387 per share for a total cash outlay of $5 million. At the end of the second quarter, $169 million remained available under the program. Turning to our Q3 guidance, we are confident that the very strong growth trends we have been seeing across our business will continue in the third quarter. We expect revenue to grow sequentially in telecom, Datacom and hpc, while anticipating another modest sequential decline in automotive revenue.
We expect total revenue to be in the range of 1.15 and $1.2 billion, representing approximately 35% year over year growth at the midpoint. While we anticipate that FX headwinds will persist in Q3, we expect to offset of that pressure through continued strong operating leverage. As a result, we expect non GAAP EPS to be in the range of $3.45 to $3.60, representing approximately 40% year over year growth at the midpoint. In summary, we delivered an excellent second quarter with strong momentum across multiple areas of our business. We are well positioned to extend our track record of success into the third quarter.
Operator, we are now ready to open. The call for questions and thank you so much.
Questions and Answers:
operator
And as a reminder to ask a question, simply press Star one one to get in the queue and wait for your name announced. To withdraw yourself, press Star one one again. One moment for our first question. It comes from Samik Chatterjee with JP Morgan. Please go ahead.
Samik Chatterjee
Hi, thanks for taking my questions. And maybe Seamus, starting with you, you had a pretty strong ramp with the HPC customer, but maybe if you can sort of share your thoughts in terms of where you are with the ramp with that customer. Particularly, I think you talked about a second and third production line. I mean, what does the fully ramped volume look like relative to the 80 million plus sort of level you did this quarter? Are you sort of halfway relative to the full ramp or are you sort of only 1/3 in because you are adding two more production lines.
If you can just share your thoughts in terms of what the full ramp looks like and when to expect that full ramp. Kind of a follow up. Thank you.
Seamus Grady
Hi Sunik. Thank you. Yes, we’re about halfway. I would say maybe a little bit more than halfway. We expect the revenue from our current HPC program to be north of about 150 million when it’s fully ramped. We’re currently running on two fully automated production lines. We had one line, we got a second production line qualified and we’re in the process of qualifying additional lines. Once, you know, once we’re able to achieve that and get the lines around, we’ll be well on our way to that run rate again, which we expect to achieve over the next couple of quarters.
After that, we believe there’s a couple of growth paths for us in hpc given our one stop shop kind of value proposition and competitive cost structure. We’re pursuing other HPC customers of course, as our relationship with AWS is not exclusive, but the timelines for these can be fairly long. Meanwhile, if we can exceed our initial customer, if we can exceed their expectations for cost, quality and deliveries, we may be able to earn a larger piece of our current program because we’re currently a second source in that program. So, you know, no matter how you look at it, we’re very excited to see our high performance computing business rapidly becoming a pretty meaningful revenue and growth driver.
Samik Chatterjee
Got it. Okay. And then maybe I wanted to ask you on a couple of opportunities as well. I mean, one of your big customers is now closer to commercializing CPO in more large volume. So any more clarity that you have on that front as to what your role in co packaged optics is going to be and what maybe the content opportunity on that front is going to be, and there’s a lot of excitement in the optical space around OCS products as well. Optical circuit switches, do you see that as an incremental opportunity? Any customer engagement on that front as well? Thank you.
Thanks for taking the question.
Seamus Grady
No problem. Yeah, so we, for us, you know, co packaged optics, it’s really an evolution from silicon photonics and the precision photonics packaging capabilities we’ve developed over many years. You know, we have and will continue to invest heavily and working closely with our customers to align our capabilities with their roadmaps. For many, for many years, you know, co package optics has been just on the horizon. But for now, right now it’s much more real than it’s ever been and we’re in an Excellent position to benefit from that. We believe we’re far ahead of most of our competitors in the space in making this technology a reality.
And we’re already seeing some CPO revenue although the amounts are relatively small. Right now we’re working on co package optics programs with three different customers. It’s not just one customer, Sonic, it’s actually three different customers. The specific timings on when the revenue would become more material depends on our customers roadmaps and schedules. But we’re very excited about cpo. Again we don’t really want to speak on our customers behalf but rest assured we’re quite excited and we have several products that we’re working on our projects with our customers. As with other customers we’d expect to see the impact in line with or slightly ahead of our customers production schedule on optical circuit switching.
We are engaged on a number of fronts and again it’s a product, you know, completely new product category. We’re quite excited about it and looking forward, you know, nothing again nothing to announce but really will depend on our customers ramp schedules. But we are working on a couple of projects on in that space and we are quite excited about OCS as a technology. We think it has a, you know, a significant role to play in the future.
Samik Chatterjee
Great, thank you. Thanks for taking my questions.
Seamus Grady
Thank you so much.
operator
Thank you. Our next question is from Carl Ackerman with BNP Paribas. Please proceed.
Carl Ackerman with BNP Paribas.
Yes, good afternoon gentlemen. Two questions for me please. First off, do you remain supply constrained on datacom transceivers? Because I would have thought that you. Might see maybe improving data comm mix as laser capacity comes online. I guess as you address that question, could you speak to the growth opportunities you see within that segment across hyperscale. And across merchant transceiver OEMs? Any update on that would be helpful. Another follow up please.
Seamus Grady
Thanks Carlos. So yeah, we have been as you say, supply constrained in our Datacom, particularly on the leading Edge products at 200 gig per lane, both 800 gig and 1.6. Demand continues to outstrip supply and we continue to ship significant volumes to our main customer. But of course we could ship more if we had more components. We did get approval for a second source for the EML for the laser which has been the main cause of the supply constraint. So we were able to get a second source. Our customer was able to approve a second source for the laser during the quarter and that should benefit us this quarter and in future quarters.
So we are making good progress there. We’ve always felt that that supply Constraint will resolve itself and we’re starting to see that those that resolution come through. Now the mix between 800 gig and 1.6, you know, at that 200 gig per lane node, it’s really not that relevant to us. We don’t mind which the customer orders. We’re happy to ship what they need from us. So again, good progress and we’re making good progress there. As regards other potential growth drivers in the Datacom space, again we have several projects that we’re working on both with Hyperscale Direct and with other potential product companies who need our services.
So several projects that we’re working on. Again nothing to announce yet but several that we’re working on. Again both Hyperscale Direct and other let’s say merchant transceiver manufacturers.
Carl Ackerman with BNP Paribas.
Got it. Very helpful. Perhaps. If I could talk about telecom for a moment. Over the $80 million sequential increase, was that evenly split between Satcom and the core telecom or optical line system business? Just trying to get a relative mix of the Satcom business there. And then as you address that, do you believe that your Satcom business opportunity could be similar to your high performance computing opportunity over time? Thank you.
Seamus Grady
Yeah, I mean our, as you call it, the satellite communications business has been, has been growing steadily for us. It’s been a meaningful contributor for a while. We haven’t really broken it out separately. You know, a lot of the growth in the quarter was more focused on the dci. I think, you know, DCI has been very strong for us. We have a number of customers there and really mostly 400cr and 800 cross modules. That business has been growing very nicely for us. So you know, again we’re very optimistic I would say about telecom generally both from, from a satellite communications point of view and the DCI point of view and also, you know, complete network systems.
Our network system business continue to grow as well. So really solid growth I think on all fronts in our, in our telecom business.
Carl Ackerman with BNP Paribas.
Thank you.
Seamus Grady
Thank you. Her.
operator
Thank you so much. Our next question comes from the line of Christopher Rowland with Sutsquehanna. Please proceed.
Unidentified Participant
Hi guys. Thanks so much for the question. I guess my first one is around CPO switches as opposed to scale up. Are you hearing about increased desire for CPO switches? Is this perhaps upsideing your capacity plans and just generally your outlook for CPO switches versus the typical transceiver setup? How do you think this might move over time?
Seamus Grady
Yeah, I mean we’re involved in the cpo, let’s say supply chain. We’re in the ecosystem there. We haven’t actually talked about exactly what we are doing but certainly CPO switches and a number of the products that our customers are working on, you know, are very exciting for us. We haven’t really, like I said, we haven’t really talked about the switch, the CPO switch opportunities in detail. But yeah, certainly something we’re excited about. But I really wouldn’t want to go much, much deeper than that at this point. Christopher
Unidentified Participant
understood perhaps as a follow up DCI seemed a little bit disappointing versus at least our model and then non DCI under telecom had some upside. If you could perhaps address at least the DCI portion. What’s going on there? Is that also laser and supply based or is that a pure demand dynamic?
Seamus Grady
No, the demand remains very strong. We continue to see great momentum in our DCI module business. We grew 59% year over year and we have all of the market leading customers in the space and we do believe the long term demand is durable and as we work with the customers on the next generation 800ZR products which are yet to ramp, like any leading edge leading technology products, there’s always going to be constraints here and there. So you know, with new products and leading technology products it’s not always straightforward. You know, all the components have to line up, the designs have to work, everything has to go perfectly but the demand remains very strong.
Telecom revenue growth was particularly strong as we started to ramp Sienna’s new system program as well as other new program wins that we’re particularly excited about. But we’re still in the early, specifically on dci. You know, we broke out our DCI revenue. We talked, we want to be clear that in reporting our DCI revenue it’s for coherent telecom modules that we have, we have high confidence they’re being used in Datacom Interconnect, sorry data center interconnect applications. And These include both 400 and 800 ZR modules and their variants as well as some embedded coherent line card modules as well.
So our DCI revenue does not include telecom systems. That’s our pure DCI coherence module business. But overall I think we’re, you know, we’re, we remain very optimistic about dci. There will always be puts and takes, it won’t always grow in a straight line. Especially again as I say, when you’re dealing with leading edge products there’s always going to be challenges here and there but nothing we’re concerned about. The demand remains very robust.
Unidentified Participant
Thanks Seamus.
Seamus Grady
Thank you Christopher.
operator
Thank you. Our next question comes from the line of George Noder with Wolf Research. Please proceed.
Unidentified Participant
Hi guys. Thanks very much. I just wanted to kind of lean in on new customer opportunities on the telecom side of the business. I think you’re kind of suggesting that you’re working with other customers. Are these like OEM customers that are in the marketplace and shifting existing business from other manufacturers to Fabrinet or are these new product categories? I guess I’m just trying to understand what you guys are looking at in terms of new opportunity. And I noticed from Nokia’s earnings call they talked about expanding their optical manufacturing capacity. I’m just wondering if you guys are involved in that.
Thanks a lot.
Seamus Grady
Yeah, I think we’re very excited about obviously not just the strength in the business but also the new opportunities. It’s a really good pipeline we have that we’re looking at that’s in front of us. And we’re always pursuing new opportunities, both with potential new customers as well as existing customers. The kinds of opportunities that we’ve talked about and continue to pursue, things like the Datacom opportunities we’ve talked about, including producing transceivers directly for hyperscalers and also building transceivers for merchant vendors. On the telecom opportunities, it would include additional systems wins and further penetrating existing customers and also new customers or maybe new to Fibernet customers.
So we’ve had some success. We think we have a winning formula where we’re able to deliver, we believe superior technology, excellent delivery, quality, responsiveness at a lower cost because we don’t margin stack. And we also don’t have our own products, which is very important to our customers. We’re a pure contract manufacturer. We don’t have any of our own products. That’s actually a positive for many of our customers. They don’t want us to have our own products. So overall we have several new opportunities there that we’re pursuing, George, including existing, existing customers and some new customers that we’re trying to win.
They take time though. These things always take time. And we also have additional high performance compute customers that we’re pursuing and additional cpo. So several, several growth drivers that we’re working on right now.
Unidentified Participant
Great. And then you mentioned potential transceiver designs for hyperscalers and other merchant vendors. I guess at one point I kind of thought that was maybe a number of quarters away. But I’m just curious, like programs like that, assuming you guys have success, is that a quarter away, multiple quarters away, multiple years away, like, what do you. Think the timeline would look like? Thanks.
Seamus Grady
I would say, you know, we’re quarters away. I don’t think it’s years away. I think it’s quarters away. We’ve been working on it for well over a year, probably 18 months at this stage. And we’re so, we’re, I would say quarters away rather than years away, George, from that turning into meaningful revenue.
Unidentified Participant
Super. Thanks very much.
Seamus Grady
Thank you.
operator
One moment for our next question, it comes from the line of Stephen Fox with Fox Advisors. Please proceed.
Stephen Fox with Fox Advisors.
Hi, good afternoon. I guess had two questions. First of all, on the hyperscale business, the ramp is obviously substantial. You mentioned that maybe improving from a second source position was possible. From the outside looking in, it looks like it’s ramping very well. Like you don’t see any sort of holes in margins or anything like that. Can you just give a little bit more color on your chances of doing that? And also I thought there was potentially a second program with that customer that was going to ramp. Can you just comment on that as well? And then I had a follow up.
Seamus Grady
Yeah, so I think the second question first. So the second program, there’s multiple programs. I mean, there’s no programs excluded from what we’re working on. We’re working on current products and also new products. So we are ramping multiple products. You know our chances of growing the business further. Like I said in my previous answer, we have two lines, two production lines fully qualified, additional lines being qualified. We’re a little bit more than halfway into the ramp to capacity on those production lines. But you know, we have ample capacity and we can, we can build more products.
Our chances of growing the business more than that level, you know, we’re reasonably confident, but we have to execute. It’s really a case of earning the business by doing an excellent job for the customer. Excellent job, excellent Delivery, Quality, Responsiveness, etc. At very competitive costs. So we’re, you know, we enjoy the competition. We, you know, the existing supplier is a very good supplier with a long relationship with the customer. But you know, we’re confident that we can continue to grow that business because the business is very strong and we’re performing very well. So both things we think are in our favor.
Stephen Fox with Fox Advisors.
Great, that’s helpful. And then just as a follow up, just on the dollar, bottom currency issue. So 9 cent drag in the quarter. You just reported any help on how the EPS drag looks this quarter versus. Maybe 90 days ago. Thanks very much.
Csaba Sverha
Hi Steve, this is Shela. Yes, indeed, the exchange rate environment has. Been unfavorable for the last several quarters. So we called out about $3 million drag in the last quarter and Below the line and also on gross margins, we have been seeing unfavorable headwinds. So based on our hedging programs that we have in place, we continue to expect about the same impact going into the third quarter from exchange rate perspective. Obviously, we are not forecasting anything on the revaluation below the line, but we do anticipate about 2030 basis point headwind in the gross margin. Nevertheless. Obviously we have been able to deliver slight improvement on gross margin, even last quarters as well as we drive continuous operating leverage. So we are hopeful that we will be able to offset most of the exchange rate headwinds in operating leverage by keeping our OPEX in check. And as we grow the top line, we should see continued operating leverage on operating income. But we don’t put any guides for exchange rate other than the color that based on the hedging program we have in place, we do anticipate similar headwinds in, in the gross margin as in the prior quarter.
Stephen Fox with Fox Advisors.
Great. That’s very helpful. Thank you.
Csaba Sverha
You’re welcome.
operator
Thank you. Our next question comes from the line of Mike Genovese with Rosenblatt Securities. Please proceed.
Michael Genovese
Great, thanks. And congrats on the record results. Maybe my first question is more of a comment, but I think if you counted that Sienna business, where that stuff was going in dci, you’d find the vast majority of your telecom growth was driven by DCI and that you had a huge sequential DCI quarter, but that’s just like kind of a segmenting thing. Any thoughts on that?
Seamus Grady
Yeah, I think that’s pretty accurate. You know, DCI has been very, very strong for us. The growth is not just dci, but it’s predominantly dci. It’s been very good and it continues to grow and the demand looks to be very, very durable. And it’s not just CNS across multiple customers.
Michael Genovese
Can you give any details on the data center side or data comm side? I mean, between the 801.6 mix, whether in terms of what the mix is or what the trends are, is one growing faster than the other? Anything you could tell us about that?
Seamus Grady
Not particularly. I mean, it’s predominantly 200 gig per lane. Almost all 200 gig per lane. 1.6 terabit and 800 gig, the exact mix between the two, we don’t really, you know, I won’t say we don’t care, but we don’t put a huge amount of thought into it because it really is a decision that our customer makes and that our customers. Customers make the exact, you know, Puts and takes as to why they, the customers would want 800 gig, 200 gig per lane versus 600, sorry, versus 1.6, 200 gig per lane. It’s not really something we’re involved in, but we’re producing, you know, everything we can with the components we have.
And the demand remains very robust. But the mix, again, the mix between 1.6 and 800 gig, we, we don’t, we don’t put too much emphasis on. Because it’s not, it’s not that important to us. They’re both produced on the same production line, very similar products.
Michael Genovese
I guess it’s just. Final question in Datacom, I mean, when you, you know, you understand you’re projecting sequential growth for this quarter, you usually don’t guide more than another. But would you continue, you know, more than one quarter of sequential growth and kind of how many in data come do, you know, do you have visibility to.
Seamus Grady
Well, you know, we have pretty good visibility. I would say our visibility right now, it’s certainly the, the furthest that I’ve, in my experience, I think we have more visibility now than we’ve ever had. Like you say, we guide one quarter at a time, but we’re very optimistic. You know, we’re adding capacity. As Chava mentioned in his remarks, we’re converting significant, you know, office space and warehousing space into manufacturing space at our Pinehurst campus. We’re accelerating the build out of our 2 million square foot building 10 in our Chonburi campus. We’ll have 250,000 square feet completed by the middle of the year, by June, and then the balance of that 2 million square feet will be ready by probably early 2026.
January, February, 2026. So, you know, and there’s other ways to expand the capacity that we’re looking at. We’ll probably talk about in our next earnings call. But there’s a number of activities we have underway that should help us to add additional capacity. So, you know, we’re pretty excited, Mich, about the demand we have in front of us. It’s a very exciting time, I’d say when you look at what’s going on with our customers and what they need from Fibernet, it’s a good place to be right now. We’re pretty excited about it.
Michael Genovese
Thanks very much. Appreciate it.
Seamus Grady
Thank you, Mike.
operator
Thank you. Our next question comes from Ryan Kunz with Medam. Please proceed.
Unidentified Participant
Great, thanks. Appreciate the updated milestones on Building 10, but you can share just a little more color about where you are in that process. You know, what Kind of shape facilities in. In terms of construction and where you are really in the procurement of all the materials you need, as well as, you know, customers to outfit the building and what that process looks like over the balance of 26. Thank you.
Seamus Grady
So we’re well underway. I was. I was there a few weeks ago. We’re well underway. The building is a. It’s a phenomenal building, and it will be. Will be a real showcase when it’s finished. You know, 2 million square feet. It’s a lot of. It’s a lot of factory. It’s a big factory. But we’re well underway. You know, we’ve had no, you know, no delays or anything like that. With the availability of the material to build factory. It’s going very, very well. And we’ll have about, like I say, about 250,000 square feet finished and ready to move into by the end of June.
So that’s well ahead of the completion schedule for the full factory. Then the balance of the factory will complete as we go throughout the year. And I think we’ll probably take possession of the balance of the factory in January, February of 2027. So it’s going very well. Customer demand to consume the factory again, we don’t ask our customers to make a hard commitment. We have to have capacity in place ahead of demand. That’s why we’re moving so fast with this. We see strong demand and strengthening demand from our customers. So we’ll put the factory up, then the customers.
We’re optimistic, I would say, Ryan, about our ability to fill the factory. When we built building eight, it was 550,000 square feet, and we filled it pretty quickly. Building nine was 1 million square feet, and that’s almost full. So, you know, we’re pretty optimistic about building 10. We also have room for building 11 and building 12 on the same campus. So lots of Runway in terms of capacity in front of us. Really helpful.
Unidentified Participant
Appreciate the color. Thank you.
Seamus Grady
No problem. Thank you, Ryan.
operator
Thank you. Our next question comes from Tim Savageaux with Northland Capital Markets. Please proceed.
Tim Savageaux
Hey, good afternoon. And congrats on the results for me as well.
Seamus Grady
Thank you, Tim.
Tim Savageaux
Couple questions first. Just, I guess, continuing on the capacity front. So as you look to add that 250,000 square feet, I guess, at this point where we’re standing right now, and I don’t know if this is a reference to transceivers being quarters away, or do you have an idea about where that capacity is going? I guess since it’s coming online pretty soon. Any color on you know, what drove that pull in and if there’s any particular projects that are driving that. And as a quick aside to that, still on capacity, I wonder if you might be able to size the kind of Pinehurst repurposing in the context of the 250k that you’re adding.
I assume it’s smaller, but anything you can give us there, it’s, you know, you look like you’re adding what, 300 million in annual revenue capacity plus Pinehurst. So just wondering if we have any. More visibility on where that’s going. Thanks.
Seamus Grady
Yeah. So I’ll let Chaba cover the Pinehurst capacity addition in a moment. Yeah, Chonburi, we’re, as you say, pulling in 250,000 square feet. That’s six, eight months ahead of the original schedule. There’s several customers, Tim, you know, we wouldn’t want to quantify them all here, but it’s really, you know, several. The several drivers. Again, our telecom business is very strong and it’s not just tci. It’s tci, but it’s not just tci. There’s also some additional new business and new customer wins that we’re working on in the telecom space. Datacom, it’s growth with our main customer, but also we’re confident in our ability to win other new Datacom customers, both merchant and also Hyperscale Direct.
Our business overall, Tim, is just very strong. The demand profile we have from our customers is very strong. And for us, it’s a relatively easy decision to add this capacity because the way we add this capacity, our balance sheet is very strong. As you know, we have a very strong balance sheet. We’re able to build these buildings and add this capacity with zero debt. So the downside risk for us is very small. As we build Building 10, you know, it will be, I don’t know, about 130 million of CapEx. Java can correct me if I’m wrong that, but $130 million of CapEx, it will add, you know, 2 million square feet and capacity for an additional depends on the mix.
But we said 2.5 in the past is probably a little bit north of that at the moment, given the mix that we’re looking at. So the upside, you know, opportunity is huge. It’s the, if you like, the operating profit that we can generate from that business. The downside risk is very small. The downside risk for us of building a factory that doesn’t get consumed as quickly as we’d like is probably 15 basis points, something like that on a full year basis. So 15 basis points gross margin headwind. So the downside risk is tiny because of the strong balance sheet we have.
The way we’re able to build these in a very efficient way with no debt, downside risk is very small. The upside opportunity is huge. So it’s a relatively easy decision for us to add this capacity coupled with that, you know, our roic is about 40%. So really the best return for us is to add capacity, fill that capacity, you know, with new business that’s able to generate, you know, outsize margins for our industry and also outsize returns. So it’s a relatively straightforward decision for us. Tim,
Tim Savageaux
great, thanks. If I could follow up. And you mentioned strength across the business demand wise. Sounds like that hasn’t really changed as you’ve gone through the quarter and into the new year here. But given where you’re guiding and the sharpness of that HPC ramp, while say you expect telecom to grow, it seems like only slightly on a sequential basis and relative to very strong results you just put up here in the quarter. And I guess first, am I reading that right? And second, do you attribute that to anything in particular? Seasonality of customers or anything else? If indeed I’m kind of working through the segments properly, thanks.
Seamus Grady
I’m sorry Tim, I didn’t understand the question. Are you interpreting what correctly? I missed the, I missed the question.
Tim Savageaux
Just your segment guidance. Basically I’m saying with HPC likely up another big chunk in the quarter, while you’re talking about telecom and Datacom growth, it seems like much slower sequential growth than you saw in December in terms of what you’re forecasting in March. Is that accurate and why would that be? I guess would be the question.
Seamus Grady
I think I’ll let Chad add a. Little bit of color. But I think our HPC growth, it’s not in a straight line because we are dealing with some new products, always grow, that the growth is a little bit lumpy, I would say. So HPC won’t necessarily grow in a straight line. It looks like a nice straight line, but really we only have two data points, two quarters of revenue and as everyone knows, two data points is not a trend. So we have to wait until we have a little bit more HPC experience under our belt and then maybe I’ll let Chaba talk about telecom and Datacom and also the, the question you had about the capacity additions in Pinehurst.
Csaba Sverha
So Tim, hi. So let me give you some pointers on the guidance. So as we mentioned, all the segments we anticipate to grow with the exception of Automotive. So HPC we had a nice bump of about $70 million sequentially last quarter. So that’s not going to grow in that space. But we do anticipate double digit growth in that area. Within Telecom, we anticipate that DCI is going to grow faster than we have seen in the past quarter. So that strength continues into our third quarter. And we also anticipate Datacom to grow. So that’s the color that we can provide at this stage. And Automotive will probably be down in a similar way as it has been in the prior quarter.
With regards to Pinehurst campus. To answer your prior question. So we are able to create about 120,000 square feet of space or convert offices and warehouse spaces to manufacturing space. A couple of years back we were able to acquire an adjacent piece of land which is in a zone that we are able to build office buildings on that land, but we are not. Able to put a factory. So we were able to convert some of the office and manufacturing space in the existing campus. So that adds up to about 120,000 square feet, which if you do the math, again it’s highly dependent on mix. That should give us over $150 million revenue upside opportunity. Again, this is subject to mix driven. So overall and again in terms of customer requirements for additional space, obviously Pinehurst is prime from that perspective because a lot of our legacy customers are there and they would like to have more space in Piner. So hence we are doing the best we can to accommodate all those requirements.
Tim Savageaux
Great. And just very quick. And is the Pinehurst edition, is that on the same timeline as the building 10 pull in mid year? Is that kind of happening now or anything?
Csaba Sverha
Yeah. Yes, it is happening now. Seamus doesn’t have an office anymore in. The campus, so we used to joke when he comes next time to Pinehurst he will no longer have an office. So it’s happening pretty rapidly.
Tim Savageaux
Thanks very much. Thank you.
operator
Thank you so much. And this will end our Q and A session and I will pass it back to Seamus for closing comments.
Seamus Grady
Thank you for joining our call today. We are very pleased with our excellent second quarter performance and with continued momentum across our business, we’re optimistic that we can deliver a very strong third quarter as we expand on our strong market position. We look forward to speaking with you in the future and to seeing those of you who will be attending the Susquehanna Conference later this month and the OFC conference in Los Angeles next month. Thanks again and goodbye.
operator
And with that we conclude our conference. Thank you all for participating you may now disconnect.