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Introduction & Market Context
Coherent Inc. (NYSE:COHR) released its third quarter fiscal 2025 investor presentation on May 7, 2025, showcasing record revenue growth primarily driven by strong AI-related datacenter demand. Despite reporting impressive financial results, including a 24% year-over-year revenue increase and 141% EPS growth, the company’s shares fell 4.48% to $66.50 in after-hours trading, suggesting investors may have expected even stronger guidance or were taking profits after recent gains.
The optical components manufacturer continues to benefit from the ongoing AI infrastructure buildout, with its networking segment showing particularly strong momentum as hyperscalers and cloud providers expand their datacenter capabilities.
Quarterly Performance Highlights
Coherent reported Q3 FY2025 revenue of $1.50 billion, representing a 24% increase from $1.21 billion in the same quarter last year. Non-GAAP earnings per share surged 141% to $0.91 compared to $0.38 in Q3 FY2024, while gross margin expanded by 490 basis points to 38.5%.
As shown in the following quarterly results summary:
The company’s president highlighted the strong performance: "We delivered strong growth and profitability in the March quarter with record revenue driven by another quarter of strong Al-related datacenter demand. We also introduced many new industry-leading optical networking products and technologies during the past quarter which position us well for long-term growth."
Coherent’s revenue breakdown by segment reveals the dominant position of its networking business, which now accounts for 60% of total revenue and has shown consistent growth over five consecutive quarters:
Detailed Financial Analysis
The communications market has been the primary driver of Coherent’s growth, contributing 60% of total revenue in Q3 FY2025. Industrial applications remain the second-largest market at 30%, while instrumentation and electronics account for 6% and 4%, respectively.
The following chart illustrates the quarterly revenue trend by market:
From a segment perspective, Networking revenue reached $897 million in Q3 FY2025, up from $616 million in Q3 FY2024, representing a 45.6% year-over-year increase. This significant growth underscores the company’s strong positioning in the AI-driven datacenter expansion market.
The Lasers segment generated $364 million in revenue (24% of total), while the Materials segment contributed $237 million (16%). Both segments showed more modest growth compared to the rapidly expanding Networking business.
The company’s income from operations reconciliation reveals substantial adjustments between GAAP and non-GAAP figures:
Strategic Initiatives
During the quarter, Coherent received six product awards at the Optical Fiber Communication (OFC) Conference 2025, demonstrating its industry leadership and innovation capabilities. The company also highlighted groundbreaking demonstrations of 400G EML technology to enable next-generation 3.2T transceivers and market-leading 200G VCSELs & detectors in 1.6T multimode transceivers.
These technological achievements position Coherent to capitalize on the growing demand for higher-speed optical components required for AI and machine learning applications. The company’s focus on cutting-edge optical networking products appears to be paying off as evidenced by the strong financial results.
Forward-Looking Statements
For the fourth quarter of fiscal 2025, Coherent provided the following outlook:
The company expects Q4 FY2025 revenue between $1.425 billion and $1.575 billion, with non-GAAP gross margins between 37% and 39%. Non-GAAP earnings per share are projected to be between $0.81 and $1.01.
This guidance suggests a potential sequential revenue decline at the midpoint compared to Q3 FY2025, which may partially explain the after-hours stock price decline despite the strong quarterly results. However, the projected figures still represent substantial year-over-year growth.
Comparing to the previous year’s performance outlined in an earlier earnings call, Coherent has significantly outperformed its FY2024 results, when the company was targeting a 40% gross margin and 20% operating margin by the first half of FY2026. The current results suggest the company is making good progress toward those targets, with Q3 FY2025 gross margin already reaching 38.5%.
The company’s net earnings reconciliation details provide further insight into its financial performance:
With continued strong demand for high-speed optical components driven by AI infrastructure expansion, Coherent appears well-positioned for sustained growth, despite the near-term stock price reaction to its latest quarterly results and guidance.
Full presentation:
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