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Lumentum looks beyond current slowdown in 3D sensing

06 Feb 2019

Drop in orders affects results, but long-term market for products remains "tremendous opportunity."

Lumentum, the photonics components developer whose business now includes the Oclaro brand since an acquisition competed in December 2018, posted revenues of $373.7 million for the second quarter of fiscal 2019, an increase of more than five percent over the preceding quarter but a dip of seven percent compared to Q2 of 2018.

The company's lasers business contributed $48.3 million, around 13 percent of the total and an increase of ten percent sequentially, driven primarily by fiber-laser sales. The remainder, Lumentum's optical communications products, saw a five percent rise sequentially, but a drop of nearer ten percent over the same quarter of last year.

Non-GAAP net income for the quarter was $78.3 million, compared to the $85.8 million of the previous quarter.

"We continue to make progress with new design wins with new and existing customers," commented Alan Lowe, CEO. "The closing of the Oclaro acquisition in December gives us a first-mover advantage in a consolidating industry, and establishes leadership positions based on fundamental photonic chip capabilities across a broad range of products and technologies."

Speaking to analysts, Lowe expanded on the rationale behind the Oclaro deal, saying that the three primary motivations were leadership in indium phosphide photonic chips; positioning for 5G and other future comms technologies; and the creation of options to profitably participate in the datacom market.

"Our thesis is that the only way to meet future customer requirements in the optical communication transmission market and sustainably differentiate ourselves from our competition is innovation and economies of scale at the fundamental indium phosphide photonic chip level,” he commented. "We further believe indium phosphide could meaningfully penetrate consumer and automotive sensing markets."

3D sensing slowdown - but long-term opportunity

Lumentum was compelled to adjust its revenues guidance late in 2018 due to a drop in demand for the laser diodes used in 3D sensing applications, in particular from Apple - by far Lumentum's largest customer.

Lowe alluded to this by saying that second quarter revenues from industrial and consumer diode laser product lines were "as expected" down by ten percent quarter-on-quarter driven by softer demand for the 3D sensing lasers.

"Android customer revenue came in as expected and we continue to make excellent progress with additional Android customers and additional new design wins," he added.

"The market for laser-based sensing is still in its infancy. We believe the market opportunity over the long run is tremendous, as the applications that use our lasers enhance security, safety and new functionality in the billions of electronic devices that people rely on every day. The seeds for this long-term market opportunity continue to be planted."

As part of that opportunity, Lumentum stated that additional unnamed customers had either announced or started shipping high-end 3D sensing enabled devices during the second half of 2018, with further such products due to arrive during 2019. Several of these opportunities could expand the Lumentum content per device, according to Lowe.

"We believe these new customer products are the first step to broad incorporation of 3D sensing in lower priced, higher volume devices in the years to come," he commented. "The customer learnings, software APIs and supplier ecosystems developed in these initial products will enable and allow more rapid adoption of 3D sensing in subsequent product cycles. We believe our leadership position in the market is sustainable and we will see strong growth in our 3D sensing business over the long run."

On the NASDAQ Lumentum shares slipped by around five percent immediately after the results announcement.

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