Lumentum (NASDAQ:LITE) executives used a company event led by investor relations VP Kathryn Ta to outline what they see as a multi-year demand surge for optical components tied to AI infrastructure, while also providing updates on capacity expansion, product roadmaps, and financial targets. The session featured CEO Michael Hurlston, chief technology officer Dr. Wupen Yuen, and CFO Wajid Ali, followed by analyst Q&A.
Leadership framed four “growth drivers” and a capacity shortage
Hurlston said Lumentum’s position rests on “four building blocks,” including deep networking expertise, core laser technology, optical circuit switching built from its telecom heritage, and what he described as industry-leading indium phosphide capacity. He emphasized the company’s intention to evolve its margin profile “towards semiconductor-like margins” as the business remains “component-driven, semiconductor-driven.”
Cloud transceivers: 1.6T shipments expected to start in summer
On cloud transceivers, Hurlston said the business has “turned the corner,” citing improved engineering execution, improving profitability, and expected better margins on upcoming products. He said 1.6T shipments are expected to start “this summer,” and that vertical integration—bringing Lumentum’s own lasers into those modules—should also begin in the summer timeframe to support margin improvement.
Yuen later added that Lumentum plans to show a 400G-per-lane optical transceiver demo capable of 3.2T (eight lanes at 400G) and called the company “the largest EML laser supplier in the world” at 100G and 200G. He said Lumentum will demonstrate what he described as the “world’s first” 400G-per-lane differential EML in a pluggable module and argued EMLs are often first-to-market at new speed nodes due to yield and manufacturability advantages versus silicon photonics approaches.
Optical circuit switching: new multi-year, multi-billion-dollar agreement
Hurlston said Lumentum signed a “new multi-year, multi-billion-dollar agreement” with a large optical circuit switch (OCS) customer, following prior disclosures around roughly $400 million of OCS revenue expected in the back half of the calendar year. He said the company remains on track to ship the $400 million of backlog in the second half and described Lumentum as ahead of competitors in high-radix OCS products such as 300-by-300 systems. In Q&A, he confirmed the new commitment relates to a 300-by-300 high-radix switch and said it came from one of the three customers Lumentum is already shipping to.
Both Hurlston and Yuen emphasized the company’s MEMS-based design, describing it as field-hardened and transparent to wavelength and data rate because it “simply mirrors” light. Yuen said Lumentum’s OCS insertion loss for a 300-by-300 system is less than 1.5 dB and described latency in “tens of nanoseconds,” with power consumption he characterized as far below packet switches.
Scale-out and scale-up optics: UHP lasers, ELS modules, and a new fab
Executives repeatedly linked demand growth to AI networking needs. Yuen said “AI does not scale…without optics,” describing changes in data center traffic patterns such as increased “east-west” machine-generated traffic, more non-blocking network requirements, and the rise of “elephant flows,” which he said supports circuit switching use cases.
Hurlston said Lumentum is already shipping UHP lasers for optical scale-out applications and called the market “huge,” adding that the company expects a first $100 million revenue quarter for scale-out by the end of calendar 2026 and to deliver a “multi-hundred million dollar” commitment in early 2027. He also described an “external light source” (ELS) approach as a more turnkey solution for customers without deep optical engineering resources, saying it could roughly double revenue per system versus lasers alone, albeit with somewhat lower margins while still above company targets.
On scale-up, Hurlston said a “hybrid environment” is expected starting in the second half of 2027, with optics used for longer internal cluster runs (he referenced three meters and up) alongside copper for shorter reaches. He argued scale-up optics would be incremental to the industry because optics “have never shipped inside a cluster” at scale previously. He also said the first instantiation of scale-up could be 3x to 4x larger than initial scale-out CPO in lane count, and that going further “inside the rack” could be 10x larger.
To support anticipated demand, Hurlston announced Lumentum’s “fifth indium phosphide fab,” saying the company closed an agreement the same morning to acquire an existing Qorvo facility in Greensboro, North Carolina. He described it as a staffed and operational brownfield site, with Lumentum planning to move out existing Qorvo products, install its own reactors, and begin shipping from the facility in 2028. In Q&A, Hurlston said Greensboro is expected to focus primarily on UHP output and described it as “four-inch, six-inch compatible,” with a decision still to be made on whether to start on six-inch.
Financial model: $1.25B quarterly run rate target, then $2B, with higher margins
CFO Wajid Ali said the company’s recent investment cycle in fiscal 2023 through fiscal 2025 was driven by the view that indium phosphide capacity would be constrained, and he pointed to growing backlog and long-term orders as providing increased visibility. He also discussed investments in contract manufacturers to enable scale, saying management chose to prioritize operational efficiency and scalability over maximizing margin in every step.
Ali said Lumentum guided to “north of 30%” operating margins for fiscal Q3 ending in March and reiterated a longer-term framework that includes 20% operating margins as a prior target. He then presented updated targets, including:
- Short-term: exit at $1.25 billion per quarter with operating margins “around 35%.”
- Mid-term: exit at a $2 billion quarter with 40% non-GAAP operating margin.
Ali said the company internally sees a “nine months and nine months” path—roughly nine months to reach the $1.25 billion run rate and another nine months to reach $2 billion—but added a three-month buffer for each step due to supply chain volatility, framing the timeline as 18 to 24 months for the $2 billion and 40% operating margin target.
He also addressed the $2 billion NVIDIA investment, noting 2.9 million additional shares outstanding and saying roughly half the proceeds are expected to go toward strategic capex, with the remainder supporting working capital and potential vertical integration via M&A. Executives said the Greensboro ramp and related capacity were not included in the $2 billion quarterly model presented, as the facility is expected to contribute in calendar 2028.
About Lumentum (NASDAQ:LITE)
Lumentum Holdings Inc, headquartered in San Jose, California, is a leading provider of photonic technologies that enable high-speed optical communication networks and advanced industrial applications. The company designs and manufactures a broad range of lasers, optical modules and subsystems tailored to the evolving requirements of telecommunications carriers, cloud data centers and enterprise networking.
Its core product portfolio includes tunable and fixed-wavelength laser transmitters, coherent optical engines, transceivers for long-haul, metro and data center interconnects, as well as test and measurement instruments.
