コヒレント (COHR) 2027年度第1四半期決算説明会: AI向け光学製品が牽引し売上高が過去最高を記録

主要ポイント

• コヒレント（Coherent Corp.、NYSE: COHR）が発表した2027年度第1四半期の売上高は、過去最高の23億7,000万ドルとなり、前期比で16%増、前年同期比では50%増となった。プロフォーマ売上高は、前年同期比56%増となった（2026年に売却した事業を除く）。
• Non-GAAP売上総利益率は40.6%に達し、Non-GAAP営業利益率は23.2%に上昇した。Non-GAAP希薄化後EPSは、前年同期比80%増の2.09ドルとなった。
• データセンター＆コミュニケーション部門の売上高は、前年同期比79%増となり、総売上高の82%を占めた。データセンター売上高は85%増となり、AIインフラ、800Gおよび1.6Tトランシーバー、リン化インジウムの生産能力増強に支えられた。
• PhotonLinkの本格的な立ち上げが始まっている。経営陣は売上高について、3月四半期に1億ドル超、さらに2027年暦年末までに四半期あたり2億5,000万ドル超に達すると見込んでいる。また、コヒレントは5年間のPhotonLink長期供給契約（LTA）を締結した。契約規模は約200億ドルで、売上計上は2028年暦年初頭に始まる見通しだ。
• 2027年度第2四半期について、経営陣は売上高ガイダンスを25億5,000万ドル〜27億5,000万ドル、Non-GAAP希薄化後EPSを2.28ドル〜2.48ドルと予想した。
• 経営陣は、2027年度のプロフォーマ売上高成長率が60%を超えると見込んでおり、コヒレントとして初となる2027年度末までの四半期売上高30億ドル達成を引き続き目標としている。それに続き、初となる2028年度の四半期売上高40億ドル達成も目指している。

主要業績

粗利益率の改善は、価格適正化、投入コストの低下、製造歩留まりの向上、および6インチ・インジウムリン製造への移行を反映したものです。Coherentは長期目標を引き上げ、粗利益率が上回る最初の四半期として現在見込んでいる水準は、2028年暦年末までに45%超。

事業および業績の概要

データセンター＆コミュニケーション

セグメント売上高は、前期比21%増、前年同期比79%増となり、両指標で4四半期連続の成長加速を記録しました。同セグメントが生み出した売上高は、Coherentの総売上高の82%。

データセンター売上高は、前期比17%増、前年同期比85%増となりました。Coherentは複数の顧客向けに1.6Tトランシーバーの量産立ち上げを進める一方、800G製品の売上高も拡大し続けています。経営陣は、800Gの売上高が2027年暦年を通じて成長を続け、1.6Tの売上高は今後数四半期にわたり急速に拡大すると見込んでいます。

2027年暦年までの受注カバレッジは「極めて良好」と説明され、顧客からの受注は2028年暦年にまで拡大する傾向が強まっています。Coherentは当四半期中に複数の長期契約を締結しており、その多くは2020年代末までを期間とするものです。

PhotonLinkおよび集積オプティクス

PhotonLinkは、スケールアウト、スケールアップ、スケールインの各アーキテクチャ全体で、CPO、NPO、およびチップ間光リンクに対応します。Coherentの試算によると、これらの用途は2030年までに約300億ドルの市場機会をもたらし、データセンター＆コミュニケーション事業全体の市場機会は約900億ドル。

毎秒100テラビットの帯域幅を必要とするチップについて、経営陣の試算では、コヒレントのPhotonLinkポートフォリオ全体でおよそ1チップあたり1万5,000ドルの搭載額に上る可能性があり、各顧客が選択する製品によって異なります。

コヒレントは大手AI企業と5年間の新たなPhotonLink長期供給契約（LTA）を締結し、その契約規模は約200億ドルと評価されています。同契約は同社の400ミリワットCWレーザーを中核とし、より広範なソリューション群を含んでいます。売上高は2028暦年初頭から本格化する見通しです。

今回の契約および発表済みのエヌビディアとの長期供給契約（LTA）に加え、コヒレントは10件を超えるCPO案件、さらに10件を超えるNPO案件、そして5件を超えるチップ間接続案件を報告しました。経営陣は、初期のスケールアップ導入にはインジウムリン系高出力CWレーザーが使用され、2027暦年末または2028年初頭頃にVCSELベースのNPO用途が続くと見込んでいます。スケールイン・チップ間用途はその後、2029〜2030年頃になると予想されています。

スケールアクロス・データセンター間相互接続

通信部門の売上高は、前期比34%増および前年同期比84%増となり、従来の通信向けではなく、主にスケールアクロス・データセンター間相互接続が牽引しました。

スケールアクロス売上高は2億ドルを超え、前期比53%増、前年同期比で約4倍となりました。同事業はほぼ10億ドルの年換算売上高ランレートに達しました。経営陣は、3月四半期から立ち上がりが始まるマルチレール製品などにも支えられ、四半期ベースのスケールアクロス売上高が2027暦年末までに第1四半期の水準からほぼ倍増すると見込んでいます。

インジウムリン生産能力

社内のインジウムリン生産量は前年同期比で倍増し、当初計画を1四半期前倒しで達成しました。コヒレントはEMLで四半期としての過去最高生産量を記録し、2027暦年末までに社内生産能力をさらに倍以上に拡大する計画に向けて順調に進んでいます。

同社によると、テキサス州とスウェーデンにある6インチ工場では、従来の3インチラインを上回る歩留まりでEML、CWレーザー、高速フォトダイオードを製造しています。チューリッヒ工場での生産は2027暦年上半期に開始される見込みです。

経営陣によると、トランシーバーの成長が社内の増産分を吸収したため、インジウムリン部材の内製と外部調達の構成比は過去1年間でほとんど変化しませんでした。同社は、今後数四半期でより低コストな内製供給へとシフトすると見込んでおり、それに伴う粗利益率の改善効果の大半は今後顕在化する見通しです。

OCSおよび産業部門

光サーキットスイッチ（OCS）における顧客との商談は、スケールアクロス、スケールアウト、スケールアップの各用途へと拡大しています。コヒレントは320×320プラットフォームおよび、より高密度な構成に向けて2拠点で増産を進めています。経営陣は、OCSの市場機会が少なくとも2030年までに40億ドルに達すると試算しています。

プロフォルマ（買収等調整後）ベースの産業部門売上高は、前期比および前年同期比で横ばいでした。受注は半導体製造装置向けの顧客が牽引しており、経営陣は第2四半期に成長が再開すると見込んでいます。その他の事業機会としては、AIサーバー用回路基板の穴あけ加工、核融合エネルギー用途、xPU冷却材料、量子技術などが挙げられています。

経営陣の業績予想（ガイダンス）

コヒレントがデータセンターおよび通信向けの需要に対応して生産能力を増強していることから、経営陣は第2四半期に設備投資が前期比で再び増加すると予想しています。

2027年度について、経営陣はプロフォルマベースの売上高成長率が上回ると見込んでいます60%。また、初となる2027年度末までの四半期売上高30億ドルの達成を見込んでおり、さらに初となる2028年度の四半期売上高40億ドルへの道筋を見据えています。 経営陣によると、これらの目標は受注残、長期契約、自社生産能力の拡大、供給契約によって支えられています。

リスクと注視すべきポイント

• 生産能力計画の実行： 成長目標の達成は、リン化インジウムやOCS、その他の製造能力の急速な拡大にかかっています。設備投資額は7億7,600万ドルに増加し、第2四半期に再び増加する見通しです。
• 内製化への転換： 期待される粗利益率の改善効果の多くは、コヒーレントが内製するリン化インジウム部品の比率を引き上げられるかにかかっています。内製と外部調達の比率は、現時点ではまだ大きく変化していません。
• 集積光学技術の採用時期： PhotonLinkの成長は、CPOやNPOの導入時期に左右されます。経営陣は、本格出荷が2027年後半または2028年初頭になると見込んでおり、チップ間接続への採用はそれ以降になると予想しています。
• データセンタープロジェクトへの懸念： アナリストからはデータセンターの資金調達や許認可に関する懸念が示されましたが、経営陣は生産能力への投資を裏付ける根拠として、顧客からの前払い金、確定注文、複数年契約を挙げました。
• 業界における潜在的な供給過剰： あるアナリストから、2028年にリン化インジウムEMLの過剰な生産能力が発生する可能性について質問が出ました。経営陣は、トランシーバー、集積光デバイス、データセンター相互接続製品からの需要を挙げ、その期間を通じて重大な供給過剰リスクはないとの見方を示しました。

アナリスト質疑応答（Q&A）のハイライト

• PhotonLinkの立ち上げ： 経営陣は、3月四半期に1億ドル超、2027年末までに四半期あたり2億5,000万ドル超の売上高を見込んでいます。新たに締結された200億ドル規模の長期契約（LTA）は、2028年初頭から収益に寄与し始める予定です。
• 横断的な製品展開による成長： コヒーレントは、コンポーネント、モジュール、ラインカード、サブシステム、完全なソリューションを機器ベンダーやハイパースケーラーに提供しています。マルチレール製品の売上高は、3月四半期から本格化し始める見込みです。
• 粗利益率の拡大余地： 経営陣は、45%超という目標を上限とは見なしていないと説明しました。新製品の投入拡大、6インチのリン化インジウムによる営業レバレッジ、価格最適化、コスト削減がその主な推進要因です。
• 顧客資金による生産能力増強： コヒーレントによると、ほぼすべての長期契約（LTA）において、生産能力増強の資金を支援するために前払い金やNRE（非経常的エンジニアリング費用）などの顧客からの事前支払いを含む枠組みが採用されています。
• 基板の調達状況： 同社は5社以上の基板サプライヤーを有しており、そのうち数社と長期契約を締結しています。経営陣は、2027年の生産能力拡大に必要な基板はすでに確保されていると述べました。
• 競争上のポジショニング： ルーメンタムとマーベルの統合案に関する議論において、経営陣は、競合との利害対立を起こすことなくハイパースケーラーや半導体顧客を支援できる、独立系光学サプライヤーとしてのコヒーレントの立場を強調しました。

決算説明会の全文書き起こし

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Greetings, and welcome to the Coherent Corp. First Quarter Fiscal Year 2027 Earnings Webcast. [Operator Instructions] Please note this event is being recorded.

It is now my pleasure to introduce your host, Mr. Paul Silverstein, Senior Vice President of Investor Relations for Coherent. Please go ahead.

Paul Silverstein

Thank you, operator, and good afternoon, everyone. With me today are Jim Anderson, Coherent's CEO; and Sherri Luther, Coherent's CFO. During today's call, we will provide a financial and business review of the first quarter of fiscal 2027 and the business outlook for the second quarter of fiscal 2027. Our earnings press release can be found in the Investor Relations section of our company website at coherent.com.

I would like to remind everyone that during our conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. These are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release, our most recent Forms 10-K and 10-Q and the reports that we may file on Form 8-K with the Securities and Exchange Commission.

All our statements are made as of today, November 4, 2026, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release and investor presentation that can be found on the Investor Relations section of our website at coherent.com.

Let me now turn the call over to our CEO, Jim Anderson.

James Anderson

Thank you, Paul, and thank you, everyone, for joining today's call. Q1 marked a strong start to fiscal 2027. Revenue increased 16% sequentially and 56% year-over-year on a pro forma basis. Non-GAAP EPS increased 80% year-over-year, reflecting continued gross margin expansion and operating leverage. Strong customer demand and our rapid capacity expansion are supporting this growth with near-term bookings and newly signed LTAs providing multiyear visibility. We remain on track to achieve our first $3 billion revenue quarter by the end of fiscal '27. We expect the full year pro forma revenue growth rate to exceed 60%, more than double our fiscal '26 pro forma growth rate. We also have a clear line of sight to our first $4 billion revenue quarter in fiscal '28.

Coherent is a photonics platform company, bringing together technologies across the optical signal chain from materials and components through subsystems and complete solutions. Our breadth positions us to support customers across Datacenter & Communications networks. We're at the center of an extraordinary expansion in optical networking infrastructure, driven by rapid AI growth, the transition from copper to optical connectivity and rising demand for bandwidth and energy efficiency across increasingly large and complex datacenter architectures.

Our established businesses continue to grow rapidly, with datacenter revenue up 85% year-over-year in Q1. At the same time, new growth areas are ramping as well. For example, scale-across datacenter interconnect revenue is growing rapidly with Q1 revenue roughly quadrupling year-over-year and reaching a nearly $1 billion annualized revenue run rate.

In addition, PhotonLink, our newly announced integrated optics platform, is also beginning to ramp, and we expect PhotonLink revenue to exceed $100 million in our March quarter. Accelerating revenue growth, continued gross margin expansion and operating leverage position us to grow profitability faster than revenue. We expect fiscal '27 to be an exceptional year for Coherent.

Moving to our Datacenter & Communications segment. Revenue increased 21% sequentially and 79% year-over-year, marking a fourth consecutive quarter of accelerating growth on both a sequential and year-over-year basis. The segment now accounts for 82% of Coherent's total revenue.

Near-term demand remains strong and our visibility into long-term demand continues to improve. Order coverage through calendar '27 is exceptional, and customer orders increasingly extend into calendar '28. We signed multiple new LTAs in Q1, and customer LTAs typically extend through the end of the decade. We continue to see no signs of attenuation in demand. Within the segment, Datacenter revenue increased 17% sequentially and 85% year-over-year, marking our fourth consecutive quarter of double-digit sequential growth. We expect another quarter of strong sequential and year-over-year growth in the current quarter.

In Datacenter transceivers, we're ramping 1.6T products with multiple customers, while continuing to grow 800-gig revenue. We expect strong transceiver revenue growth in Q2, driven by both 1.6T and 800 gig. We expect 1.6T revenue to continue ramping rapidly over the coming quarters, while 800-gig revenue continues to grow through calendar '27.

At ECOC in September, we demonstrated our progress beyond 1.6T with a 3.2T OSFP pluggable transceiver built with our 400-gig differential EMLs and photodiodes. We expect pluggable transceivers to remain the dominant form factor for scale-out networks over the coming years. Coherent is helping shape the industry ecosystem for emerging formats, demonstrating XPO at OFC and also supporting the new USFP form factor.

Turning to OCS. Customer engagement is broadening across scale-across, scale-out and scale-up networks, spanning our 320x320 platform and denser configurations. We're expanding production at 2 sites to meet demand. As capacity ramps, we expect OCS to become an increasingly meaningful contributor to revenue growth and margin expansion.

At ECOC in September, we launched PhotonLink, our new platform for integrated optics. It's designed to address the transition from copper to optical connectivity in AI datacenters, creating a significant opportunity for Coherent. We estimate that CPO, NPO and chip-to-chip optical interconnects represent approximately $30 billion of market opportunity by 2030, bringing our total market opportunity for Datacenter & Communications to about $90 billion in 2030.

PhotonLink brings together Coherent's photonic technologies and manufacturing capabilities in an end-to-end platform that spans the optical signal chain from generating and shaping light through transmission and detection to converting the signal to electrical form. The platform is designed for a wide range of architectures and applications, including CPO and NPO, scale-out and scale-up networks and scale-in chip-to-chip links. It includes lasers, laser modules, complex fiber assemblies and other optical components and supports indium phosphide-based CW lasers and VCSEL-based technologies. We believe this breadth and depth differentiates us. For an xPU or switch chip with 100 terabits per second of bandwidth, we estimate our content opportunity can reach approximately $15,000 per chip.

Customer engagement is validating the opportunity. In Q1, we signed another significant PhotonLink LTA with a major AI company. The total revenue value of this new LTA is approximately $20 billion over 5 years, with revenue beginning to ramp in early calendar '28. This is in addition to our previously announced LTA with NVIDIA. Beyond these 2 anchor customers, we have more than 10 additional CPO engagements, more than 10 NPO engagements and more than 5 chip-to-chip engagements.

We expect PhotonLink revenue to ramp quickly over the coming quarters. We expect revenue to exceed $100 million in our March quarter and to exceed $250 million per quarter before the end of calendar '27. Expected shipments in the current quarter include a range of CPO products, including our ultra-high power 400-milliwatt CW laser, our fiber assembly solutions and other products.

PhotonLink is initially being deployed in CPO scale-out applications. We expect to begin shipping PhotonLink products for CPO and NPO scale-up applications in the second half of calendar '27. Over time, we expect PhotonLink to become a multibillion-dollar product line for Coherent.

Expanding our indium phosphide capacity is a key enabler of growth in both indium phosphide pluggable transceivers and indium phosphide-enabled PhotonLink solutions. Our 6-inch indium phosphide expansion is progressing well. We doubled our internal indium phosphide output capacity year-over-year in Q1, 1 quarter ahead of our original plan. Q1 was our highest production quarter ever for EMLs, including both 100-gig and 200-gig devices. The ramp contributed meaningfully to datacenter growth, and we expect it to remain an important driver of revenue and gross margin.

Most of the gross margin benefit of our indium phosphide expansion is still ahead of us as the expansion will enable us to increase our mix of internally sourced indium phosphide components, which have a tremendous cost advantage. We remain on track to more than double our internal indium phosphide output capacity again by the end of calendar '27. We've secured the substrates and other critical inputs needed to support this ramp. And given the strength of customer demand are planning additional capacity expansion beyond 2027.

Our 6-inch lines in Texas and Sweden are producing EMLs, CW lasers and high-speed photodiodes with yields that continue to exceed those of our 3-inch lines. Production includes our 400-milliwatt CW laser for CPO, which is covered by our NVIDIA partnership and is expected to begin generating revenue this quarter. We also remain on track to begin 6-inch indium phosphide production in Zurich in the first half of calendar '27, further extending what we believe is a meaningful manufacturing advantage.

Moving to Communications. Revenue increased 34% sequentially and 84% year-over-year, and we expect another quarter of strong sequential and year-over-year growth in the current quarter. Traditional telecom continued to grow, but the primary growth driver was scale-across, which has quickly become the largest source of revenue within Communications.

Over the past year, we've expanded our datacenter interconnect portfolio to help customers connect datacenters with greater capacity and efficiency. Building on our leadership in pump lasers and our broad component portfolio, we've introduced higher level products, including modules, line cards, subsystems and our new multi-rail solution. These offerings are seeing strong customer demand and help customers make better use of existing fiber while scaling high-capacity links between distributed AI datacenters.

In Q1, scale-across revenue exceeded $200 million, up 53% sequentially and nearly fourfold year-over-year. That puts the business at a nearly $1 billion annualized revenue run rate, making it one of our fastest-growing businesses. With multi-rail beginning to ramp in our March quarter, we expect quarterly scale-across revenue to roughly double from the Q1 level by the end of calendar '27.

Turning to Industrial. Q1 revenue was flat sequentially and year-over-year on a pro forma basis. Bookings were strong, led by semiconductor capital equipment customers. And we expect growth to resume in the current quarter. Near-term growth is being driven by semiconductor capital equipment, AI infrastructure and fusion energy. In semiconductor equipment, our lasers, precision optics and engineered materials serve front-end applications and we've seen a strong uptick in bookings.

In AI infrastructure, our CO2 lasers and zinc selenide optics are used to drill advanced circuit boards for AI servers. Demand is also growing for our pulsed laser deposition systems used to produce high-temperature superconductor tape for magnetic fusion.

Over the longer term, we see significant opportunities in datacenter xPU cooling and quantum technologies. For AI datacenters, our Thermadite material can enable higher xPU performance and token generation. We're shipping prototypes to several strategic customers this quarter, and we expect revenue to begin ramping in the second half of calendar '27.

In quantum, we supply lasers and materials to leading quantum technology developers and are engaged in next-generation programs. Given the multiple growth areas, we expect our Industrial segment to return to growth and build momentum over the coming quarters.

In summary, Q1 demonstrated the strength of our growth momentum and the breadth of our opportunity. Demand remains strong, customer commitments continue to deepen our visibility and we are expanding capacity ahead of plan.

Established businesses continue to grow rapidly while new growth areas are ramping quickly. Our focus is on execution, expanding capacity, delivering for our customers and improving profitability as we grow. We believe this combination positions Coherent for sustained growth in fiscal '27 and beyond.

I want to thank our team for their outstanding work this quarter. I'll now turn the call over to Sherri.

Sherri Luther

Thank you, Jim. I'm extremely pleased with the outstanding Q1 financial results. Our performance in the first quarter represents a powerful continuation of our growth trajectory, characterized by accelerating top line momentum, durable structural gross margin expansion and significant operating leverage. The compounding impact of these operational drivers fuels non-GAAP EPS growth to significantly outpace revenue growth. We achieved this strong performance while preserving balance sheet flexibility and strategically directing capital towards targeted capacity expansions and making investments in our product road map to support robust AI Datacenter & Communications demand.

Let me now provide a summary of our results. First quarter revenue was a record $2.37 billion, representing a sequential acceleration of 16% and a substantial 50% increase year-over-year. This performance was driven by the continued AI infrastructure build-out across our Datacenter & Communications businesses. On a pro forma basis, excluding the financial impact of the Aerospace and Defense business, and the Munich, Germany, product division, both of which were divested in 2026, revenue increased 16% sequentially and 56% year-over-year.

Our non-GAAP gross margin for the first quarter was 40.6%, representing a 37 basis point increase sequentially and a 184 basis point improvement as compared to the year ago quarter. This continuous expansion reflects durable pricing optimization and structural cost improvements, particularly within our Datacenter & Communications segment.

The improvements in gross margin, both sequentially and year-over-year, were driven primarily by pricing optimization, lower product input costs and improved manufacturing yields. We have made significant progress with our pricing optimization strategy to ensure that we price our highly differentiated products for the value they provide to our customers.

Our gross margin profile is also benefiting from the transition to 6-inch indium phosphide as we continue to scale our production capacity. Given the progress that we have made over the past couple of years and our current trajectory, it is clear that we need to raise our gross margin target. We now expect to achieve our first quarter with gross margin above 45% before the end of calendar 2028. We believe the drivers of this gross margin expansion are continued pricing optimization, ramp of new growth platforms, full operational leverage of our 6-inch indium phosphide capacity and other cost improvements.

I also want to note that the new over 45% target is 300 basis points higher than the long-term target we provided to the investment community only 18 months ago.

First quarter non-GAAP operating expense was $412 million compared to $377 million in Q4 and $304 million in the year ago quarter. Non-GAAP operating expenses as a percentage of revenue decreased meaningfully to 17.4%, down from 18.4% in the prior quarter and 19.2% in the year ago quarter. This improvement reflects enhanced operational discipline and underscores the powerful operating leverage inherent in our business.

From an R&D perspective, we are strategically directing our capital toward high conviction long-term growth drivers, which Jim outlined in his remarks. This disciplined approach ensures our investments are concentrated where they generate the highest financial returns and drive sustainable revenue growth.

Our first quarter non-GAAP operating margin increased to 23.2% from 21.8% in the prior quarter and 19.5% in the year ago quarter. The sequential and year-over-year increases were driven by strong revenue growth, expanding gross margin and structural expense discipline. First quarter non-GAAP earnings per diluted share was $2.09, up 20% from the prior quarter and up 80% from the year ago quarter. Earnings growth continued to exceed revenue growth, demonstrating gross margin expansion and operational leverage accelerating our bottom line profitability.

Turning to the balance sheet. We closed the quarter with a healthy cash balance of $2.34 billion compared to $2.59 billion at the end of the prior quarter and $1.55 billion at the end of the year ago quarter. Our debt leverage ratio at the end of Q1 was 1.1x as we continue to maintain a highly resilient and flexible balance sheet. Consistent with our capital allocation priorities, we strategically invested in opportunities that will drive long-term growth and profitability.

Capital expenditures for the first quarter increased sequentially to $776 million, up from $556 million in the prior quarter and $104 million in the year ago quarter. These investments directly support the future growth of our Datacenter & Communications businesses with excellent financial returns. Our conviction to deploy this capital at an accelerated rate is backed by exceptional customer visibility, a robust pipeline of committed purchase orders and additional multiyear supply agreements.

Furthermore, this capacity offers significant fungibility as our infrastructure can be efficiently repurposed to support multiple product lines. Given the strong visibility and record backlog, we expect capital expenditures to increase sequentially again in the second quarter. With our strong balance sheet and profitability trajectory, we possess the scale and flexibility to continue investing capital toward high ROI growth initiatives while supporting customer demand.

I will now turn to our guidance for the second quarter of fiscal 2027. We expect revenue to be between $2.55 billion and $2.75 billion. We expect non-GAAP gross margin to be between 40% and 42%. We expect total operating expenses of between $430 million and $450 million on a non-GAAP basis. We expect the tax rate for the quarter to be between 18% and 20% on a non-GAAP basis. We expect non-GAAP diluted EPS to be between $2.28 and $2.48.

In summary, fiscal 2027 is off to a powerful start with strong financial momentum backed by deep demand visibility. Our focus remains on rapidly ramping capacity to meet demand, expanding our gross margin, capitalizing on the immense operating leverage in our model and executing a disciplined capital allocation strategy focused on maximizing returns that drive long-term shareholder value.

That concludes my formal comments. Operator, please open the line for the Q&A session.

Operator

[Operator Instructions] The first question today comes from Joseph Cardoso with JPMorgan.

質疑応答

Joseph Cardoso

Really appreciate some of the disclosures that you provided this quarter. And I wanted to first start with PhotonLink and the initial visibility you provided there. I was hoping you could provide more color with respect to the ramp itself, especially just given the backdrop of the $20 billion agreement that you've highlighted? And then I have a follow-up.

James Anderson

Yes. Thanks, Joe. So first of all, yes, we're certainly really pleased with the momentum that we have around PhotonLink and kind of whether you measure it by customer engagement or LTAs, as you mentioned, or just the revenue outlook that I mentioned in the prepared remarks, we're just really pleased with the progress there.

And just as a reminder, PhotonLink is -- we kind of consider it a one-stop shop for integrated optics. It's basically our platform for allowing customers to basically have a platform that allows for the optical link from end to end. It's the complete optical signal chain and all the technology along the optical technology along that path. And really excited about the progress, as I mentioned in the prepared remarks, over 20 customer engagements on CPO, over 10 -- or sorry, over 10 on CPO, over 10 on NPO and then over 5 chip-to-chip engagement. So the customer engagement is very extensive and they continue to grow.

You mentioned or asked about the LTA. Really pleased about that major AI customer and that LTA is, as I said, $20 billion over a 5-year period. And the revenue for that would start at the beginning of calendar '28. But the PhotonLink revenue ramp is starting ahead of that. We'll ship a little bit of -- a small amount of PhotonLink revenue this quarter, but we expect to ship over $100 million in our March quarter. And then before the end of calendar '25 (sic) [ '27 ], expect to ship over $250 million a quarter. So really pleased with all of that progress.

And I guess the other thing that I would add is, if we look further out, we're expecting this over time to become a multibillion dollar product line. The initial shipments of PhotonLink are all around CPO in the scale-out network. But when we start to ship into a CPO and NPO into scale-up networks, I think that drives another huge leg of demand for this technology. I think that will be the much bigger adoption that we see. And that we expect to start to ship revenue into CPO and NPO applications in the scale-up domain towards the end of calendar '27. So yes, we're excited about the progress and expect this to become a major product line for us.

Joseph Cardoso

And maybe in a similar vein, I wanted to touch on the scale-across DCI opportunity. Particularly curious how we should think about the customers and products that are underpinning the revenue outlook to double by the end of the next calendar year.

James Anderson

Yes. Thanks again. This has been a really great growth area for us over the past year. In fact, it's surprised us a little bit how quickly this has grown. So overall, so DCI and scale-across that falls within our Communications part of our business, which is essentially everything outside of -- all communications outside of the Datacenter. And if we look at that segment overall, Communications grew 84% year-over-year. But while telecom grew most of that -- the vast majority of that growth was driven by DCI. And so what's going on there is you're seeing these large AI workloads that are spanning multiple datacenters. And so that's driving the need for much greater bandwidth and connectivity -- optical connectivity between datacenters. And so that's what's driving. That's the underlying market dynamic that's driving the growth.

And then you asked about customers and products. So customers would be either equipment makers. So we're certainly selling into multiple different equipment makers that -- whose equipment goes into scale-across applications, but also selling directly to hyperscalers as well. And so it's a mixture of both types of customers. And then the products, it's interesting, we sell -- in this part of the market, we sell products at multiple levels of the value chain. So we sell in components like, for instance, pump lasers that go into a wide range of different equipment. At one level up in the value chain, we sell subsystems and modules, so ZR/ZR+ modules, line cards, amplifiers, ROADMs, et cetera. And then one level up from that, in some cases, sell complete solutions to our customers as well. So we're selling across multiple levels of value chain. And so I think that's helped us really maximize the growth here as well.

And as I mentioned in the prepared remarks, if we look at our Q1 revenue, it was over $200 million. So we're basically at about $1 billion annualized revenue run rate now. And that's -- that Q1 growth had quadrupled year-over-year. And we expect that if you take that Q1 baseline, we expect the revenue to double again before the end of calendar '27. And so that growth that we've seen to date, that's ahead of multi-rail. So we expect multi-rail revenue, which is a -- multi-rails are great solutions, some great technology that we have there. We expect that to start -- that revenue to start to ramp in our March quarter. And so it's been a really good area of growth, and we expect this to continue to be a very good area of growth over the coming quarters as well.

Operator

The next question comes from Simon Leopold with Raymond James.

Simon Leopold

First, Jim, I want to thank you for the increased transparency on Slide 7. I know this is something I've been probably annoying you about. So thank you. The slide did not mention OCS. I know you talked about the product group in your prepared remarks. But could you update us on your progress and expectation for this product group? And then I've got a follow-up, please.

James Anderson

Yes, sure. Thanks, Simon. Thanks for the feedback, as always. We're always looking to improve. So I appreciate the feedback. But yes, in OCS, I did mention in the prepared remarks OCS falls within our Datacenter part of our business. And just reiterating, Datacenter was up 85% year-over-year in our Q1. OCS continues to make good progress. We've got really extensive customer engagement. We've seen that customer engagement, continue to expand across more applications and not just scale-out applications, but scale-across and scale-up applications as well. And that's across -- in terms of products, that's across both 320x320 systems, which are shipping as well as denser configurations. I think the denser configurations will be used more in the scale-up applications.

We're ramping production at 2 different sites in parallel, and that's really to meet the demand that we're seeing. We have a very differentiated technology. It's liquid crystal. It's nonmechanical technology, has better power efficiency and better reliability than MEMS-based solutions. So we feel really well positioned. We're ramping production. And I think it will be an increasingly larger contributor to our revenue growth in the quarters to come. And maybe last thing to add is we see the market opportunity for OCS as at least $4 billion by 2030. It could be larger than that.

Simon Leopold

And as a follow-up, I have a hard question, one that I imagine you anticipate getting is, what does the proposed consolidation of Lumentum and Marvell mean to you?

James Anderson

Yes. Thanks, Simon. No, I don't think that's a hard question at all. I think happy to answer that. I'd give a few thoughts on this. I think number one is it definitely demonstrates that optics and photonics is becoming an absolutely critical part of datacenter architecture.

As we look forward, as we convert the entire scale-up network and then even the scale-in chip-to-chip communication links, over time, all of that getting converted from copper to optical. Photonic technology is absolutely critical to making that happen to driving the innovation and datacenter architecture. So I think it's a proof point around just the criticality of optics and photonics.

And then I think for Coherent, I think it just -- it highlights the tremendous strategic value of the portfolio that is within Coherent. There's no other company, I believe, on the planet that has a broader and deeper set of photonic and optical technology. If you look at the entire optical signal chain from the generation of the light to the transmission through our fiberoptic cable that we make to the detection on the other side, I don't think there's any other company that's got a better portfolio of technology.

So I think it definitely highlights the strategic importance of our technology platform. And then look, I think from a customer perspective, I think that -- I think a lot of -- for a lot of the customers, our customers, I think it's really important that they have an independent photonic optical supplier and partner. And so I think it positions us really well to be that independent optical supplier that's going to support -- without any competitive conflict can support multiple different customers and support both hyperscaler customers, can support semiconductor customers.

And so I think it positions us really well to be that partner of choice in terms of optics for the industry. So look, we think we're really well positioned from both the technology standpoint, manufacturing standpoint and strategically. And I think we're on a really great growth trajectory. And I think you can see some of that already in the PhotonLink technology and the PhotonLink revenue ramp.

Operator

The next question comes from Tom O'Malley with Barclays.

Thomas O'Malley

I guess the first part of the question for you, Jim, is why now in terms of giving the longer-term forecast? It's been something that you've kind of held off on doing for a while. You gave $3 billion and then $4 billion next year.

And then the second part of the question is, is that all backed with supply? How are you able to get visibility that far out? Is that already in the books today? Or perhaps you could give us like what percentage of that is backed with supply today? Or if you need to add any to get you to those numbers?

James Anderson

Yes. Thanks, Tom. I think it is a little bit different. We are providing a little bit longer-term visibility than we normally would. I think it's really backed by the -- just extraordinary level of visibility that we have on the business. When I look at the backlog, the bookings both -- so both near-term visibility and long-term visibility. If I look at just the backlog that we have, I mean, calendar '27 is basically booked out and the customers are booking out calendar '28 now. So from a near-term booking demand perspective, we have great visibility.

We've signed a number of new LTAs over the past quarter. I mentioned one of the big LTAs as part of the PhotonLink prepared remarks. But the LTAs also give us really good visibility because they include very high-quality forecast, long-term forecast. So I think that's -- given that really good visibility, that's certainly giving us confidence.

And then also, great that you mentioned supply. We've done a number of things within our supply base to make sure that we've got the right supply in place to support that as well. So yes, I would say that, that's -- those views that we gave, whether it's $3 billion this year and the $4 billion quarter next year is underpinned by supply agreements. Also, remember that we're highly vertically integrated. So a lot of that's underpinned by our own internal supply that we're ramping, right?

One of the constraints, if we look back over the past year or 1.5 years, one of the constraints has been indium phosphide. And I'm just really pleased with how the team has executed very, very well on the indium phosphide production ramp. We've doubled production capacity a quarter earlier than what we thought we would, and that gives me the confidence that they're going to achieve -- the team is going to achieve our plan to more than double capacity again by the end of calendar '27. So you put all that together and yes, we're feeling really good about the outlook and the visibility for the business.

Thomas O'Malley

Super helpful. And then just as my follow-up for that LTA. Obviously, $20 billion, a pretty robust number over that 5 years. Could you just give us any color just around that customer perhaps? And then if you can talk about the customer around some of the solutions that, obviously, it's PhotonLink, so it spans a large number of your products, but any more specificity would be really helpful, just given the size of that customer.

James Anderson

Yes, sure. So definitely a leading AI datacenter customer name you will definitely recognize, right? And so we're really proud of that partnership, excited about it. That's all -- that LTA for $20 billion is all around PhotonLink technology. I would call it -- I would say it's anchored by our laser, our 400-milliwatt CW laser. That's kind of the anchor of that LTA. But there's -- it's more than -- we're selling more than just that laser. So we're selling more, call it, a higher level solution than that. So more than just that laser.

So we're really, really pleased by that. As I mentioned, the revenue -- we expect the revenue to start to flow from that in early 2028 and to ramp over the course of the quarters and years after that. And so really pleased with that. And I think given the engagement that we have on PhotonLink across many different customers, many different solutions, we certainly expect to sign more long-term agreements and partnerships with PhotonLink over the coming quarters as well.

Operator

The next question comes from George Notter with Wolfe Research.

George Notter

I guess I just wanted to ask you a question about the 45% gross margin outlook before the end of '28. So I guess I'm curious like what does that assume about your transceiver business? I'm just wondering if, to hit that, you need to gate your transceiver supply or transceiver ramp? Or is this just a case where everything can ramp in units then naturally would ramp and you wind up at 45% gross margins. What's the view there?

James Anderson

Yes. Thanks, George. I'll start and see if Sherri has any color to add. But yes, we haven't assumed that we're kind of artificially gating the transceiver business. So there's no assumption on that. We're assuming that the transceiver business grows at what we think is a reasonable growth rate to expect from the transceiver business. But on top of that, we do have new products that are ramping on top of that. PhotonLink, a number of new products and datacenter interconnect, OCS ramping over time as well. And so you put all those products ramping over time. And those products are accretive to the company's margin. I think the new product ramp helps as well.

And then in addition to that, the other thing that I would add more on the cost side is a number of different cost activities that we're driving. But certainly, a big one of it is we expect additional leverage in terms of gross margin from our indium phosphide ramp. I think there's -- as I mentioned briefly in the prepared remarks, I think most of the benefit from indium phosphide expansion is still ahead of us. And so I think there's a good component of the margin expansion that's kind of underpinned by the indium phosphide expansion as well.

George Notter

Is it possible to get the company to higher margins than 45% over time? I mean, I guess I'm maybe looking at Lumentum as an example. Those guys obviously have had quite a bit of margin expansion. Obviously, the fastest-growing parts of that business are many of the areas where you're kind of looking for growth going forward. Is 45% just a stop in a bigger picture or a bigger number? What do you think?

James Anderson

I don't think there's any structural barrier to us driving gross margin above 40%. In fact, I think Sherri, in her remarks, I think she said over 45% before the end of calendar '28, I think, is the way she said it, right? So I -- yes, we certainly don't view just like our old target of 42%, where we said over 42%, we never viewed that as a stopping point. We viewed that as stop along the way. And I would say 45% is -- yes, stop along the way, and I don't see any structural reason why the company couldn't continue to drive gross margins beyond that.

Sherri Luther

Yes. I would just add that the target that we put out about 18 months ago at our Investor Day of over 42%, that was a 3- to 4-year target that we put out, but we pulled that in, right, in only 18 months now raising our target to over 45%. So as we get close to that target, we'll certainly reevaluate and look at what makes sense beyond that, but it's just a step along the way.

James Anderson

Yes. And George, maybe the other thing I'd add is we're certainly super focused on gross margin expansion. But the other thing that we're very focused on is operating leverage, right? And I think we're quite pleased to see that we're gaining operating leverage in terms of OpEx as a percentage of sales, and we expect that to continue as well. So I think you should expect continued operating leverage as well.

Operator

The next question comes from Gianmarco Conti with Deutsche Bank.

Gianmarco Conti

Yes. Great. Congrats on the quarter. Maybe starting with PhotonLink. I wanted to touch on the scale-in/scale-up opportunity with micro-VCSEL. You mentioned you had 5 engagements, I believe, chip-to-chip. I'm curious if you could talk a little bit more detail here whether there is anything you can quantify in terms of revenue to come online next year? Anything around micro-VCSEL?

James Anderson

Yes. So thanks for asking about micro-VCSEL. So certainly, when I look across the PhotonLink engagements, there is, I would say, many VCSEL, micro-VCSEL, we call it multi-core VCSEL because it -- the multi-core VCSEL attaches to our multi-core fiber that we produce. And so -- but multiple of those engagements involve our VCSEL technology. I mean maybe just as a reminder of the company's sort of depth in VCSEL technology. Number one is we've shipped over 700 million VCSELs into datacenter applications over the past year. So we have enormous manufacturing expertise in VCSELs.

Also at the ECOC conference, when we launched PhotonLink, we talked about our technology in VCSELs, micro-VCSELs, VCSEL arrays, et cetera. We showed that -- one of the things that we showed was that we had industry-leading energy efficiency around VCSELs of -- we showed a 1 picojoule per bit capability, which I think is very industry-leading capability. And so VCSEL is definitely a core technology, something that the company has a long history in and we have multiple engagements.

I think you'll see that deployed in NPO applications relatively in scale-up NPO applications in relatively short amount of time. I think you also asked about scale-in chip-to-chip. I think that's a little further out in time. I think PhotonLink and scale-in applications is more in the 2029 to 2030, but we'll definitely see, I think, VCSELs deployed in NPO applications well before that.

Gianmarco Conti

If I could just ask a follow-up. It's going to be a tough question, sorry to put you on the spot. But I've been receiving a lot of questions from investors around Chinese laser suppliers. I was wondering if you could provide any kind of thoughts on basically more supply coming in online? And whether you see them competing for ultra-high-powered lasers for CWs?

James Anderson

Yes. So I don't see that those competitors in terms of ultra-high power. If you're talking about like the 400-milliwatt CW laser, we're not seeing competition from really -- we really only have one competitor there as far as we can see, right? So really not seeing any other competitors out there with high-power seated laser capability.

Paul Silverstein

Operator, before we go to the next analyst, if we could ask all the other analysts to limit themselves to one question with the goal of trying to accommodate everybody on the call. All right. Thank you.

Operator

The next question comes from Dan Zhu with Bernstein.

Daniel Zhu

You mentioned that scale-up optics should start towards the end of calendar 2027. Anything you can share about whether the initial deployments are NPO or CPO? And also about how -- whether sort of this is primarily going to be on VCSELs or will this start with InP-based lasers?

James Anderson

Yes. Thanks, Dan. So I think what we'll see -- we'll definitely see CPO in scale-up. We certainly believe that. I think we'll see NPO scale-up soon after that as well. If not by the end of calendar '27, I think we'll certainly see deployment in the early part of '28. So I think in scale-up, both CPO and NPO within either that late '27 or early '28 time frame in the scale-up applications.

And then I think -- did you ask -- what was the second part of your question, Dan?

Daniel Zhu

How much of it is VCSEL versus InP?

James Anderson

Yes. I think the initial deployment is indium phosphide, the high-power CW lasers. That's for CPO in both initially scale-out and then in scale-up. And then I think VCSELs will happen in that NPO kind of early '28 time frame.

Operator

The next question comes from Ryan Koontz with Needham.

Jeffrey Hopson

This is Jeff Hopson on for Ryan. You noted ramping the indium phosphide supply for your own laser supply and that'd be able to lead to the margin expansion from weaning off external sources. I was just curious if there's any color on what the split is currently versus internal versus external? And kind of how -- or the time line of that over time as it relates to the margin expansion?

James Anderson

Yes. Thanks, Jeff. We haven't broken out the split, but I can tell you the split hasn't changed much in a year. We're using about the same mix of internal versus external now as we were a year ago. So although we've doubled our internal indium phosphide supply our -- the primary usage of our internal indium phosphide parts is in our datacenter transceivers.

And if you look at the growth rate of our datacenter business, datacenter transceivers, it's basically tracked the growth of our indium phosphide capacity, although -- basically one quarter later because when -- in the quarter we produce the lasers, the next quarter is when we ship the transceivers. And so essentially, our transceivers have been -- business has grown at the same rate as our internal indium phosphide, which means that our mix of internal versus external really hasn't changed much over the past year.

Now as we continue to expand indium phosphide now looking forward, more than doubling it by the end of '27, we do believe over the coming quarters, we'll start to shift more of the mix from external towards internal.

Now we always think -- we always believe we'll have some portion of our supply from external for our transceiver business. But we believe over the coming quarters, we'll start to shift more towards internal. And that's really because it's a tremendous cost advantage for us to use our internally produced lasers, especially the ones that are made on the 6-inch platform. And in my prepared remarks, when I said the majority of the benefit from 6-inch indium phosphide is ahead of us, that's actually what -- really what I'm referring to is that benefit of changing the mix towards internal is largely ahead of us and that's a much bigger cost structure improvement.

Operator

The next question comes from Papa Sylla with Citi.

Papa Sylla

Congrats on the very impressive results. Jim, I wanted to maybe double-click on the $15,000 of content per, I think, 100-terabit chip you mentioned earlier at ECOC. So assuming that is probably the full stack opportunity, which might be a longer-term figure. But I thought it would be helpful to also have a sense, even qualitatively, on what percentage, I guess, of that $15,000 you expect to capture in the near term versus longer term and how it may change kind of beyond '27?

James Anderson

Yes. Thanks, Papa. Yes, the $15,000 basically represents -- if you take an example of a chip that needed 100 terabit of I/O and if you were using our full PhotonLink portfolio, which would include not just the lasers, but all the other components, isolators, thermoelectric coolers, laser modules, our full fiber assembly kit, all the connectors, et cetera. So everything that we do, if you use all of that, the content per chip would be we estimated about $15,000 per chip.

Now it will depend on the customer and their particular application, how much of that content they utilize, whether they utilize a portion of that, all of it, that will really depend on the particular engagement. But that $15,000 is sort of the opportunity that's out there for us. I think we'll see over the next year or 2 as PhotonLink ramps, I think we'll see customers that leverage the vast majority of that. And I think we'll also see customers that leverage a subset of that. So I think we'll definitely -- we'll see a mix of that.

And we're happy to support our customers, whether they want the entire solution or they want a portion of it, we'll work with them on whatever works best for them. But regardless of the amount of content they take, for us, this -- we see this as all greenfield growth because most of PhotonLink adoption over time will be driven by scale-up. And again, that's all greenfield growth for us because that's us and the industry converting copper links to optical links over time. So we see it as greenfield revenue growth.

Operator

The next question comes from Cody Acree with StoneX Financial.

Cody Grant Acree

Sherri, maybe for you, if we go back to the gross margin discussion. Can you maybe help to stratify the contribution part of that? Can you talk about the indium phosphide 6-inch ramp yields increasing utilization rates, maybe even your mix thoughts? And just if you can also factor into that the competitive dynamics on your module, on your transceiver piece of more global Chinese competition and what's inherently just a more price-sensitive market?

Sherri Luther

Yes. Sure, Cody. I think you cut out a little bit, but I think you were asking for more color on what the drivers are to gross margin expansion over 45%. That's what I think your question is.

Cody Grant Acree

Yes, yes, that's right.

Sherri Luther

Yes. Okay. So if I were to rank order, I think that the largest contributors are going to be our new product ramps and that full operational leverage of our 6-inch indium phosphide capacity and then pricing optimization, followed by cost reduction. That's kind of how I would rank order it. And the timing of some of those things kicking in, right, will vary.

But certainly, new product ramps. I mean those are gross margin accretive and new products that Jim referred to earlier in his prepared remarks. Those are gross margin accretive. And so that will benefit our gross margin. As we continue to shift our supply from external to internal, as Jim talked about a little bit ago, that's going to drive significant opportunity in our gross margin.

And then pricing optimization, rather, I mean, that is an area where I think we will continue to have benefit there fully in our Datacenter & Communications segment, certainly in our Industrial too, but definitely in Datacenter & Communications, there's opportunity for that. We saw that to be a large contributor during the current quarter as well as in prior quarters. And so that will continue to be a benefit as well to drive to over 45% and cost reductions that will always continue to be something that we focus on, but that's how I would rank order them.

Operator

The next question comes from Karl Ackerman with BNP Paribas.

Karl Ackerman

Jim, you spoke about how customers are beginning to book out to calendar 2028 that gives you confidence in your growth forecast. At the same time, there is investor concern about the financing and permitting of data centers here in the United States. In light of this, how does the team align its laser production capacity plans with your major customers? And has the team considered customer prepayments for additional laser production capacity?

James Anderson

Yes. Thanks, Karl. The answer to the last part of the question is yes, definitely. Maybe I'll start with the end of the question. So we've signed a number of LTAs over the past quarters. The one public LTA that is the one with NVIDIA that we signed back in March, but we've signed a number of other LTAs. The LTAs follow -- all follow a general pattern. And one part of the LTA is typically some sort of upfront payment from the customer either -- it could be either a prepayment or NRE. There's different forms of payment, but there's some sort of upfront payment from the customer.

And what we do that for is for 2 reasons. Number one is it makes sure that the customers have skin in the game. But number two is we use that upfront payment to help fund the CapEx to build the capacity for that customer, right? We think it's important that if we're going to go build the capacity that the customers either fund that or help co-fund that. And so far, we've had customers to be very, very willing to do that. And I think that's worked really well for us. And so I would say almost every LTA that we've signed has that general pattern. And so that certainly gives us better confidence and helps offset the risk in terms of our own capital deployment.

But I guess on the first part of your question, we certainly worked very, very closely with our customers on planning out the demand. I think one thing that -- to keep in mind with indium phosphide capacity, is remember that it's not just being driven by datacenter demand. There's 2 things driving optics -- in general, optics demand, right? Number one is datacenter growth. But number two is in the case of integrated optics, it's the conversion of the copper links to optical over time. And that is a technology trend that in my view is independent of the market demand. That's a technology trend that will happen and regardless of the datacenter demand because that's necessitated by the ability to achieve the bandwidth and the link speeds that we need to achieve in the scale-up domain or chip-to-chip is we have to switch to optics over time. And so that's an independent technology trend. And that's certainly part of what's driving the indium phosphide capacity demand over the long term.

Operator

The next question comes from Meta Marshall with Morgan Stanley.

Meta Marshall

Maybe just a question on substrate availability. I think there have been some concern in the market around availability of 6-inch versus 3-inch. I know you noted in the prepared remarks that you had gotten capacity, but maybe if you could just speak about kind of 6-inch versus 3-inch substrate availability and how that's impacting expansion plans.

James Anderson

Yes. Thanks, Meta. So we have over -- on 6-inch in particular, but 3-inch as well, we do continue to buy 3-inch wafers. We do still have 3-inch production, but all of our expansion is mostly on 6-inch moving forward.

And we have over 5 different suppliers of substrates. We've signed long-term agreements with a number of those suppliers. And when I look at our next step of more than doubling the capacity by the end of calendar '27, we believe we've secured the necessary substrates for that capacity expansion. And then we've certainly -- we have plans in place to further expand capacity beyond '27, and we're certainly working with or already have in place, substrate capacity for that as well. So I think the summary is we have multiple different suppliers, and we've made sure that we have the substrate capacity for the expansion.

Operator

The next question comes from Sean O'Loughlin with TD Cowen.

Sean O'Loughlin

Great. I'll make it quick. Jim, can you just talk about how fungible your capital installed base is across indium phosphide versus gallium arsenide, if we maybe we end up in a world that is more VCSEL or multi-core VCSEL heavy than it is ultrahigh-power CW?

James Anderson

Sure. I would say there's some fungibility, but not -- it's not like you can easily switch a line from indium phosphide to gallium arsenide or vice versa. But I will note that we have a tremendous amount of gallium arsenide capacity. One of the stats that we shared at the PhotonLink launch is that today, we have capacity to produce over 1 billion VCSEL arrays annually. So we have a tremendous amount of capacity that we could deploy.

And so to the extent that we saw a broad-based adoption and rapid ramp of VCSEL technology, I don't think we -- there's probably anybody else in the industry that's better positioned to source or to supply that demand than Coherent is. And so we feel really well positioned on gallium arsenide VCSEL technology and/or capacity. And then on indium phosphide, obviously, we're ramping that very, very quickly. And so I think on both, we're on a good path.

Operator

Our last question today comes from Ananda Baruah with Loop Capital.

Ananda Baruah

Congrats on the progress here. And I guess, Jim, let me ask you a capacity -- supply -- capacity supply question from the other direction. Yes, there's also been a conversation just in the financial community about at an industry level excess InP EML capacity at some point in calendar '28. You're also -- now you're also talking about sort of contract agreements going sort of well into that time frame. So I would love to get your opinion on sort of how you view the potential for an oversupply situation at the industry level going through '28.

James Anderson

Yes. I think through '27 and into '28, I don't see that as a risk, given that -- given not just the demand that pluggable transceivers is creating, but also the demand that integrated optics is going to create for lasers as well as there's quite a bit of indium phosphide, that's also used in some of the DCI applications, too. So when I look across all of that, I don't see an oversupply risk through calendar '28.

I also think for us because most of our indium phosphide gets used in our -- well, I guess today all of it, today, all of our indium phosphide gets used in our own products. And we don't even produce enough today for -- to meet all the demand of our own products. For us, I don't -- that's not a primary concern for us. If I think if we were -- if there were more supply externally, that may affect us if we were supplying indium phosphide lasers externally, but we're not. And I think our plan is to -- over time, start to use more indium phosphide -- more of our internal indium phosphide production in our -- to change to increase the mix towards internal over time. So yes, I guess the short answer to your question is we don't see any big oversupply situation into '28.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

James Anderson

Thanks, operator, and thanks, everybody, for joining us on the call today. So we certainly enter the remainder of the year with great momentum, exceptional customer demand and as we were just talking about rapidly expanding capacity. I just want to say thanks to -- especially to all of our employees, our customers, our partners and, of course, our shareholders for the continued support. And we look forward to updating you again next quarter. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.