Quantum computing is one of those fields where the gap between the hype and the hardware is measured in millidecibels and wafer runs. On Thursday, Xanadu Quantum Technologies Ltd. (XNDU) gave investors a look at both sides of that gap, and the market focused on the financials.

The company reported weaker-than-expected third-quarter results, sending shares down 6.79% to $2.61 in premarket trading.

Xanadu posted a loss of 11 cents per share, wider than analysts' expectations for a 10-cent loss. Revenue totaled $1.31 million, missing the $2.22 million consensus estimate.

Losses Widen, But The Trend Is Less Bad

Xanadu's net loss widened to $32.2 million from $20.3 million a year earlier. However, it narrowed from $42.1 million in the second quarter. The sequential improvement reflected the absence of certain fair-value and derivative losses recorded in the previous quarter.

Meanwhile, adjusted EBITDA loss widened to $26.3 million from $15.4 million a year earlier.

Capital expenditures rose to $8.4 million from $6.1 million in the second quarter, primarily driven by investments in specialized equipment for chip testing, development and packaging. Xanadu also incurred initial costs for its Inception facility.

The Science Part: Fewer Lost Photons

Despite the earnings miss, Xanadu reported progress in reducing optical losses, a key challenge in developing reliable quantum computers.

Xanadu said its electro-optic switch achieved a loss of 7 millidB, down from roughly 20 millidB last year. The company believes the result sets a world record for switches in its class. Meanwhile, losses in its on-chip homodyne detector fell 50%.

Additionally, Xanadu doubled its silicon nitride wafer runs year to date.

Xanadu aims to develop up to 200 logical qubits by 2029 and up to 500 by 2030, followed by 1,000 or more by 2031.

Its Aurora system, featured in Nature, demonstrated a networked quantum computer connecting four server racks through optical fiber.

Partners In Manufacturing

Xanadu announced a multiyear strategic partnership with GlobalFoundries Inc. (GFS) to scale chip and detector manufacturing. It also partnered with ASML Holding N.V. (ASML) to reduce optical losses and Bluefors to develop compact cooling systems.

Meanwhile, its 158,000-square-foot Inception facility in Toronto is expected to begin operations in early 2027.

The company also launched Backline with Advanced Micro Devices, Inc. (AMD), integrating conventional computing hardware with quantum systems.

Xanadu began generating commercial software revenue during the quarter through enterprise training and application development.

Spending Is Going Up, Not Down

Xanadu expects costs and capital expenditures to rise in the fourth quarter, driven by additional spending with GlobalFoundries, continued hiring and equipment purchases.

Management maintained its goal of developing a commercially viable, fault-tolerant quantum computer by 2029-2030.

XNDU Price Action: Xanadu Quantum shares were down 6.79% at $2.61 during premarket trading on Thursday, according to market data.