Lumentum (LITE) J.P. Morgan 54th Annual Global Technology, Media and Communications Conference summary

Industry transformation and demand outlook

• Optical industry demand is now driven by hyperscalers, marking a shift from previous telecom-led cycles and creating a multi-year growth opportunity distinct from past booms and busts.

• Hyperscalers have a $2 trillion backlog, fueling sustained capital expenditures and a robust, long-term demand cycle.

• Execution and scaling to meet massive demand are key challenges, with a focus on balancing supply and capturing market share.

• Technology inflection points, such as transitions from 800G to 1.6T and 3.2T, are closely monitored to maintain competitive positioning.

• Long development cycles for core technologies provide a competitive moat, making it difficult for new entrants to catch up quickly.

Margin improvement and growth drivers

• Margin improvement is prioritized through portfolio mix, cost control, and repricing, moving margins from low 30% to nearly 50%.

• Lower-margin product lines have been dropped in favor of higher-margin offerings, with ongoing efforts to improve yield and manufacturing costs.

• Four major growth drivers—OCS, optical scale-out, optical scale-up, and transceivers—are expected to contribute significantly starting in the third and fourth quarters, with scale-up inflection points projected for 2027.

• Transceiver business is expected to double revenue over the next four to five quarters due to improved engineering and market positioning.

Supply chain, capacity, and customer agreements

• Indium phosphide capacity is under intense pressure, with a new fab coming online in two years, but even then, demand will outstrip supply.

• NVIDIA has secured a significant portion of capacity through long-term agreements, with similar prepayment and pricing deals being negotiated with other customers.

• Transition to 6-inch wafers is underway in the new Greensboro fab, aiming to boost capacity, though technical challenges remain.

• Industry-wide indium phosphide capacity is expected to increase 2x to 4x over the next three years, but substrate and equipment shortages remain limiting factors.