Coherent Corp.

Company Overview

Business Model: Coherent Corp. is a vertically integrated manufacturing company that develops, manufactures, and markets lasers, transceivers, and other optical and optoelectronic devices, modules, and systems, as well as engineered materials. The company generates nearly all its revenues, earnings, and cash flows from these activities, serving the communications, industrial, instrumentation, and electronics markets. Coherent Corp. leverages broad technical expertise and a deep technology stack, including materials growth, fabrication of specialty materials, semiconductor lasers, passive optics, transceivers, transport equipment, high-power lasers, and custom integrated software.

Market Position: Coherent Corp. is a global leader in many of its product families, competing on core competencies from materials to systems, differentiated products and services, and the sustainability of its competitive advantages. Key differentiators include its intellectual property, ability to scale, product quality, on-time delivery, and technical support. The company's vertical integration, diverse manufacturing facilities, experienced technical and manufacturing employees, and worldwide marketing and distribution channels provide competitive advantages. Coherent Corp. focuses on providing critical components for high-growth applications, particularly in AI and machine learning in the datacom market.

Recent Strategic Developments:

• Organizational Realignment: Effective July 1, 2025, for fiscal year 2026, Coherent Corp. realigned its organizational structure into two reporting segments: Datacenter and Communications, and Industrial, mirroring its market groups.
• Restructuring Initiatives:
  • 2023 Plan: Approved in May 2023, this plan included site consolidations, facilities moves and closures, and relocation/requalification of manufacturing facilities to realign cost structure. Charges of $53 million were incurred in fiscal 2025, primarily for impairment losses, ROU asset impairment, employee termination, site move costs, and accelerated depreciation.
  • 2025 Plan: Commencing in Q3 fiscal 2025, this plan involves further site consolidations, facilities moves and closures, workforce reductions, and contract terminations. Charges of $107 million were incurred in fiscal 2025, primarily for asset write-offs, ROU assets, and employee/contract termination costs. Substantial completion is expected by the end of fiscal 2026.
  • Synergy and Site Consolidation Plan: Accelerated efforts following the acquisition of Coherent, Inc. in July 2022, achieving the previously announced $250 million synergy target. Charges of $17 million were incurred in fiscal 2025 for overlapping labor, shutdown costs, and employee termination.
• Strategic Divestiture: In the fourth quarter of fiscal 2025, management entered into non-binding agreements to sell several entities, resulting in non-cash impairment charges of $85 million. On August 2, 2025, an agreement was signed to sell the aerospace and defense business for $400 million, expected to close in Q1 fiscal 2026 with an anticipated gain.
• Silicon Carbide LLC Investment: In December 2023, Silicon Carbide LLC, a subsidiary, received $1.0 billion cash from Denso Corporation and Mitsubishi Electric Corporation in exchange for 25% equity. These funds are primarily used to finance future capital expansion in the silicon carbide business.

Geographic Footprint: Coherent Corp. is headquartered in Saxonburg, Pennsylvania, USA, with R&D, manufacturing, and sales facilities worldwide.

• Principal U.S. Operations: California, Connecticut, Delaware, New Jersey, Pennsylvania, and Texas.
• Principal Non-U.S. Operations: China, Finland, Germany, Malaysia, the Philippines, Singapore, South Korea, Sweden, Switzerland, the United Kingdom, and Vietnam.
• Sales and Marketing Subsidiaries: Belgium, Canada, France, Israel, Italy, Japan, the Netherlands, and Taiwan.
• Diverse Manufacturing Base: Utilizes contract manufacturers and strategic suppliers, with a diverse manufacturing base valued for supply chain resiliency.

Financial Performance

Revenue Analysis

Profitability Metrics (FY25):

• Gross Margin: 35.2%
• Operating Margin: 5.0%
• Net Margin: 0.5%

Investment in Growth (FY25):

• R&D Expenditure: $582 million (10.0% of revenue)
• Capital Expenditures: $441 million
• Strategic Investments:
  • $1.0 billion cash investment in Silicon Carbide LLC from Denso Corporation and Mitsubishi Electric Corporation to fund future capital expansion in the silicon carbide business.
  • Continued investment in product portfolios, particularly in datacom, with a focus on projects with the highest return-on-investment.

Business Segment Analysis

Networking

Financial Performance (FY25):

• Revenue: $3,421 million (+49.2% YoY)
• Segment Profit: $644 million (+81.9% YoY)
• Key Growth Drivers:
  • Increased AI datacenter related revenue in the communications market, driven by strong demand in the datacom vertical.
  • Growth in the telecom vertical due to increased demand in data center interconnect and the telecom transport market.
  • Higher revenues partially offset by increased R&D investments in the product portfolio.

Product Portfolio:

• Transceivers, systems, subsystems, modules, components, optics, and semiconductor devices for datacenter and communications applications.
• Complete portfolio of transceivers for AI and machine learning, supporting Ethernet, InfiniBand, and proprietary protocols.
• Vertically integrated design and manufacturing of materials and components, including GaAs-based VCSELs, InP-based DMLs, EMLs, CW lasers, detectors, ICs, and passive optics.
• Silicon photonics and co-packaged optics (CPO)-enabling technologies.
• Coherent transmission components and transceivers, transport products (980 nm and 14xx pump lasers, erbium-doped fiber amplifiers, passive components, OCM, OTDR, ROADM, optical line systems).
• Optical circuit switch (OCS) product family for AI/ML and hyperscale datacenters based on digital liquid-crystal technology.

Market Dynamics:

• Significant growth in AI and machine learning in the datacom market vertical.
• Global technology leader in optical communications, addressing increasing demands for network bandwidth and data storage.
• Products designed for low power consumption, compactness, ease of installation and operation, and cost savings in the DCI market.
• Two customers each contributed more than 10% of consolidated revenue in fiscal 2025, primarily from the Networking segment.

Materials

Financial Performance (FY25):

• Revenue: $954 million (-6.2% YoY)
• Segment Profit: $355 million (+19.5% YoY)
• Key Growth Drivers:
  • Revenue decrease primarily due to a $71 million decline in the electronics market (weak automotive and Silicon Carbide end market demand) and a $29 million decrease in the industrial market (macroeconomic conditions).
  • Partially offset by $33 million higher volumes in the datacom vertical within the communications market.
  • Segment profit increase driven by favorable product mix, improvements in pricing optimization, and lower manufacturing costs, partially offset by higher R&D investments and variable compensation.

Product Portfolio:

• Engineered materials, laser optics, thermoelectric components, and advanced ceramic and metal-matrix composite materials and products.
• VCSELs, edge-emitting lasers (EELs), pump lasers, high-power lasers for materials processing, and integrated circuits (ICs).
• Market leader in engineered materials and optoelectronic devices based on ZnSe, ZnS, GaAs, InP, GaSb, and SiC.
• SiC substrates for power electronics in electric and hybrid-electric vehicles.
• 100 mm, 150 mm, and 200 mm semi-insulating SiC substrates for GaN-on-SiC HEMT RF power amplifier devices in 4G and 5G wireless base stations.

Market Dynamics:

• Concentrations in the industrial and electronics markets.
• Weak demand in the automotive market and for Silicon Carbide products.
• Exposure to macroeconomic conditions impacting industrial markets.

Lasers

Financial Performance (FY25):

• Revenue: $1,435 million (+2.8% YoY)
• Segment Profit: $317 million (+53.2% YoY)
• Key Growth Drivers:
  • Revenue increase primarily due to $73 million higher shipments of laser systems in the display capital equipment market.
  • Partially offset by continued soft demand in precision manufacturing.
  • Segment profit increase driven by favorable product mix, higher revenue volumes, improvements in pricing optimization, and lower manufacturing costs and SG&A expenses.

Product Portfolio:

• Excimer lasers, solid-state lasers, CO2 lasers, and laser systems for industrial applications (semiconductor capital equipment, display manufacturing, precision manufacturing, scientific research).
• Laser systems and subsystems.
• Advanced materials for semiconductor capital equipment (metal-matrix composites, reaction-bonded ceramics).
• Lasers for semiconductor processes (solid-state and excimer lasers for inspection, CO2 lasers for wafer annealing, lasers for advanced packaging applications).
• Excimer laser-based annealing systems for LTPS OLED display production.
• CO2 lasers and UV ultrashort-pulsed lasers for cutting applications.
• UV and DUV laser solutions for next-generation microLED displays.
• Visible-wavelength lasers and multicolored laser and LED engines for life sciences instrumentation.
• Semiconductor laser bars and stacks for medical applications (hair/wrinkle removal).
• Femtosecond and excimer lasers for medical procedures (LASIK).
• CW lasers for microscopy, advanced ultrafast-pulsed laser sources, high-energy pulsed excimer gas lasers for scientific research.

Market Dynamics:

• Serves industrial customers in semiconductor and display capital equipment and precision manufacturing.
• Serves instrumentation customers in life sciences and scientific instrumentation.
• Strong demand in display and semiconductor capital equipment.
• Soft demand in broad-based industrial end markets and precision manufacturing.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $0 (no shares repurchased in fiscal 2025, no program in effect)
• Dividend Payments: $11 million (cash dividends on Series B-1 Convertible Preferred Stock in Q4 FY25)
• Dividend Yield: Not applicable for common stock, as Coherent Corp. historically has not paid cash dividends on its common stock and does not presently anticipate doing so.
• Future Capital Return Commitments: Dividends on Series B Convertible Preferred Stock are payable on a cumulative basis at an annual rate of 5% (subject to increase), payable solely in-kind until the fourth anniversary of issuance, then at the Company's option in cash, in-kind, or a combination.

Balance Sheet Position (as of June 30, 2025):

• Cash and Equivalents: $909 million
• Total Debt: $3,687 million
• Net Cash Position: -$2,778 million (Net Debt)
• Credit Rating: Not disclosed in the filing.
• Debt Maturity Profile:
  • FY26: $188 million
  • FY27: $17 million
  • FY28: $614 million
  • FY29: $3 million
  • FY30: $2,913 million
  • Thereafter: $2 million
  • Total: $3,737 million
  • Term A Facility matures July 1, 2027.
  • Term B Facility (New Term B-2 Loans) matures July 1, 2029.
  • 5.000% Senior Notes due 2029 mature December 15, 2029.
  • Facility construction loan in Germany due in 2030.

Cash Flow Generation:

• Operating Cash Flow: $634 million (FY25)
• Free Cash Flow: $193 million (FY25)
• Cash Conversion Metrics: Not explicitly detailed, but the company notes increases in accounts receivables and inventories as a result of higher revenues partially offset higher earnings in FY25.

Operational Excellence

Production & Service Model: Coherent Corp.'s success relies on its ability to tailor optical and physical properties of technically challenging materials, components, and photonics-based solutions. The company's expertise lies in producing complex materials, controlling quality, and managing in-process yields. Key differentiators include deep technology expertise combined with the ability to deliver volume solutions at scale. Lasers are displacing conventional technologies by offering faster, higher quality, economic benefits, and enabling next-generation applications.

Supply Chain Architecture: Key Suppliers & Partners:

• Raw Materials: Integrated circuits (ICs), digital signal processors (DSPs), mechanical housings, and optical components are sourced from third-party suppliers.
• Sole/Limited-Source Materials: Several key components and materials, including exotic materials, crystals, and optics, are purchased from sole-source or limited-source suppliers, particularly in the Lasers segment.
• Internal Production: Relies on its own production and design capability to manufacture and specify certain strategic components, crystals, fibers, semiconductor lasers, and laser-based systems.
• Rare-Earth Materials: Uses rare-earth materials in some production processes, actively working to strengthen and diversify the supply chain for resilience, including buffer stocks and multiple sources.
• Contract Manufacturers: Purchases assemblies and turnkey solutions based on proprietary designs.

Facility Network: Coherent Corp. maintains a globally diverse network of R&D, manufacturing, and sales facilities.

• Manufacturing: Principal U.S. production in California, Connecticut, Delaware, New Jersey, Pennsylvania, and Texas. Principal non-U.S. production in China, Finland, Germany, Malaysia, the Philippines, Singapore, South Korea, Sweden, Switzerland, the United Kingdom, and Vietnam.
  • Key manufacturing sites include Sherman, TX (700,000 sq ft, Materials), Easton, PA (281,000 sq ft, Materials), Saxonburg, PA (235,000 sq ft, Materials), Santa Clara, CA (199,993 sq ft, Lasers), China (3,310,650 sq ft, Materials and Networking), Germany (892,000 sq ft, Lasers), Malaysia (889,205 sq ft, Networking), Vietnam (719,000 sq ft, Materials and Networking), Philippines (426,240 sq ft, Materials).
• Research & Development: R&D operations co-located with manufacturing in many U.S. and non-U.S. locations.
• Distribution: Sales offices co-located at manufacturing sites and dedicated sales and marketing subsidiaries globally.

Operational Metrics:

• Manufacturing Yields: The ability to control quality and in-process yields is critical. The company specifies and tests raw materials throughout the production process.
• Carbon Footprint: Increasing use of renewable energy (on-site solar systems at several facilities) and efforts to minimize energy, water, raw materials usage, and waste generation. Top priority to reduce carbon footprint across global operations.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Utilizes a direct sales force globally, developing effective communications with OEM and end-user customers.
• Channel Partners: Markets products and services through representatives and distributors worldwide.
• Digital Platforms: Engages in digital marketing.

Customer Portfolio: Enterprise Customers:

• Key Account Focus: Strategy to grow the number and size of key accounts, with a significant portion of business based on sales orders with market leaders, enabling forward planning and production efficiencies.
• Government Contracts: Does business with customers in the aerospace and defense industry who contract with governmental entities, typically U.S. government agencies.
• Customer Concentration: Two customers each contributed more than 10% of consolidated revenue during fiscal 2025, primarily from the Networking segment. This concentration is expected to continue for the foreseeable future.

Geographic Revenue Distribution (FY25):

• North America: 61.3% of total revenue ($3,565 million)
• Europe: 12.0% of total revenue ($699 million)
• China: 11.7% of total revenue ($680 million)
• Japan: 6.7% of total revenue ($391 million)
• Rest of World: 8.2% of total revenue ($476 million)

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: Coherent Corp. operates in industries characterized by extensive research and development, rapid technological change, frequent new product introductions, evolving customer requirements, and dynamic industry standards. The company's business is subject to cyclical market factors, particularly in communications, industrial, instrumentation, and electronics markets. The artificial intelligence industry is rapidly evolving, with continuous improvements in algorithms, software efficiencies, and hardware capabilities, which could impact demand for AI datacenter services.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: The filing states Coherent Corp. competes with other companies manufacturing similar products, including established companies with significant resources. Specific competitor names are not provided in the general business description, but the company acknowledges that some competitors may have more extensive financial, technical, or marketing capabilities.

Emerging Competitive Threats:

• Alternative Technologies: Other technologies and products are available that may compete with Coherent Corp.'s offerings.
• Backward Integration: Risk of competitors or customers backward integrating into Coherent Corp.'s competencies.
• AI Technology Evolution: Emerging AI technologies (e.g., DeepSeek) may allow for complex AI operations with significantly less computing power, potentially decreasing demand for AI datacenter services.

Competitive Response Strategy: Coherent Corp.'s strategy is to grow businesses with world-class lasers, optics, and engineered materials to advance current customers' strategies, reach new markets through innovative technologies and platforms, and enable new applications in large and growing markets. This includes continuous R&D investment, expanding key accounts, and focusing on operational excellence.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Cyclical Demand: A significant portion of business is subject to cyclical market factors in communications, industrial, instrumentation, and electronics markets, leading to volatile demand.
• Rapid Technological Change: Markets are characterized by extensive R&D, rapid technological change, and frequent new product introductions, requiring continuous product development and investment.
• AI Evolution: Rapidly evolving AI industry with continuous improvements in algorithms, software, and hardware could decrease demand for current AI datacenter services if less computing power is required.
• Customer Bargaining Power: Dependence on a small number of large end-user service providers and product companies with considerable bargaining power, potentially leading to unfavorable terms, price concessions, or loss of business.
• Global Economic Downturns: Adverse effects from regional or worldwide economic downturns (inflation, geopolitics, central bank actions, public health crises) on demand, credit markets, and accounts receivable.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Limited Sources of Supply: Dependence on highly complex manufacturing processes requiring strategic materials, components, and products from limited or sole sources (e.g., exotic materials, crystals, optics, high-quality ZnSe, rare earth minerals).
• Manufacturing Complexity: Highly complex manufacturing processes with risks of yield reductions, production disruptions, and quality issues that are difficult to forecast, detect, and correct.
• Supplier Dependency: Financial or other difficulties faced by sole/limited suppliers, or changes in demand, could limit availability of critical materials.
• Geographic Concentration: Many products sourced from suppliers outside the United States, primarily in Asia, exposing the company to tax and trade policy uncertainties, tariffs, and government regulations.
• Capacity Constraints: Inability to purchase sufficient supplies or allocate manufacturing capacity to meet rapid increases in demand.
• Restructuring Execution: Risks associated with the 2023 and 2025 Restructuring Plans, including higher than anticipated costs, employee attrition, decreased morale, diversion of management attention, and loss of institutional knowledge.

Cybersecurity Attacks and Incidents:

• Data Breaches & Disruptions: Exposure to cybersecurity threats affecting operations, facilities, systems, and networks, as well as those of customers, suppliers, and third-party service providers. Past incidents have occurred, and future attacks could lead to costly damages, claims, reputational harm, or operational disruptions.
• Third-Party Vulnerabilities: Susceptibility to vulnerabilities, outages, and incidents impacting third-party technology providers used by Coherent Corp. and its partners.

Natural Disasters & Catastrophic Events:

• Operational Disruptions: Manufacturing operations are subject to natural occurrences (severe weather, geological events) and other global/regional catastrophic events (political/public health crises), which could disrupt production, increase costs, or affect suppliers/customers.

Financial & Regulatory Risks

Market & Financial Risks:

• Foreign Currency: Exposure to foreign currency transaction risk and translation risk, potentially affecting revenues, cost of sales, operating margins, and resulting in foreign exchange losses.
• Substantial Debt: Approximately $3.7 billion of outstanding indebtedness as of June 30, 2025, which could adversely affect business, financial condition, or results of operations and limit ability to obtain additional financing or fund operations.
• Debt Covenants: Senior credit facilities and senior notes contain covenants restricting business activities (e.g., liens, additional indebtedness, dividends), with failure to comply potentially leading to accelerated repayment obligations.
• Access to Financial Markets: Inability to access financial markets to raise capital, finance working capital, or support liquidity needs could negatively impact operations and growth strategy.
• Stock Price Volatility: Trading price of common stock has been and may continue to be volatile due to various factors, including financial performance, market estimates, and industry fluctuations.

Regulatory & Compliance Risks:

• Government Actions & Trade Restrictions: Subject to increasing export restrictions, trade barriers, tariffs, and other trade measures (e.g., U.S. tariffs on foreign imports, China's export restrictions on rare earth minerals), which can increase costs, reduce demand, or limit market access.
• Export Control Laws: Required to comply with complex and rapidly changing import/export and economic sanctions laws (ITAR, EAR, OFAC). An inquiry from BIS regarding past product sales to Huawei Technologies Co. Ltd. is ongoing, with potential for significant penalties or costs.
• Evolving Laws & Standards: Subject to complex and evolving laws, regulations, or industry standards related to environmental, health, safety, product considerations, cybersecurity, data privacy, and AI, which may incur additional compliance costs or liabilities.
• Tax-Related Matters: Provision for income taxes and cash tax liabilities could be adversely affected by changes in geographic mix of earnings, challenges by tax authorities, failure to meet tax incentive obligations, and changes in tax laws (e.g., OECD Pillar Two Model Rules).

Geopolitical & External Risks

Geopolitical Exposure:

• Trade Tensions: Significant political, trade, or regulatory developments, including U.S. federal policy changes affecting the geopolitical landscape (e.g., U.S.-China trade tensions), could have material adverse effects.
• Sanctions & Export Controls: Government actions, such as export restrictions on products supporting AI applications, could limit sales to certain customers or markets.

Innovation & Technology Leadership

Research & Development Focus: Coherent Corp. devotes significant resources to R&D programs for continuous improvement of existing products and processes, and timely development of new materials, technologies, platforms, and products. R&D activities are considered essential for maintaining leadership. Core Technology Areas (FY25 R&D Investments):

• Networking:
  • Photonics design: Developing and improving crystal materials, precision optical parts, and laser device components.
  • Datacom transceivers and components: 800G/1.6T transceivers, CPO, VCSELs, EMLs, silicon photonics, ICs, isolators, and thermoelectric coolers; 400G/lane components supporting 3.2T and 6.4T.
  • Optical circuit switch (OCS): Developing OCS product family for AI/ML and hyperscale datacenters based on digital liquid-crystal technology.
  • Coherent transceivers: Driving further integration to reduce size and power consumption; increasing bandwidth for 100G/200G/400G/800G coherent transceivers.
  • Pump lasers: Investing in next-generation GaAs pump laser portfolio for terrestrial and undersea markets.
  • Advanced optics manufacturing: High-precision and more compact optics and automated assembly platforms and packages.
• Materials:
  • High-power lasers and semiconductor lasers: Increasing output power and reliability of EEL diodes, VCSELs, InP lasers, and detectors.
  • SiC epitaxial wafers: Continuous improvement for world-class, high-quality, large-diameter substrates and epitaxial wafers; developing SiC epitaxial wafers.
  • Thermoelectric materials and devices: Developing leading Bi2Te3 materials for cooling/heating; focusing on power-generation capability for new products.
• Lasers:
  • Diode-pumped solid-state lasers: Developing for industrial applications (materials processing, instrumentation, scientific).
  • Ultrafast fiber lasers: Developing industrial femtosecond fiber lasers for semiconductor capital equipment and display manufacturing.
  • Femtosecond oscillators and amplifiers: Developing ultrafast laser systems for scientific applications.
  • Optically pumped semiconductor lasers (OPSLs): Broadening product portfolio of CW, visible, and ultraviolet OPSLs.
  • Semiconductor lasers: Increasing output power of GaAs- and InP-based edge-emitting semiconductor lasers for laser pumping and industrial applications.
  • Excimer lasers and excimer laser tools: Supporting existing applications in display manufacturing, instrumentation, and materials processing.
  • CO2 lasers: Developing for industrial applications.
  • Laser tools: Developing laser-based tools for marking, cutting, and welding.

Intellectual Property Portfolio:

• Patent Strategy: Aggressively pursues process and product patents globally. As of June 30, 2025, Coherent Corp. had approximately 3,100 patents globally.
• Licensing Programs: Has entered into selective IP licensing agreements.
• IP Protection: Relies on trade secret, patent, copyright, and trademark laws, combined with employee confidentiality, noncompetition, and nondisclosure agreements.

Technology Partnerships:

• Research Collaborations: Engages in development projects that may result in jointly owned or assigned intellectual property.

Leadership & Governance

Executive Leadership Team (as of June 30, 2025)

Leadership Continuity: Coherent Corp. has a robust succession-planning process to identify internal candidates for development and build a talent funnel for leadership pipelines.

Board Composition: The Board of Directors provides informed oversight of the risk management process, including cybersecurity risks, through the Nominating and Corporate Governance (NCG) Committee. The NCG Committee is briefed quarterly by management on cybersecurity risks and activities.

Human Capital Strategy

Workforce Composition (as of June 30, 2025):

• Total Employees: 30,216
• Geographic Distribution:
  • Asia-Pacific: Approximately 22,340 employees
  • Europe: Approximately 3,640 employees
  • Americas: Approximately 4,236 employees
• Skill Mix:
  • Manufacturing: 25,210 employees (83%)
  • Research and development: 2,660 employees (9%)
  • Sales, general and administrative: 2,346 employees (8%)
• Diversity: Approximately 45% of the global workforce are women.

Talent Management: Acquisition & Retention:

• Hiring Strategy: Talent Acquisition teams focus on outreach to engage and attract diverse, high-quality talent. University partnerships support internship and apprentice programs for early career hires.
• Retention Metrics: Not explicitly disclosed, but the company strives to attract, motivate, and retain talent.
• Employee Value Proposition: Offers market-competitive total rewards packages, balancing fixed (benefits, base pay) and variable costs (bonus, equity). Eligible employees can participate in the Employee Stock Purchase Plan, and select employees receive equity-based awards. Comprehensive health benefits, competitive time-off programs, and employee assistance programs are also offered.

Diversity & Development:

• Diversity Metrics: Supports an inclusive environment where every individual is valued. Approximately 45% of the global workforce are women.
• Development Programs: Provides all employees with opportunities to learn and develop critical skills.
• Culture & Engagement: Fosters open communication through an open-door policy and engagement surveys, using feedback to adjust internal initiatives and recognize employee contributions. Core values are Integrity, Collaboration, Accountability, Respect, and Enthusiasm (I CARE).

Environmental & Social Impact

Environmental Commitments: Climate Strategy:

• Emissions Targets: Has set a top priority to reduce its carbon footprint across global operations.
• Renewable Energy: Continues to increase the use of renewable energy to power operations and lower greenhouse gas footprint, including on-site solar systems at several facilities.

Supply Chain Sustainability:

• Responsible Sourcing: Works to minimize energy usage, water usage, other raw materials usage, and waste generation.

Social Impact Initiatives:

• Occupational Health and Safety: Highest priority to keep employees, customers, and suppliers safe. Provides upfront and ongoing training, with experienced employees on-site at manufacturing locations for environmental, health, and safety education and compliance. Policies are customized to local requirements.
• Human Rights: Respects and upholds universal human rights values, expecting leaders and employees to engage with dignity, fairness, and respect.

Business Cyclicality & Seasonality

Demand Patterns:

• Economic Sensitivity: Business is dependent on demand from end-users in communications, industrial, instrumentation, and electronics markets, many of which are historically cyclical.
• AI Industry Volatility: The rapidly evolving AI industry, with continuous improvements in algorithms and hardware, could lead to shifts in demand for AI datacenter services.
• Customer Inventory Levels: Customers may experience elevated inventory levels, leading to decreased short-term and/or long-term demand. For example, in fiscal 2024, the telecom vertical experienced decreased volumes due to communications service provider customers working down inventory.
• Rapid Production Increases: Customers may require rapid increases in production on short notice, which may strain resources or negatively affect margins if sufficient supplies or manufacturing capacity are unavailable.
• Order Reductions/Cancellations: Downturns or technological changes can cause customers to significantly and abruptly reduce or cancel orders.

Planning & Forecasting:

• Coherent Corp. makes significant decisions (business levels, production schedules, personnel, resource requirements) based on estimates of customer requirements. Inaccurate forecasts can lead to substantial charges for obsolete or excess inventories or noncancellable purchase commitments.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations:

• Environmental, Health, Safety, and Product Considerations: Manufacturing processes involve facilities, equipment, chemicals, and materials subject to a broad array of laws and regulations in numerous jurisdictions. Compliance requires substantial capital and other expenditures.
• Cybersecurity, Data Privacy, and AI: Subject to new and evolving laws and regulations imposing requirements for information confidentiality, integrity, availability, data handling, and safe/transparent/fair/secure AI solutions.

Trade & Export Controls:

• Import/Export and Economic Sanctions Laws: Required to comply with relevant import/export and economic sanctions laws and regulations, including U.S. Customs and Border Protection, International Traffic in Arms Regulations (ITAR), Export Administration Regulations (EAR), and Office of Foreign Assets Control (OFAC). Foreign governments also have similar controls.
• Export Restrictions: BIS rules restrict sales of certain products to Huawei Technologies Co. Ltd. without a license. Coherent Corp. received an inquiry from BIS in January 2025 concerning past product sales to Huawei, has stopped shipping to Huawei, and is cooperating with the inquiry. The outcome and potential penalties are currently unpredictable.
• Tariffs and Trade Protection: Global operations expose the company to significant political, trade, or regulatory developments, including tariffs and export restrictions (e.g., U.S. tariffs on foreign imports, China's export restrictions on rare earth minerals). While not materially impacted in FY25, sustained disruption could create future headwinds.

Legal Proceedings:

• Coherent Corp. and its subsidiaries are involved in various claims and lawsuits incidental to its business. Management believes, after consulting with legal counsel, that ultimate liabilities will not materially affect financial condition, liquidity, or results of operations.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 68% for fiscal 2025, compared to (8)% for fiscal 2024. The difference from the U.S. statutory rate of 21% is due to tax rate differentials between U.S. and foreign jurisdictions, classification of assets held for sale, and an increase in the U.S. valuation allowance.
• Geographic Tax Planning: Subject to income taxes in the United States and many foreign jurisdictions. The company is partially permanently reinvested and will repatriate earnings from non-U.S. subsidiaries with excess cash, potentially subject to U.S. state tax and foreign withholding taxes (estimated $63 million).
• Tax Reform Impact: The U.S. government enacted The One Big Beautiful Bill Act of 2025, effective fiscal 2026, which includes changes to corporate income tax (e.g., immediate expensing of R&D, permanent extensions of certain TCJA provisions). Coherent Corp. is evaluating the future impact.
• OECD Pillar Two: Continuing to analyze the impact of OECD Pillar Two Model Rules for a global minimum tax of 15%, which has been enacted in many jurisdictions where the company operates, with some rules effective July 1, 2024, and others July 1, 2025, or later.
• Tax Holidays: Foreign subsidiaries benefit from tax holiday arrangements, reducing the effective tax rate by 11.6% in fiscal 2025. Key tax holidays in Malaysia, the Philippines, Vietnam, and Singapore are set to end during fiscal years 2026 and 2027 for certain business lines.
• Loss and Credit Carryforwards: Holds federal R&D credits, foreign tax credits, state tax credits, and operating loss carryforwards, some with indefinite expiration dates. Valuation allowances are recorded against the majority of foreign and state loss/credit carryforwards and certain U.S. credit carryforwards.

Insurance & Risk Transfer

Risk Management Framework:

• Insurance Coverage: Not explicitly detailed, but the company notes that in the event of operational disruptions from natural disasters or other catastrophic events, insurance premiums may increase, or sustained losses may not be fully recoverable through insurance.
• Risk Transfer Mechanisms: Uses derivative financial instruments as part of its overall risk management strategy, primarily focused on exposure to the Chinese Renminbi, Euro, Swiss Franc, Japanese Yen, Singapore Dollar, and Korean Won.
  • Interest Rate Cap: Entered into an interest rate cap, effective July 1, 2023, to manage exposure to interest rate movements on a portion of floating rate debt. The notional amount was increased from $500 million to $1,500 million on September 1, 2024.
  • Interest Rate Swap: An interest rate swap, which limited exposure to variable interest rate debt by converting a portion to a fixed rate, expired on September 24, 2024.
  • Foreign Currency Forward Contracts: As of September 30, 2024, the company paused its balance sheet hedging program indefinitely. No foreign currency forward contracts were outstanding as of June 30, 2025.