Lumentum’s CEO: We've seen some improvements in the telecom segment

Lumentum continued to see the effects of the telecom industry inventory digestion process, which continued into its fiscal fourth quarter season.

Alan Lowe, CEO of Lumentum, maintains that it is seeing some “improvements in the telecom” industry, particularly for data centers.

As data center providers have had to place them further apart due to power restrictions, Lumentum sees the data center interconnect business segment work through a lot of its inventory.

“While overall demand for telecom products was soft in the quarter as expected, we are encouraged by several positive trends emerging within this part of our business,” he said. “We saw an increase in shipments for narrow lines with tunable lasers used in 400 ZR modules for data center interconnect applications. With our design wins, we anticipate maintaining a leading market share position in laser components for ZR and ZR+ applications this fiscal year and in the coming years.”

Lowe added that despite the inventory issues, it is seeing improvements in the networking market.

“Recent weeks have brought increased customer demand to our newest leading-edge coherent transmission, next-generation transport products, and continued signs of customer inventory normalization,” he said.

Lumentum is seeing new potential with advanced ROADM products, growing demand for integrated C+ L-band solutions, and high port count ROADM products.

“In leading-edge coherent transmission, we are seeing excellent demand trends for 130 gigabaud coherent products and encouraging early traction with our 200 gigabaud products,” Lowe said. “This is driven by customer demand for increased capacity and spectral efficiency fueled by continued bandwidth demand growth.”

Cloud networking challenges, opportunities

Despite near-term challenges, Lumentum continues to see potential in its Cloud Networking business.

Lumentum revealed that its Cloud Networking segment saw revenue decline 19% sequentially and 11% year-over-year.

The Cloud Networking segment reported revenues of $254.7 million. Cloud and networking segment profit at 10.1% decreased sequentially and year-on-year.

Lowe maintains the company has made various moves to expand its cloud business.

“We have made significant progress in executing our strategy to grow our cloud business,” he said. “We booked record orders for datacom chips and invested in additional production capacity to help us meet customer demand.”

While he could not specify any customer names, Lowe added that it landed a significant customer win during the quarter.

“We have made excellent progress with multiple new high-speed optical transceiver customer engagements, including securing a major transceiver award with one new customer,” he said. “We are actively working to secure additional awards from other new customers.”

This will enable Lumentum to reach its goal of growing quarterly revenue to $500 million by the end of calendar 2025. The company also forecasts growth into 2026 and 2027.

In the near term, Lowe said Lumentum “expects our cloud and networking business to show sequential improvement in fiscal Q1.”

Three-pronged cloud strategy

To achieve its cloud and AI goals, Lumentum is implementing a three-pronged strategy: expanding the data center and AI provider customer base, scaling module production and delivering differentiated technologies to address the evolving challenges of data centers.

Lumentum will expand its customer base to include multiple data center operators and AI infrastructure providers as they migrate to higher speeds. The company will focus on moving to 200G per lane speeds, particularly in 1.6 Tbps optical transceivers.

As more of its customers qualify its 200G EMLs for integration into their transceivers and subsequent deployment in a wide range of clouds and infrastructures, Lowe said, “We anticipate being a key laser supplier in initial 1.6 transceiver deployments as we ramp up 200G EMLs later this fiscal year.”

During the fourth quarter, Lumentum secured what it said were record-volume shipments of EMLs and substantial bookings it will fulfill throughout fiscal 2025, including initial orders for 200G EMLs from AI customers. The company has also won one new customer and is working to finalize several others.

“Based on this momentum, we foresee continued strong EML shipments throughout fiscal 2025 and into fiscal 2026,” Lowe said.

It is also expanding its component and module production capacity at established Lumentum facilities outside China. This expansion will support its cloud customers’ growing AI and cloud workloads while ensuring supply chain security.

One of its newest facilities, Lumentum, is focused on in Thailand.

“Our significant capacity expansion for optical transceivers in our facility in Thailand is progressing as planned, with the first production line scheduled to start operations this quarter,” Lowe said. “Based on current engagements with multiple hyperscale cloud operators and AI infrastructure customers, we expect to complete additional phases of our manufacturing capacity expansion over the next 18 months to keep up with the expected strong demand.”

Finally, Lumentum will provide what it says is differentiated technology road maps to support data center compute scaling across future generations of optical interconnect technologies and data center architectures.

“We are actively collaborating with leading-edge customers to deliver breakthrough technologies that will support multiyear cloud and AI infrastructure road maps,” Lowe said.

Lumentum reported overall revenue of $308.3 million for the fiscal fourth quarter of 2024 and net income of $371 million for the fiscal fourth quarter of 2023, with a GAAP net loss of $60.2 million, or 0.88 cents per diluted share.

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