Driven by surging AI computing demand and the industry-wide shift toward higher-bandwidth, lower-power network infrastructure, optical communications company Coherent Corp. says customer orders are growing at an accelerated pace, with its backlog reaching a record high and order visibility now extending into the 2028–2030 timeframe.
Speaking at the company's earnings conference for the third quarter of fiscal 2026, Coherent CEO Jim Anderson said progress on the company's 6-inch indium phosphide (InP) capacity upgrade is running well ahead of expectations, allowing it to reach its capacity-doubling target one quarter earlier than planned. Shipments of 1.6T optical modules, meanwhile, are ramping rapidly.
Coherent's management stressed that demand is no longer the primary concern. The critical challenge now lies in overcoming production bottlenecks and accelerating the commercialization of co-packaged optics (CPO) and advanced thermal management technologies.
Anderson said three emerging technologies — CPO, Multi-Rail networking technology, and Thermadite thermal management materials — together represent a potential market opportunity exceeding US$17 billion.
As Coherent's business is closely tied to AI infrastructure deployment, its optical networking technologies have become increasingly critical for interconnects between AI chips. In March 2026, Nvidia announced US$2 billion investments in both Lumentum Holdings and Coherent, alongside multi-billion-dollar long-term procurement commitments.
1.6T ramps fast as 6-inch InP capacity surges
The industry's biggest challenge is no longer a shortage of orders — it is the inability to deliver products quickly enough. For Coherent, InP production capacity remains the core bottleneck.
Anderson revealed that after upgrading from 3-inch to 6-inch production lines, the number of tools increased by more than four times while overall costs fell to less than half of previous levels. Yield rates on the 6-inch platform have now surpassed those of traditional 3-inch lines, and the company shipped its first optical transceiver products using 6-inch components during the third quarter of fiscal 2026 (3QFY26).
To meet strong market demand, Coherent is accelerating its expansion plans, aiming to double its internal InP capacity during 2026 and double it again by end of 2027 — effectively expanding production capacity fourfold within two years.
When asked by analysts how the company allocates limited capacity between older and newer product lines, Anderson said Coherent would prioritize InP supply toward products capable of generating the highest dollar profit margins, adding that the company will allocate supply "where the largest-scale profits can be created."
In the optical transceiver market, demand is also rapidly shifting toward higher-speed products. Anderson said 800G products are expected to continue growing through 2026, but demand growth for 1.6T products is becoming even more significant.
Coherent said 1.6T optical modules are currently ramping "at an astonishing speed," with adoption accelerating faster than the company anticipated a year ago. Beyond electro-absorption modulated laser (EML) solutions, silicon photonics (SiPho)-based 1.6T modules have also entered mass production.
CPO, Multi-Rail, and thermal management target AI bottlenecks
Coherent also outlined three major next-generation technology initiatives. The first is CPO technology, which the company described as a "transformational growth opportunity" with a projected market size exceeding US$15 billion. Nvidia's multi-billion-dollar long-term procurement commitments also back the initiative.
Revenue from scale-out CPO products is expected to ramp in the second half of 2026, while scale-up CPO products are projected to begin contributing in the second half of 2027.
As AI data centers face increasingly severe thermal and power consumption challenges, Coherent is bringing material technologies originally developed for industrial applications into the AI infrastructure market. Anderson specifically highlighted the company's proprietary Thermadite thermal management materials.
He said Thermadite enables XPUs and GPUs to operate at higher frequencies and utilization rates, effectively increasing token generation efficiency under the same hardware conditions. Compared with conventional copper-based cooling solutions, Thermadite and similar next-generation materials can deliver thermal conductivity performance two to five times higher than copper.
Coherent also disclosed details of its Multi-Rail technology, aimed at addressing rapidly growing bandwidth requirements between AI data centers. The company estimates the market opportunity could exceed US$2 billion, with revenue contribution expected to begin in the first half of 2027.
Article translated by Levi Li and edited by Jerry Chen
