Shares of optics technology companies rose in Friday trading.
AAOI up 14%; Credo Technology up 11%; Coherent up 8%; Ciena up 4%; Lumentum up 3%.
Lumentum Holdings Inc. said demand from the biggest US tech companies for its optical components is accelerating and on track to fill its order books through 2028.
“The capex numbers from the US hyperscalers are enormous and there seems to be no end in sight,” Chief Executive Officer Michael Hurlston said in an interview in Tokyo Friday. “We’re falling further and further behind the demand. We would be sold out though all of 2028 within two quarters.”
Hurlston’s projection extends the company’s previous disclosure that it’s sold out until at least the end of 2027. It underscores expectations that demand for equipment to fill artificial intelligence data centers will remain resilient, even as the war in Iran rattles oil markets and the global economy.
The company, which last month received an investment of $2 billion from Nvidia Corp., alongside rival Coherent Corp., supplies advanced indium phosphide devices that enable high-speed data transmission. Its Nasdaq-traded shares have risen more than 1,500% over the past year, as optoelectronics are increasingly showing up in cloud computing clusters.
To meet runaway demand, San Jose, California-based Lumentum has ramped up capacity 12-fold at its key factory in the Tokyo metropolitan area over the past two years. It now plans to invest at least $100 million in the site and a neighboring facility.
“We could see it probably going up to even a quarter billion,” the CEO said. “You cannot imagine the pressure that’s on the team to ramp up. All the US hyperscalers want to know how many units are we going to be able to make this quarter, next quarter, the quarter after; Because it’s really the bottleneck right now for the industry.”
Silicon photonics, which uses light to transmit data, is expected to replace copper-based interconnects in data center clusters as advanced AI hardware requires ever faster transmission. Optical networking also helps systems generate less heat and consume less power. Japan is home to companies with expertise in indium phosphide, fiber optic materials and silicon photonics, including such companies as Fujikura Ltd., Sumitomo Electric Industries Ltd. and Hamamatsu Photonics KK.
Lumentum acquired some of its technology via Japan through its 2018 purchase of Oclaro Inc. which had inherited Hitachi Ltd.’s optical research. Today, its Sagamihara facility is one of the world’s most advanced indium phosphide device production sites, capable of delivering stable, high-quality output.
Room to add more production equipment at the Sagamihara factory and the neighboring Takao site is limited, and Lumentum is scouting new locations in Japan to expand output. It’s targeting older electronics fabrication facilities that it can repurpose — which would shorten the time needed to bring new capacity online. The company considered acquiring one such site in Japan last year, Hurlston said.
Moving production out of Japan is not feasible as indium phosphide manufacturing requires precise control of variables such as temperature, humidity, mixing speeds and water quality, the CEO said. A rich web of suppliers surrounding the material is also key, and the company has signed a seven-year arrangement with one Japanese supplier that Hurlston described as “very critical.”
“There’s a real strength in Japan around photonics, around these optoelectronics,” Hurlston said. “It’s been there for 40 years. It developed here. The technology estate here. So there’s a whole ecosystem of suppliers that go around that.”
Despite all the investment in factories, long-term supplier contracts and hiring more engineers, Lumentum expects its backlog of orders to keep piling up.
“There’s no way this is going to continue forever, it’s impossible, but there seems to be a decent amount of sustainability in the cycle for at least five years,” Hurlston said. “When we talk about sold out, that means non-cancelable agreements. It’s a big thing.”
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