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Lumentum predicts further growth in 3D sensing

05 Feb 2020

Quarterly revenue rise driven by telecoms but company expects to take a hit from coronavirus disruption.

Lumentum reported improved results for the second quarter of fiscal 2020, although the effects of the coronavirus outbreak in Asia are expected to negatively impact revenues in the current Q3.

Net GAAP revenue for Q2 was $457.8 million, up slightly from $449.9 million in the preceding quarter and also up from $373.7 million for the equivalent quarter of fiscal 2019.

"The themes of the prior quarter - strong customer demand, an improving financial model due to increasing levels of new and innovative products and increasing scale and acquisition synergies - drove new record revenue, gross margin and operating margin in the second quarter," said Alan Lowe, President and CEO.

"Adding to these themes in calendar year 2020, we are seeing telecom transport demand strengthening, and we expect a strong expansion of the market for world-facing 3D sensing lasers."

The largest driver of sequential and year-over-year growth was telecom and datacom products, while quarterly revenue from the company's lasers business was $48.4 million, almost unchanged from one year ago and up from $33.8 million in Q1. Lumentum commented that it had now repaid in full the term loan that it took on in connection with the acquisition of Oclaro in 2018.

Speaking to analysts, Lowe confirmed that Lumentum foresees growth for 3D sensing lasers in smartphones for biometric security purposes, with similar technology likely to make its way into other sectors too.

"We expect 3D sensing to be incorporated in more consumer products in both user and world-facing applications, including computational photography and augmented and virtual reality," he said. "Our R&D teams are working with a broad range of customers on their future generations of 3D sensing needs, including new products coming later this year and next, as well as for products several years away. We are well-positioned to grow in this market."

Coronavirus affecting quarterly guidance

Lowe also highlighted Lumentum's PicoBlade 3 ultrafast laser for micro-machining applications, addressing OLED display processing, 5G antenna fabrication, and advanced via hole drilling and printed circuit boards. "These applications are all expected to see significant market growth in the coming years," he commented.

Events in China were a constant topic of the conversation with analysts, however. In May 2019 Lumentum halted shipments to Huawei Technologies, one of the first American companies to align with export restrictions imposed by the US government, although as Lowe noted Huawei are a major smartphone supplier and therefore a major customer for 3D sensing lasers. Huawei's involvement in the UK's forthcoming 5G telecoms network is a further topic of current political discussion.

"Given our footprint in the customer base we are largely agnostic to which of our customers wins business," commented Chistopher Coldren, Lumentum SVP. "If Huawei is restricted to a more limited portion of the UK network, we don't believe this is a significant change for us. In terms of understanding what the US government is going to do, I don't think we have any more insight that what you can read in the general news."

The ongoing coronavirus outbreak across the Asia region will have a more immediate impact on the company, Lowe confirmed. The company currently employees around 1000 people in China, in addition to maintaining a manufacturing facility in Thailand.

"Our guidance for the coming Q3 incorporates a $15 million to $20 million reduction in revenue at the midpoint due to the anticipated impacts of the coronavirus outbreak," said CFO Wajid Ali. "The coronavirus situation is fluid and evolving."

Shares in Lumentum rose by 11 percent immediately after the earnings announcement.

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