Gross margins expanded 490 basis points while they tripled internal wafer capacity.
Thesis: Coherent is shedding its commodity skin. By owning the indium phosphide bottleneck (internal EMLs now >50% of revenue), they are capturing the margin that usually leaks to suppliers. The street sees an optical assembler; the numbers show a vertically integrated compounder. The 6-inch wafer transition isn't just capacity—it's a step-function cost reduction hitting exactly as 1.6T ramps.
Verdict: LONG — Conviction: HIGH
Catalyst: Investor Day on May 28th detailing the 1.6T ramp and long-term operating model.
Key Risk: Hyperscaler capex digestion. If the 800G to 1.6T handoff has an air pocket, high fixed costs from capacity expansion will bite.
The Tell: CFO Sherri Luther admitted 'mix' was a headwind, yet margins still expanded 30 bps sequentially. This reveals the sheer power of their cost outs and yield improvements. If mix merely stabilizes, margins rip higher.
Friction Level: MODERATE_FRICTION — Bears see a cyclical peak with industrial drag. Bulls see a structural re-rating driven by vertical integration and AI leverage.
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