Driven by robust demand for Optical Circuit Switches (OCS) and Co-Packaged Optics (CPO), optical module giant Lumentum not only delivered a report card where both revenue and profit exceeded expectations but also provided next-quarter guidance indicating a staggering 85% year-over-year growth, demonstrating to the market its critical role in AI computing infrastructure.
On February 3rd, global leader in optical and photonic technology, Lumentum Holdings Inc., announced its financial results for the second quarter of fiscal year 2026. The financial report revealed that for the quarter ended December 27, 2025, the company's net revenue reached $665.5 million, a sharp increase of 65.5% year-over-year, hitting the high end of the guidance range; the Non-GAAP operating margin reached 25.2%, expanding by over 1700 basis points year-over-year, indicating a significant improvement in profitability that far surpassed previous expectations.
CEO Michael Hurlston gave high praise to the performance: "Lumentum delivered an outstanding second quarter, with revenue growing more than 65% year-over-year and Non-GAAP operating margin expanding over 1700 basis points. Revenue reached the high end of our guidance, while the expansion in profitability and earnings per share significantly exceeded our prior expectations, fully demonstrating the leverage in our business model." More noteworthy is the company's strong momentum in the AI infrastructure sector. Specifically, the OCS business is rapidly expanding to meet extraordinary customer demand, with an order backlog exceeding $400 million; in the CPO domain, the company secured a new incremental order worth hundreds of millions of dollars, scheduled for delivery in the first half of 2027. Hurlston stated plainly, "We are just at the starting line of two massive opportunities: Optical Circuit Switches and Co-Packaged Optics." He emphasized that with the explosive growth in bandwidth and energy efficiency requirements from AI data centers, Lumentum is entering the strongest growth cycle in its history.
The company is even more optimistic about the future outlook. The financial report stated that the guidance for the third quarter indicates revenue will reach $780 million to $830 million, representing year-over-year growth exceeding 85%; the Non-GAAP operating margin is expected to improve further to 30.0%-31.0%, and Non-GAAP earnings per share are projected to be between $2.15 and $2.35, demonstrating strong growth momentum and scaling effects. Following the earnings release, Lumentum's stock price surged over 5% in after-hours trading, bringing its cumulative gain over the past year to more than 400%.
Profitability showed comprehensive improvement, with the operating margin reaching a new high. Lumentum's profitability exhibited across-the-board enhancement this quarter. The GAAP gross margin reached 36.1%, an improvement of 210 basis points sequentially and a substantial increase of 1130 basis points year-over-year; the Non-GAAP gross margin reached 42.5%, up 310 basis points quarter-over-quarter and 1020 basis points year-over-year. The improvement at the operating profit level was even more pronounced. The GAAP operating margin leaped from 1.3% last quarter to 9.7%, achieving a massive improvement of 2250 basis points year-over-year, turning positive from -12.8% in the same period last year. The Non-GAAP operating margin reached 25.2%, increasing 650 basis points sequentially and expanding by 1730 basis points year-over-year, far exceeding the 7.9% recorded in the prior-year period.
The significant enhancement in profitability was directly reflected in earnings per share. GAAP diluted earnings per share reached $0.89, compared to just $0.05 in the previous quarter and a loss of $0.88 per share in the same quarter last year; Non-GAAP diluted earnings per share reached $1.67, representing a 52% increase sequentially and a surge of nearly 300% year-over-year.
Dual business engines drive growth, with Components and Systems advancing together. The synergistic development of the two main business lines reflects Lumentum's comprehensive positioning in AI data centers, cloud computing, and next-generation communication network infrastructure. Leveraging decades of accumulated photonics technology innovation, the company can provide a complete product portfolio ranging from high-performance lasers and modules to optical subsystems. Looking at the product lines, both Lumentum's Components and Systems businesses achieved robust growth.
The Components business revenue for the quarter reached $443.7 million, accounting for 66.7% of total revenue, growing 17.0% sequentially and surging 68.3% year-over-year, becoming the primary engine for revenue growth. The Systems business also performed excellently, with revenue reaching $221.8 million, representing 33.3% of the total, skyrocketing 43.5% quarter-over-quarter and increasing 60.1% year-over-year. The accelerated sequential growth in the Systems business indicates strong customer demand for the company's integrated solutions.
OCS and CPO emerge as new growth pillars, with AI market demand exploding. Management specifically highlighted the explosive growth potential of the Optical Circuit Switch (OCS) and Co-Packaged Optics (CPO) businesses. In the OCS field, Lumentum is rapidly expanding production capacity to meet extraordinary customer demand, with the current order backlog exceeding $400 million, a figure that underscores the massive demand for high-speed optical interconnect technology from AI data centers.
Regarding the CPO business, the company secured an incremental order worth hundreds of millions of dollars this quarter, with products scheduled for delivery in the first half of calendar year 2027. Co-packaged optics technology, which integrates optical devices directly into the switch chip package, can significantly enhance data transmission speeds and reduce power consumption, making it a key technology for next-generation AI training and inference infrastructure.
The CEO emphasized that the company's technological roadmap advantages in both optical components and systems position it as a key supplier for global AI leaders. As AI infrastructure construction enters a peak period, Lumentum's technology and capacity advantages are expected to continue translating into performance growth momentum.
The financial position remains robust, with ample cash reserves. On the balance sheet front, Lumentum maintained a healthy financial status. As of the end of the quarter, the company held cash, cash equivalents, and short-term investments totaling $1.1553 billion, an increase of $33.5 million from the end of the prior quarter, providing sufficient funding for future business expansion and R&D investments. Net accounts receivable stood at $376.8 million, significantly higher than the $250 million recorded at the end of June, consistent with the revenue growth. Inventory reached $570.4 million, increasing by $100 million compared to the end of the last fiscal year, indicating the company is actively building inventory to meet strong order demand.
It is noteworthy that the current portion of long-term debt within current liabilities reached $3.2402 billion, a substantial increase from $10.6 million at the end of June, primarily related to the reclassification of convertible notes. However, considering the company's strong cash flow generation capability and ample cash reserves, the overall financial risk is considered manageable.
Third-quarter guidance is strong, establishing full-year growth momentum. Looking ahead to the third quarter, Lumentum provided guidance that exceeded market expectations. The company anticipates revenue will be in the range of $780 million to $830 million, representing year-over-year growth exceeding 85% at the midpoint, and approximately 22% sequential growth, indicating sustained strong momentum. Regarding profitability, the Non-GAAP operating margin is expected to improve further to a range of 30.0% to 31.0%, continuing its expansion from the 25.2% achieved this quarter, demonstrating that scale effects and operational efficiency improvements are ongoing. Non-GAAP diluted earnings per share are projected to be between $2.15 and $2.35, representing a 34% increase at the midpoint compared to the $1.67 per share earned this quarter.
Management indicated that the company is still in the early stages in both the OCS and CPO fields, and with production ramps and order deliveries, future growth potential remains substantial. Coupled with stable demand from traditional telecom and industrial manufacturing markets, Lumentum has established a基调 of strong growth for the full year and is well-positioned to continue benefiting from the wave of AI infrastructure construction.
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