Coherent Corp.COHR

Innovation and product development · Intellectual property protection and infringement

The design, processes, and specialized equipment utilized in our engineered materials, advanced components, and subsystems are innovative, complex, and difficult to duplicate. However, there can be no assurance that others will not develop or patent similar technology, or that all aspects of our proprietary technology will be protected... We may be required to obtain licenses under such patents, and there can be no assurance that we would be able to obtain such licenses, if required, on commercially reasonable terms.

Strategic execution · Merger acquisition and divestiture risks

We continuously monitor the marketplace for strategic opportunities, and our business strategy includes expanding our product lines and markets through both internal product development and acquisitions... If market demand is outside our organic capabilities, if a strategic acquisition is required and we cannot identify one or execute on it, and/or if financial investments that we undertake distract management, do not result in the expected return on investment, expose us to unforeseen liabilities, or jeopardize our ability to comply with our credit facility covenants due to any inability to integrate the business, adjust to operating a larger and more complex organization, adapt to additional political and other requirements associated with the acquired business, retain staff, or work with customers, we could suffer a material adverse effect on our business, results of operations, or financial condition.

Market position and competition · Market cyclicality and demand volatility

A significant portion of our business is subject to cyclical market factors and we may fail to accurately estimate the size and growth rate of our markets and our customers' demands... Our business is dependent on the demand for products produced by end-users of communications, industrial, instrumentation and electronics markets. Many of these end-users are in industries that have historically experienced a highly cyclical demand for their products.

Customer and revenue · Customer concentration and key customer dependence

A small number of customers have consistently accounted for a significant portion of our revenues, with two customers each contributing more than 10% of total revenues in fiscal 2026... The loss of one or more of our large customers, any reduction or delay in sales to these customers, our inability to successfully develop relationships with additional customers, or future price concessions that we may make could significantly harm our business.

Market position and competition · Competitive pressure and market share loss

We may encounter substantial competition from other companies in the same market, including established companies with significant resources. Some of our competitors may have financial, technical, marketing, or other capabilities that are more extensive than ours... Our failure to compete effectively could have a material adverse effect on our business, results of operations, or financial condition.

Strategic execution · Merger acquisition and divestiture risks

We may be unable to successfully implement our acquisitions strategy, integrate acquired companies and personnel with existing operations, or capitalize on any decision to strategically divest one or more current businesses... To the extent that we complete acquisitions, the success of our acquisitions will depend in large part on our success in integrating the acquired operations, strategies, technologies, and personnel.

Digital transformation and innovation · Technology obsolescence and evolution

Our markets are characterized by extensive research and development, rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards... Because this industry is subject to rapid change, it is difficult to predict its potential size or future growth rate. We cannot ensure that our expenditures for research and development will result in the launch of new products or, if such products are introduced, that those products will achieve sufficient market acceptance or generate sales to offset the costs of development.

Cybersecurity and data protection · Data breaches and cyber attacks

Cybersecurity attacks and incidents and other vulnerabilities could subject us to costly damages, claims and expenses, harm to our reputation or competitive position, or disrupt our operations and business... We have experienced cybersecurity incidents and some of these have resulted in data breaches. Thus far, none of these incidents or breaches have materially affected our ability to conduct our business, our results of operations, or our financial condition. However, we continue to face cyber and other security threats.

Cybersecurity and data protection · Third party data security and vendors

Our information technology and cybersecurity program also incorporate and rely on technology, products and services that are provided by service providers and other third parties... which means that the Company is susceptible to certain vulnerabilities, outages and other incidents impacting these third parties and the technology, products and services they provide.

Digital transformation and innovation · Artificial intelligence and automation

We may be adversely impacted by any of the multiple uncertainties and outcomes associated with the use and evolution of AI... AI technology is complex and rapidly evolving, and may expose us to significant competitive, legal, regulatory, and other risks. The implementation of AI can be costly and there is no guarantee that our use of AI will enhance our technologies, benefit our business operations, or produce products and services that are preferred by our customers.

Core operations · Capacity utilization and efficiency

In addition, customers may require rapid increases in production on short notice. We may not be able to purchase sufficient supplies or allocate sufficient manufacturing capacity to meet such increases in demand. Rapid customer ramp-up and significant increases in demand may strain our resources or negatively affect our margins.

Core operations · Quality control and product defects

Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations, or financial condition... we could be required to pay for costs, payments, or damages in connection with warranty and product liability claims and product recalls.

Supply chain and procurement · Supplier operation and dependance

Our reliance on contract manufacturers exposes us to risks including reduced control over delivery schedules and planning, limited visibility into or availability of manufacturing capability and capacity, reliance on third-party quality assurance procedures, cybersecurity incidents or data security breaches affecting contract manufacturers, and the risk that disruptions at those manufacturers could require us to identify and qualify alternatives, which may be expensive and time-consuming and could result in supply interruptions and harm to customer relationships.

Project and contract management · Project execution and delivery risks

We may not be able to achieve expected returns from strategic investments, including capacity expansions... These projects are highly dependent on available sources of materials, and specialized equipment, as well as labor, skilled sub-contractors and other service providers... Our ability to increase production is also subject to regulatory approvals, environmental and operational permits, clean-room and tool availability, hiring and training of qualified personnel, implementation of highly complex manufacturing processes, and the pace of bringing equipment and processes online with the capability to manufacture high-quality products at acceptable yields.

Supply chain and procurement · Raw material availability and cost volatility

We depend on highly complex manufacturing processes that require strategic materials, components, and products from limited sources of supply... Some of our products require designs and specifications that are at the cutting-edge of available technologies and change frequently to meet rapidly evolving market demands. By their very nature, the types of components used in such products can be difficult and unpredictable to manufacture and may only be available from a single supplier, which increases the risk that we may not obtain such components in a timely manner.

Supply chain and procurement · Raw material availability and cost volatility

We use rare earth minerals and produce and use high-purity and relatively uncommon materials and compounds to manufacture our products, including, but not limited to, ZnS, GaAs, yttrium aluminum garnet, yttrium lithium fluoride, calcium fluoride, germanium, selenium, telluride, Bi2Te3, and SiC. A significant failure of our internal production processes or our suppliers to deliver sufficient quantities of these necessary materials (including, in the case of rare earth minerals, as a consequence of their limited diminished availability or as a result of export controls on such materials) on a timely basis could have a material adverse effect on our business, results of operations, or financial condition.

Economic and market conditions · Inflation and deflation pressures

Increases in commodity prices and diminished availability of rare earth minerals and noble gases may adversely affect our results of operations and financial condition... In 2024, China imposed export restrictions on certain rare earth minerals such as yttrium and germanium, which disrupted and may continue to disrupt global supply chains, driving up costs. The negative impact from increases in commodity prices and diminished availability of rare earth minerals and noble gases might not be recovered through our product sales, which could have a material adverse effect on our results of operations and financial condition.

Natural and catastrophic events · Natural disasters and extreme weather

Natural disasters or other global or regional catastrophic events could disrupt our operations, give rise to substantial environmental hazards, and adversely affect our results... We have manufacturing and other operations in locations subject to natural occurrences and possible climate changes, such as severe and variable weather and geological events resulting in increased costs, or disruptions to our manufacturing operations or those of our suppliers or customers.

Natural and catastrophic events · Climate change and environmental impact

In addition, climate change may pose physical risks to our manufacturing facilities or our suppliers' facilities, including increased extreme weather events that could result in supply delays or disruptions... AI datacenters require access to clean water and predictable sources of energy. Any shortages of these resources or regulations limiting energy, water, or land availability could decrease development and growth of our AI datacenter customers and, in turn, negatively impact our business.

Natural and catastrophic events · Pandemic and public health crises

Other events, including political or public health crises, such as an outbreak of contagious diseases, may also affect our production capabilities or that of our suppliers, including as a result of quarantines, closures of production facilities, lack of supplies, or delays caused by restrictions on travel or shipping.