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08 May 2019
First full quarter since Oclaro acquisition, results include impact of restructure and costs related to shift in datacom strategy.
Headline figures from the results are that the company's net revenue for the quarter was $432.9m and non-GAAP net income was $69.9m. By comparison, non-GAAP net income for Q2, 2019, was $78.3m and non-GAAP net income for Q3, 2018, was $50.6m.
Alan Lowe, President and CEO commented, "This year's third quarter continues a theme that started more than a year ago for our ROADM and fiber laser product lines. For the fifth quarter in a row, we have achieved double-digit sequential, quarterly revenue growth and new record revenues for these product lines driven by strong customer demand for our products.“
He added, "The third quarter was the first full quarter since the completion of the acquisition of Oclaro. We have made solid progress on integrating the companies and attaining synergies, including the divestiture and planned exit of certain datacom product lines.
Business outlook for Q4
During the fiscal third quarter and since, Lumentum took a series of strategic actions related to a shift in its datacom strategy to focus on photonic chip sales. These strategic actions include completing the divestiture of certain datacom product lines to Cambridge Industries Group in April, 2019.
Looking ahead, the company expects to achieve the following performances in the fourth quarter of 2019:
Analysts conference
During the results conference on May 7th, Lowe commented, “With a full quarter of contribution from the Oclaro acquisition, our telecom revenue mix is now approximately 40% transmission and 60% transport. This is more balanced when compared to Lumentum's historically heavy transport mix and is closer to the overall telecom market.
“We believe the telecom market should be strong, based on the continued growth in global network bandwidth requirements and the needed infrastructure for 5G. We are well positioned to capitalize on these trends with our industry-leading transmission and transport products. During the third quarter, we announced to our telecom customers two strategic actions catalyzed by the Oclaro acquisition.”
“First, we are rationalizing overlapping product lines, which we expect to have minimal impact to revenue. Second, we are discontinuing some legacy telecom product lines where growth and profitably forecasts are inconsistent with our long-term goals. Revenue from these products is approximately $15 million per quarter at present and will decline to zero.”
In March, 2019, at the OFC tradeshow in San Diego, Lumentum announced a fundamental shift in its datacom strategy, Lowe explained. “We are now focused on datacom chip sales and will stop selling datacom transceivers over time. We also announced the sale of several of our datacom transceiver product lines to Cambridge Industries Group,” he said.
ROADMsDuring the conference call, Lumentum senior executives were quizzed repeatedly about two market sectors in which the company holds strong positions: ROADMs and 3D sensing for mobile devices.
“We believe the growth in our ROADM and transport revenue has outpaced the telecom transmission revenue growth for several reasons," Lowe commented. "One simply relates to timing. In new network deployments, the transport equipment is installed first, and then individual transmission wavelengths are lit up over time. The other reasons for strong ROADM growth are more fundamental and long term in nature.
“Our new colorless, directionless and contentionless, or CDC network architectures, the ROADM -- the number of ROADMs per network node and the number of ports per ROADM and, therefore, the average selling price is increasing,” he said.
“These more advanced ROADMs enable customers to achieve the needed network reconfigurability and capacity. Additionally, ROADMs are pushing into new geographies and applications. We are seeing ROADMs push further toward the edge of the network replacing fixed optical add-drops.
“Switching to telecom transmission, we continue to make progress on our high-speed coherent products, including indium phosphide photonic integrated circuit-based components, 200-gigabit DCO modules and future 400-gigabit and 1.2-terabit DCO products. We expect these products to ramp in volume and to be a growth driver later this year.”
3D sensing
Focusing on the 3D sensing sector, for which Lumentum supplies various VCSEL products (such as for Apple's iPhone X line of smartphones), Lowe noted that “third-quarter revenue was down 35% quarter on quarter, driven by usual seasonality in the consumer electronics market.”
“We continue to make excellent progress with Android customers and additional new design wins on both front- and world-facing applications. For the first time, we had a single Android customer drive more than $10 million of revenue in the quarter.
“Looking ahead to the fourth quarter, we expect 3D sensing to be flat to slightly down, driven by seasonality on existing products not being fully offset by initial ramps for new product cycles.
He concluded, “Given our current mix of customer opportunities and historical trends, our fourth quarter should be the seasonal low of 3D sensing revenue. We expect 3D sensing to ramp up again this summer and into the fall time frame.”
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