Good day, ladies and gentlemen. Welcome to Fabrinet's financial results conference call. For the first quarter fiscal year 2018. And instructions on how to participate will be given at that time. As a reminder, today's call is being recorded.
I would now like to turn the call over to your host, ARO Tumaginian, Investor Relations. Sir?
Thank you, and operating results for the first quarter of fiscal 2018, which ended September 29, 2017. With me on the call today are Tom Mitchell, Founder and Executive Chairman, James Grady, Chief Executive Officer and TS Ng, governance' Chief Financial Officer. This call is being webcast and a replay will be available on the Investors section of our website located at investor. Fabrinet.com. Please refer to our website for important information, including our earnings press release and investor presentation, which include our GAAP to non GAAP reconciliation.
I would like to remind you that 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 10 K filed on August 23, 2017.
We will begin the call with remarks from Tom, Seamus, and TS, followed by time for questions. I would now like to turn the call over to Fabrinet's Executive Chairman, Tom Mitchell. Tom?
Thank you, Daryl, and good afternoon, everyone. I am pleased Our first quarter revenue of $357,000,000 was within our guidance ranges. And increased 8% from a year ago. Despite near term challenges in certain end markets, we believe that new over the long term. CEO and invite him to make
I'm very happy to be joining the Fabrinet leadership team at this exciting time in the company's growth. While we are experiencing near term challenges in certain end markets, as Tom mentioned, Fravernet is well positioned for long term profitable growth. We continue to attract and grow new business while increasingly diversifying our customer base across a broader range of end markets. We are doing this in a deliberate and strategic manner by leveraging our strengths in high mix, low volume production that takes advantage of the advanced manufacturing capabilities we have developed to serve the optical communication space as well as adjacent markets. For example, our new product introduction facilities, Fabrinet West and Fabrinet UK, are already attracting new customers for volume manufacturing in Thailand across a variety of end markets.
I am looking forward to furthering this strategy to diversify Fabrinet's customer base while strengthening our leadership position as the manufacturer of choice for the optical communications market. In the short 6 week periods, since I have been on board, I visited our teams and operations around the world, and I have met with several of our customers. And what I saw makes me very optimistic, We have a strong and expanding customer base, and we have excellent people in 1st class manufacturing capabilities. I am very positive about the long term opportunities at Fabrinet and I'm looking forward to getting to know our investors and analysts. Now let me turn the call over to TS to discuss the details of our first quarter performance.
And our outlook. TS?
Thank you, Seamus. I'm looking forward to working together to build long term shareholder value. I will provide you with more details on our performance by end market and our financial results in Q1 of fiscal year 2018 as well as our guidance for Q2. Total revenue in the quarter was 353,300,000 an increase of 8% from years ago and within our guidance range. Recall that the first quarter of fiscal year 20 17 was a 14 week quarter.
Adjusting for the extra week in 2017, our growth would have been 16% Non GAAP net income was $0.75 per share compared to $0.80 per share in the same quarter a year ago. However, in the first quarter of fiscal year 2018, we experienced a 1,900,000 or $0.05 per share foreign exchange loss headwind. Adjusting for this foreign exchange loss headwind. Non GAAP net income per share would have been at the upper end of our guidance range. While these results are within our expectation, after adjusting for foreign exchange, we are not pleased with our overall performance.
As I will describe in a moment, based largely on declining order for telecom products, We anticipate a sequential revenue decline in the second quarter. In order to help protect our historical strong margin, we have already taken actions to reduce costs, including a reduction in force. We do not take this decision lightly, but believe they are in the best interest of all of our stakeholders. While this near term outlook is discouraging, numerous factor made us optimistic about our long term ability to drive profitable growth. In new business, which represented 33 percent of our total revenue at 190,000,000 an increase of 15% from a year ago.
Looking at the first quarter in more detail, optical communications revenue was $275,600,000, an increase of 7% from a year ago and represented 77 percent of total revenue. Non optical revenue was 81,700,000 an increase of 9% from a year ago and represented 23% of total revenue. Within optical communications, datacom again grew faster than telecom. Datacom was 39 percent of optical revenue at 107,800,000 up 21% from a year ago. Telecom was 61% of optical revenue, at $167,800,000 and was roughly flat compared to the first quarter of fiscal year 2017.
We believe the continued strength in data comps reflects secular growth drivers in that market, which offset some of the volatility we see in the telecom market. 100 gig solution continued to dominate the optical market at 57% of optical revenue and 44% of total revenue, driven by demand for advanced components and modules, including QSFP28 transceiver and silicon photonic modules. In fact, QSFP28 revenue was $48,000,000 in the first quarter up 12% sequentially and more than fivefold from a year ago. 400 gig solution represented 6% of revenue as in the fourth quarter. In the first quarter, we also started sampling 1.2 terabit solution, Silicon photonic revenues increased 24% from a year ago and was consistent with the 4th quarter representing 22% of total revenue in the quarter compared to 21% of revenue in the prior quarter.
Note that we achieved this performance despite a meaningful sequential decline in Silicon Photonics revenue for one customer with going through a product transition. Looking at non optical communications, Revenue from lasers was $37,000,000 or 10 percent of revenue compared to $38,000,000 a year ago. Sensors revenue was down slightly from Q4, but stable from a year ago at approximately 4,000,000 while automotive revenue was up 1% from a year ago at RMB21 million. Other revenue was $19,000,000, up 67% due to strong performance on both February and west and further contribution from Fabrinet UK. Now turning to the details of our P and L and reconciliations of GAAP to non GAAP measures is included in our earnings press release and investor presentation, which you can find on our website.
Non GAAP gross margin in the first quarter was 11.8%, which is below our target range of 12% to 12.5%, primarily due to seasonal trend with annual merit increases in the first quarter, but also from strengthening of the Taibat and Chomburi startup costs previously reported in operating expenses. The cost cutting measures I discussed earlier are squarely aimed at returning our gross margin to within our target range. We have already started a reduction in force of approximately 200 indirect staff member in order to bring our costs in line with revenue. Non GAAP operating income in the first quarter was $31,900,000, and operating margin was 8.9% compared to 9.4% in both the years ago quarter and in Q4. With a decrease primarily due to lower gross margin.
Texas in the quarter were a net expense of $1,700,000 and our normalized effective tax rate was 6.3% which was in line with our expected range of 6% to 7%. We continue to anticipate the effective tax rate of 6 to 7% for fiscal income was $28,600,000 in the first quarter or $0.75 per diluted share compared to $29,700,000 or $0.80 per diluted share in Q1 of fiscal year 2017. On a GAAP basis, which include share based compensation expenses and amortization of debt issuing costs Net income for the first quarter was 21,000,000 or $0.55 per diluted share compared to 22,800,000 or $0.61 per diluted share in the first quarter of fiscal year 2017. As I mentioned earlier, we experienced a $1,900,000 or $0.05 per share negative impact from a stronger tie on our GAAP and non GAAP bottom line results for the first quarter. Moving on to the balance sheet and cash flow statement.
At the end of the first quarter, cash and investment were $266,700,000. This represents a decrease of approximately $22,000,000 from the end of the 4th quarter reflecting typical cash flow seasonality, including an operating cash outflow of $3,100,000, CapEx expenses of $11,200,000 and loan repayments of $4,400,000, In fiscal year 2018, we continue to expect CapEx to be approximately 40,000,000 note that we did not repurchase any shares during the quarter and $30,000,000 remain in our repurchase authorization. I would now like to discuss guidance for the second quarter. As Tom and Seamus mentioned, we have seen near term demand temper in certain customer end markets. As a result, committed order levels suggest that our revenue will decrease from the first quarter.
While this near term dip in demand, mainly from telecom related products, is disappointing we expect datacom product to deliver more stable results. At the same time, we have made tremendous inroads into the non optical communication market to support our diversification objective and expect to see continuous sequential growth from this product with particular strength expected from the industry laser and automotive market. We expect revenue in the 2nd quarter to be between $328,000,000 and $332,000,000. We anticipate non GAAP net income per share in the first quarter to be in the range of based on approximately 38,200,000 fully diluted shares outstanding. In summary, we are disappointed in the impact that the near term pause in some end market are having on our financial results.
We have made a proper adjustment to our cost structure and believe that our strategy to win new business and diversify the end market we serve will enable us to deliver profitable growth as we look forward. Operator, we would now like to open the call for questions.
Our first question is from Patrick Newton of Stifel. Your line is open.
Yes, thank you. Good afternoon, Tom Seamus and TS. I guess my first one is I'm trying to bifurcate on the data center. You seem to be talking about it being roughly flat. We've heard several for your customers speak to some QSFP28 trends that are relatively challenged.
So can you help us understand for your business, what's happening with QSFP28 relative to Silicon Photonics sequentially?
Yeah, you know, we have a couple of customer, we produced the datacom for a couple of customer. So the one customer or 2 customer, you heard about data count sweeteners may not necessarily reflect, you know, on our entire portfolio. So, we are still looking at datacom year on year, we'll continue to deliver stable results.
Okay. And then no difference on, on no noticeable difference on QSFP28 versus Silicon Photonics within that outlook?
Yes, it's the same story, though. Specifically 28, we have almost half a thousands of customers and some of them are ahead, of the curve. They are doing very well in a CWDM. Some of them having some challenge transition from LL4 to CWDM. But in aggregate, you know, we see, overall on QS-seventy 28, it's doing okay for us.
And silicon photonics is the same thing. We mentioned about one customer has a product transition, and the other customer in their earning call, they talk about, you know, our guiding guidance. So all these are reflected in our guidance.
And pertaining to the silicon Photonics customer that you said is going through the product transition. Is this, somebody that's transitioning to another product line that Fabrinet and it could prove somewhat temporary? Or is this a customer that may be moving more to a merchant market solution, meaning that this could prove to be a multi quarter headwind?
My understanding is that they are doing it with us, okay? So that's my understanding.
Okay. And just last one for me is on the, you previously, I guess, discussed a customer who wanted to sell direct to hyperscale I was wondering if you could provide us with an update on progress with that solution and when we could expect a meaningful revenue contribution maybe $10,000,000 or more in quarterly revenue?
Yes. In general, we don't comment on the specific customer program. But I can tell you that we we are actually, progressed on plan, you know, on the initiative.
Great. Thank you for taking my questions, Seamus. Welcome to the team.
Thank you. Our next question is from Alex Henderson of Needham And Company. Your line is open.
Thanks. I was hoping you could talk a little bit about the industrial laser segment, what you're seeing in terms of trends there, that should be, I would think, a bright spot of places picking up. Is that reasonable?
That's reasonable, Alex.
And what about on the automotive side? There was a fair amount of discussion about some new projects in the Automotive segment. Have you seen those come to fruition?
Yeah, the automotive, the legacy customer, we continue to do well with this stable. And as we discussed before, you know, we in the new product for some of the customer and those parts are doing well. That's why in the prepared speed, we talk about non optical communication, the segment is we actually guided up in that segment.
I see. So Some of those are car sensing technologies?
That's correct, Alex.
All right. And then going back to, the data center side of the business for a second, you've got a number of new customers ramping over there. You've got some some older customers that are, maybe in product transitions. Can you talk a little bit about the mix between new customers and, existing customers in, you know, over the next couple, 2, 3 quarters. Do you see that mix shifting to some of the new customers, or do you see a continuation of the same rough share between new and old?
Alex, you know, most of the legacy customer you heard, they're earning call. They they are actually guided down on a datacom. They are a little bit pessimistic on datacom as you can hear from the data from the earning call. But again, you know, we most of our assets it's on a new customer as you, you know, correctly pointed out that. But in terms of mix, we don't normally give out the mix, but I can tell you that most of the offset is on the new customer.
What I was trying to get at is it is it is the are the newer customers that are in that space accelerating enough that after we get through the initial comparable offset that we actually see growth coming back from the new, driven by these new customers?
We like to think that way, but in the short term, what we guide is what we guide, our datacom will be down.
Right. Okay. I'll see you at the floor. Thanks.
Thank you. Our next question is from Paul Coster of JP Morgan. Your line is open.
Yes, thanks. I wonder if you can give us some sense of the duration of this downturn. I mean, you're setting headcount and that's implies usually, a fairly long term view of, resourcing requirements. So talk to us a little bit about how to interpret the reduction in headcount
Yeah, Paul, not necessarily. We are actually picking out only in the indirect labor. We never touched the direct labor even in our previous, you know, reduction in force. So those are the guy who have, you know, we need them to generate product. So when a business turn, We definitely have the workforce, to, to capture that business.
So these are the, you know, indirect labor, things are technician and some are low level engineer. We found, you know, with the latest business condition, we are a little excess and that's why we take out those redundancy.
Okay. Got it. And, I mean, is this a 1 quarter downturn or 6 months? Can you give us some sense of when you think it will recover
You probably know that we get 13 week forecast from the customer. So that is the visibility we have. Beyond that, our guess is as good as anybody else guess.
Got it. The telecom side of the business, was there anything to be said about the different region or was it a uniform slowdown?
I won't say region is more a new customer versus legacy customer. So as you know, we did quite well in our new businesses and we continue to ramp that new businesses segment.
I'm sorry. Maybe I misunderstood that in telecom, it was new customers or I'm just trying to focus in on the telecom sector
That's right.
Specifically.
Yes, we had some new customer came online. We classified a new customer on new business. It's a business we we never have remember 2014, we start tracking from there. So those are the business we acquire and then we continue to ramp their production. So so those are the area where, you know, we we concentrate on.
Most of the legacy customer except one customer mentioned in their earning call that, you know, they are looking at up on a telecom, but I think majority of them are guided down. So that reflected in our guidance.
Okay. Got it. And then my last question is the 400 gig and 1.2 terabyte transition. Is it possible that this is starting to slow the adoption of 100 gig?
Again, you're getting to the customer application territory. I really don't want to make comment on that. Okay.
Thanks very much.
Thank you, Paul. Thank you, Paul.
Thank you. Our next question is from Tim Savageaux of Northland Capital. Your line is open.
Hi, good afternoon and apologies in advance. I'm in an airport here. I just wanted to clarify guidance along 2 fronts. 1, datacom revenue to Silicon Photonics revenue. Are you guiding those to be, I think you made a comment about datacom being flat year over year.
Does that mean down sequential and Same comment about Silicon Photonics. Do you expect that, what sort of sequential performance do you expect out of Silicon Photonics? Thanks.
Okay. So obviously, the quarter is not over. We we look at the way we look at it, datacom, is stable. Stable to slightly down a little bit, silicon photonic, you know, hopefully we can be flat on that. Because we've got, again, we've got a 1000 of customers, some up and some down, with a new customer who contribute to the grow.
So at this moment, we really do want to get into segment guiding, but, datacom is stable and flat. And silicon photonics, I do do I hope that you'll be flat also.
Okay. And just to follow-up briefly. And I think you did, and it's not surprising to hear, talk about the potential for sequential growth on the non communication side. So obviously, that implies a pretty significant decline, in telecom. And I guess, you know, looking at the environment, that's probably more concerned about the datacom side, which relatively okay.
Any additional color you might be able to provide in terms of drivers on the telecom side And one thing I wanted to throw in there that I forgot is if you can in any way characterize the magnitude of the decline in one of your legacy silicon photonics customers you mentioned?
Okay. So on the telecom, obviously, you know, we see the data in front of us. Obviously, I hope that Chinese will come back will probably contribute to the telecom. And also one of my customers saying that they are pretty, optimistic about the ROADMs RAM. If that happens, there will benefit from that.
So that are the 2 major driver we are keeping an eye on it. Okay. And on the silicon photonics, really nothing much you can I can say because there are 5 or 6 customer, we which has a different, levels of, RAM? And and some went faster than the other. So as I earlier, I mentioned earlier, I I like to see at least flat in that, in that technology segment.
Thank you.
Thank you. At this time, I see no other questions in queue. I'll turn to Mr Mitchell for closing remarks.
I want to thank you for joining us, and I look forward to our next call.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes your program. You may now disconnect. Everyone have a great day.