Lumentum’s outgoing CEO, Lowe, says data center interconnect demand is rising again
Lumentum, like other network equipment manufacturers serving the optical networking industry, has seen the effects of the post-COVID inventory glut.
Still, the company’s movement in the Data Center Interconnection (DCI) space is quite robust.
Alan Lowe, who announced earlier this month he would step down as CEO after leading the company and its predecessor for 18 years, told investors during its fiscal second-quarter earnings call that the inventory issues with its service providers are normalizing.
“I'd say that the past two years of talking about inventory in the channel and at our customers and their customers, I think that discussion is over,” he said. “So, I'd say we're shipping in what they're shipping out today.”
DCI demands rising
As hyperscaler data centers ramp up existing facilities and plan new ones to accommodate new AI workloads, Lumentum is seeing growing demand for its DCI products and long-haul transmission and transport solutions. These include its components, ROADM amplifiers, and longer-haul coherent transmission platforms.
The timing of this growth comes at a pivotal time in the data center industry.
A new Dell’Oro report forecasts that worldwide data center capex will surpass $1 trillion by 2029 and grow at a CAGR of 21 percent.
Further, the research firm said that by 2029, accelerated servers for AI training and domain-specific workloads could represent nearly half of data center infrastructure spending.
Lowe said it sees opportunities for its DCI products and long-haul transmission and transport solutions. “These product lines, historically classified as telecom products, are increasingly utilized by cloud customers, often indirectly through our network equipment manufacturing customers,” Lowe said. “Engagement with cloud customers and AI infrastructure providers on their long-term technology and product road map has reached an all-time high.”
In one customer case, Lumentum began shipping preproduction volumes of its ultra-high-power lasers to an AI infrastructure customer in the second quarter for a proprietary interconnect solution.
Lowe said, “We have received follow-on orders and excellent feedback on the product's performance.”
However, for all of the growth seen in DCI, Lowe cautions that it won’t be the same as it saw during the height of the COVID-19 pandemic. “I would say that we did see an uptick, obviously, in telecom or what we traditionally have called telecom and see strong demand going forward,” he said. “It's just not getting back to the peak levels that we had early in the pandemic when I think we were over-shipping at the time.”
Cloud & Networking leads revenues
From an overall earnings perspective, the Cloud & Networking segment led the change.
The company reported that Cloud & Networking revenue grew 20% sequentially and 18% year-over-year to $339.2 million.
“Our second quarter Cloud & Networking segment revenue grew 20% sequentially and 18% year-over-year, primarily driven by strong end-market demand from cloud hyperscale customers,” Lowe said. “We saw sequential increases in nearly all our Cloud & Networking product lines.”
The vendor also saw an increase in datacom transceiver revenue due to new shipments to two factors: new shipments to one of its largest cloud hyperscale customers and the start of volume production shipments to one of our new customers.
“We continue qualification work with the other new customer and expect to start initial volume production during the fourth quarter, continuing to ramp through the first half of fiscal 2026,” Lowe said.
Also, Lumentum is on track with its transceiver manufacturing expansion plans in Thailand.
This facility will manufacture its 1.6 terabit transceivers for multiple customers, providing additional bandwidth for AI workloads while alleviating data bottlenecks with lower power consumption and latency as customers move to 200 Gbps per lane technology.
“Complementing our existing production lines in Thailand, construction of our large new 3-story facility and clean room on the same campus is well underway, with the first floor completed and ready for tool installation,” Lowe said.
Finally, Lumentum’s second-quarter Industrial Tech segment revenue at $63 million was up 15% sequentially and down 21% year-on-year.
For the quarter, Lumentum reported $402.2 million in net revenue.
Lumentum forecasts net revenue of $410 million to $425 million for the third quarter of fiscal year 2025.
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Sean Buckley
Sean is responsible for establishing and executing the editorial strategies of Lightwave and Broadband Technology Report across their websites, email newsletters, events, and other information products.