Fabrinet Stock

Fabrinet provides advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers (‘OEMs’) of complex products, such as optical communication components, modules and sub-systems, industrial lasers, automotive components, medical devices and sensors.

The company offers a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process, including process design and engineering, supply chain management, manufacturing, complex printed circuit board assembly, advanced packaging, integration, final assembly and testing. The company focuses primarily on low-volume production of a wide variety of high complexity products, which the company refers to as ‘low-volume, high-mix’. The company also has the capability to accommodate high-volume production. Based on the company’s extensive experience and the positive feedback the company has received from its customers, the company is a global leader in providing these services to the optical communications, industrial lasers and automotive markets.

The company’s customers include companies in complex industries that require advanced precision manufacturing capabilities, such as optical communications, industrial lasers, automotive and sensors. The company’s customers in these industries support a growing number of end-markets, including automotive, biotechnology, communications, materials processing, medical devices, metrology and semiconductor processing.

In many cases, the company is the sole outsourced manufacturing partner used by the company’s customers for the products that the company produces for them. The products that the company manufactures for its OEM customers include:

Optical communications devices, such as selective switching products, such as reconfigurable optical add-drop multiplexers (‘ROADMs’), optical amplifiers, modulators and other optical components and modules that collectively enable network managers to route voice, video and data communications traffic through fiber optic cables at various wavelengths, speeds, and over various distances; tunable lasers, transceivers, and transponders that eliminate, at a significant cost savings to the service provider, the need to stock individual fixed wavelength optical transceivers and transponders used in voice and data communications networks; and active optical cables providing high-speed interconnect capabilities for data centers and computing clusters, as well as Infiniband, Ethernet, fiber channel and optical backplane connectivity.

Solid state, diode-pumped, gas and fiber lasers (collectively referred to as ‘industrial lasers’) used across a broad array of industries, including semiconductor processing (wafer inspection, wafer dicing, and wafer scribing), biotechnology and medical device (DNA sequencing, flow cytometry, hematology, and antibody detection), metrology (instrumentation, calibration, and inspection), and material processing (metal, polymer, textile drilling and cutting, annealing, marking, engraving, and welding).

Sensors, including differential pressure, micro-gyro, fuel and other sensors that are used in automobiles, and non-contact temperature measurement sensors for the medical industry.

The company also designs and fabricates application-specific crystals, lenses, prisms, mirrors, laser components and substrates (collectively referred to as ‘customized optics’) and other custom and standard borosilicate, clear fused quartz, and synthetic fused silica glass products (collectively referred to as ‘customized glass’). The company incorporates its customized optics and glass into many of the products the company manufactures for its OEM customers, and the company also sells customized optics and glass in the merchant market.

The company offers differentiated manufacturing services through its optical and electro-mechanical process technologies and the company’s strategic alignment with its customers. The company’s dedicated process and design engineers, who have a deep knowledge in materials sciences and physics, are able to tailor the company’s service offerings to accommodate its customers’ complex engineering assignments. The company’s range of capabilities, from the design of customized optics and glass through process engineering and testing of finished assemblies, provides the company with a knowledge base that leads to improvements in its customers’ product development cycles, manufacturing cycle times, quality and reliability, manufacturing yields and end product costs.

The company offers an efficient, technologically advanced and flexible manufacturing infrastructure designed to enable the scale production of low-volume, high-mix products, as well as high-volume products. The company specializes in complex prototype and new product introduction services, with specialized resources to meet customers’ quick-turn printed circuit board assembly (‘PCBA’) and early stage manufacturing requirements. The company has a dedicated engineering team to support the advanced optical packaging needs of the company’s customers’ cutting edge products, which allows them to accelerate development and time-to-market for such products. The company often provides a ‘factory-within-a-factory’ manufacturing environment to safeguard its customers’ intellectual property by physically segregating certain key employees and manufacturing space from the resources the company uses for other customers.

The company also provides its customers with a customized software platform to monitor all aspects of the manufacturing process, enabling the company’s customers to remotely access its databases to monitor yields, inventory positions, work-in-progress status and vendor quality data in real time.

As of June 30, 2023, the company’s facilities comprised approximately 3.7 million total square feet, including approximately 0.9 million square feet of office space used for general administration purposes and approximately 2.8 million square feet devoted to manufacturing and related activities, of which approximately 1.0 million square feet are clean room facilities. Of the aggregate square footage of the company’s facilities, approximately 3.2 million square feet are located in Thailand and the remaining balance is located in the People’s Republic of China (‘PRC’ or ‘China’), the United States, Israel and the Cayman Islands.

Growth Strategy

The key elements of the company’s growth strategy are to strengthen the company’s presence in the optical communications market; leverage the company’s technology and manufacturing capabilities to continue to diversify the company’s end-markets; continue to extend the company’s customized optics and glass vertical integration; evaluate potential strategic alternatives, such as acquisitions and joint ventures; broaden the company’s client base geographically; and establish new product introduction (‘NPI’) centers to generate and transfer new business to Thailand.

Service Offerings

The company offers integrated precision optical, electro-mechanical, and electronic manufacturing services and customized optics and glass fabrication services for the company’s OEM customers.

Precision Optical, Electro-Mechanical, and Electronic Manufacturing Services

Process Design and Engineering

The company continuously analyzes its customers’ product designs for cost and manufacturability improvements. The company performs detailed design for manufacturability studies and design of experiments to assist in optimizing a product’s design for the lowest cost possible without compromising the quality specifications of form, fit and function. In the case of a new product design, the company may assist in assembling one or more prototype products using the same production line and the same engineering and manufacturing teams that would be used for product qualification and volume production. The company often transfers production from a customer’s internal prototype or production lines to the company’s own facilities, requiring a copy-exact: the setup of a production process identical to the one used by the company’s customer to minimize the number of variables and expedite qualification.

Advanced Optical Packaging

The company has a dedicated team of experienced engineers supporting its advanced optical packaging development capabilities. These highly qualified engineers work with the company’s customers to understand the development requirements of their new products and assist them to build prototypes, as well as source materials, optimize manufacturing processes and develop schedules to bring these products to volume production. The company maintains a real-time roadmap for the packaging requirements of the company’s customers and the industry in general. The company’s advanced packaging team develops and maintains generic recipes that are readily available to be tailored and refined for the specific new applications of the company’s customers, which helps to further accelerate prototype development and product delivery time.

Printed Circuit Board Assembly and Test

Printed circuit board assembly involves attaching electronic components, such as integrated circuits, capacitors, receivers, transceivers and other components and modules to printed circuit boards. The company employs a variety of mounting and assembly technologies, including SMT, PTH and ACT, press-fit, and other connection processes that are focused on miniaturization and increasing the density of component placement on printed circuit boards. These technologies, which support the needs of the company’s customers to provide greater functionality in smaller products, include chip-scale packaging, ball grid array, direct chip attach and high density interconnect. The company performs in-circuit, functional and environmental testing of printed circuit board assemblies to verify all components are properly inserted, attached and the electrical circuits are complete, and that the board or assembly operates in accordance with its final design and manufacturing specifications.

Dedicated New Product Introduction

The company is committed to providing NPI capabilities designed to ensure that the company’s customers’ products get to market as quickly as possible. Co-locating strong engineering services in process design, prototyping, design for manufacturability (‘DFM’) and test at these locations gives customers a full suite of NPI services for quick-turn PCBA to box-build to full system assembly. Stringent IP protection protocols are strictly enforced throughout the entire process, safeguarding the company’s customers’ intellectual property. The company’s NPI sites are outfitted with production equipment that mirrors the equipment used in the company’s manufacturing facilities, ensuring a fast, smooth transition to a production environment once the product is qualified.

Qualifications

Production line and environmental qualifications require a variety of process engineering and technical skills, and the use of specialized equipment. Many of the products that the company produces for its customers require extensive environmental and reliability qualification involving, in some cases, a three to six months or longer duration prior to volume production. The qualification phase may include a customer’s certification of a production line or process and one or a series of qualification tests for mechanical integrity and environmental endurance as specified by an industry standards organization, such as Telcordia for telecommunication equipment. The company has extensive expertise in the planning, executing, troubleshooting and ultimate success of these qualifications and testing environments, which provides the company’s customers a higher likelihood of completing these qualifications in a timely fashion.

Continuous Improvement and Optimization

Once the company has completed the qualification phase and stabilized production yields, the company shifts its focus to cost and quality optimization. This requires a close working relationship with the company’s customer to optimize processes and identify alternative sources for materials to improve efficiency, yields and cost. Design and process improvements may include reducing the number of parts, simplifying the assembly process, eliminating non-value add operations, using standard materials and optimizing manufacturing lines.

Supply Chain and Inventory Management

The company’s expertise in supply chain and materials management often allows the company to further reduce costs and cycle times for the company’s customers. The company’s procurement and materials management services include planning, purchasing, expediting, warehousing and financing materials from thousands of suppliers. The company has created a proprietary set of automated manufacturing resource planning tools to manage the company’s inventory. The company has also implemented inventory management strategies with certain suppliers that enable the company to use inventory on an as-needed basis and provide on-site stocking programs.

Quality Control

The integration of the company’s manufacturing and test controls, quality systems, and software platforms contribute significantly to the company’s ability to deliver high-quality products on a consistent basis and reduce the risk that the company will be required to repair or replace defective products. The company’s manufacturing execution system (‘MES’) is directly integrated with the company’s test system and enterprise resource planning (‘ERP’) database allowing the company to respond to any process deviations in real time. The company works with customers to develop product-specific test strategies. The company also provides a variety of test management services, including material and process testing and reliability testing. In addition to providing yield, manufacturing data tracking and other information, the company’s data tracking system also performs process route checking to ensure that the products follow correct process steps, and the test results meet all specified criteria. The company’s test capabilities include traditional PCBA testing, mechanical testing and optical testing, which includes parametric testing, such as insertion loss, return loss and extinction ratio, and functional testing (e.g., bit error ratio).

Customized Glass and Crystal Optics Fabrication

The company designs and fabricates its own customized glass and crystal optics, which are core components of the higher level assemblies that the company manufactures for its customers. The company’s fabrication facilities are located in Fuzhou, China and Mountain Lakes, New Jersey. The company’s customized glass and crystal optics products include the following:

Fiber Optic Ferrules and Alignment Sleeves; Fiber Optic Substrates; Precision Glass Tubing, Precision Capillaries and Rods: These single bore and multi-bore products, in various shapes and dimensions, are used principally in optical communications, medical and industrial applications.

Laser Optics: Includes crystals (such as YVO4, Nd: YVO4, Cr: YAG, and BBO), optics, high reflectivity mirrors, lenses, prisms and windows used in laser applications.

Medical Optics: Includes mirrors, lenses, filters, wave plates, windows, and prisms incorporated into various medical equipment products.

Storage Optics: Includes mirrors, polarizing beam splitters or PBS, and wave plates incorporated into optical storage products.

Surveying Optics: Includes penta prisms, corner cubes, and T-Windows incorporated into precision surveying products.

Telecom Optics: Includes lenses (such as spherical,a-spherical,C-lens,and cylindrical), wave plates, mirrors, prisms, filters and YVO4 crystals used for telecommunications applications.

Telecommunication Subassemblies: Includes fiber pigtails (both single and dual), assemblies and collimators used in many fiber optic components such as isolators, circulators, optical switches and three-port filters.

Customers, Sales and Marketing

The optical communications market the company serves is highly concentrated. During the year ended June 30, 2023, Cisco Systems Inc., Lumentum Operations LLC, Nvidia Corporation, and Infinera Corporation contributed 15.6%, 15.4%, 12.5%, and 12.4% respectively, of the company’s revenues.

Intellectual Property

The company has a relatively small number of solely-owned and jointly-held PRC patents in various customized optic technologies with expiration dates between 2023 and 2040.

Government Regulations

As part of the International Organization for Standardization (‘ISO’) 14001 environmental management systems framework, the company has established and continues to enforce at the company’s facilities a global environmental policy that includes evaluation and control, compliance obligations, commitment, training, communication, control of documented information, operational control, emergency preparedness and response, and management review.

Competition

The company’s customized optics and glass operations face competition from companies, such as Browave Corporation, Fujian Castech Crystals, Inc., Photop Technologies, Inc., and Research Electro-Optic, Inc.

History

Fabrinet was incorporated under the laws of the Cayman Islands in 1999 and commenced business operations in 2000.