The optical chip maker reported its fiscal fourth-quarter results after the market close on Tuesday, with net revenue more than doubling year-over-year to $1.01 billion, exceeding analyst expectations by about 2%. Adjusted earnings per share on a non-GAAP basis surged 267% to $3.23, beating analyst estimates by nearly 9%.
Notably, the non-GAAP gross margin reached 50.4% compared to the original plan of achieving this threshold only when quarterly revenue hit $2 billion. The strong performance was reflected in the company's forward guidance. CFO Wajid Ali estimated that net revenue for the first quarter of fiscal 2027 would be between $1.225 billion and $1.275 billion.
CEO Michael Hurlston emphasized that the company is at the center of a long-term industry transformation. As AI computing workloads increase in speed and bandwidth, data center architects are adopting optical links as their primary connectivity method. The company's Q4 results reflect the early stages of this transition.
AI compute reshapes the network: 1.6T optical modules ramp up, pump lasers are 'effectively sold out'
Lumentum achieved record shipments of 800G products while beginning production of next-generation 1.6T modules. Hurlston noted that visibility into future cloud transceiver demand is clearer than ever, with 1.6T transceiver adoption expected to accelerate from the first fiscal quarter and continue through calendar 2027.
Pump laser shipments surged more than 80% year-over-year as training and inference workloads drive full-rate connections between data centers. Hurlston explained that the network capacity required to connect just two AI data center sites for a major hyperscaler is double the total global backbone capacity built over the past decade. Despite rapid capacity expansion, the company expects to remain effectively sold out for the foreseeable future, with pump laser shipments projected to quadruple over the next several quarters.
The NPO/CPO opportunity is 'entirely incremental', first ELS module order secured
Regarding co-packaged optics (CPO), Hurlston confirmed that the major CPO customer's production schedule remains on track, with demand signals stronger than previously indicated. The company reiterated its expectation for a ramp in high-power laser chip demand in the second half of calendar 2027.
Strikingly, Lumentum revealed it has secured its first purchase order for an external laser source (ELS) module, scheduled for delivery in the second half of calendar 2027. Transitioning from selling individual laser chips to higher-value ELS modules represents a substantial expansion of the company's total addressable market (TAM).
For near-packaged optics (NPO) architectures, Hurlston pointed out that a broad customer base is prioritizing NPO as a transition step before adopting CPO. The NPO opportunity is entirely incremental and significantly expands the optical TAM. Even the company's largest CPO customer is considering NPO for specific new use cases, further increasing the optical TAM for that account.
Wupen Yuen, President of the Global Business Unit, explained that the integration, power density, and efficiency required to pack 6.4T of bandwidth into a small optical engine necessitates the best laser technology and efficiency. This is precisely the market Lumentum is positioned to address with its unique high-power technology.
Management noted that the supply-demand imbalance for high-power lasers has widened significantly due to accelerating demand, putting the company in a state where shipments are falling far behind requirements. To address this, Lumentum recently signed an agreement with supplier AXT to secure additional indium phosphide (InP) substrate supply.
Optical circuit switch (OCS) and capacity: unfazed by new competitors
CFO Wajid Ali confirmed that the company's guidance for the first quarter includes the first quarter with OCS revenue exceeding $100 million. When asked about potential competition from new InP wafer fabs built in other countries, Hurlston expressed confidence, noting that the company's differentiation in EML and high-power lasers for NPO and CPO is significant. The narrow specification width of its lasers results in better transceiver yields for customers, allowing for a substantial price premium. Hurlston also cautioned that some laser suppliers touting large numbers are not yet delivering in the market.
Overall, Lumentum is leveraging its vertical integration from wafer-level manufacturing to high-end packaging to capture the current 800G to 1.6T opportunity while securing a core position in the optical revolution driven by NPO and CPO. The company's Q4 earnings call highlighted an accelerating shift toward optical connectivity in data centers, with demand for high-power lasers far outpacing supply and new opportunities emerging from NPO architectures.
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