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Lumentum 'seeds' automotive applications to drive future VCSEL sales

03 Nov 2020

Boom in 3D sensing technology in latest quarter offset by 5G push-outs and weak demand for industrial lasers.

Photonics company Lumentum has posted sales of $452 million in its latest quarter, reflecting a sharp sequential increase on booming demand for its optical 3D sensing technology.

Although that overall revenue figure was in line with its August forecast, Lumentum said that the underlying results were more complex. Fast-growing sales of 3D sensing products based around its vertical cavity surface-emitting lasers (VCSELs) were offset by a weaker picture in telecoms relating to push-outs of 5G deployments.

Commercial laser sales were also down sharply year-on-year, reflecting the ongoing weakness in the industrial sector, while Lumentum CEO Alan Lowe said that sales to Huawei were set to shrink rapidly following the latest restrictions imposed by the US government.

Despite that, the company was able to deliver a pre-tax profit of $84 million in the quarter - up from $53 million in the equivalent period last year.

VCSEL sensing upgrades
With Lowe promising to continue investing heavily in research and development to exploit future opportunities, Lumentum’s innovation pipeline looks to be delivering results.

“We have multi-year product and technology roadmaps aligned with our consumer electronics customers,” Lowe told investors discussing the latest financial results, suggesting that higher levels of photonic integration would enable sub-screen 3D cameras.

“We are optimistic about 3D sensing demand in the coming quarters and years,” Lowe added, pointing out that having now passed $1.5 billion in cumulative 3D sensing sales, there would be plenty more to come.

“In addition to increasing content, we believe there's potential for a strong consumer upgrade cycle driven by new features, including 5G, augmented and virtual reality, and computational photography,” he said. Key customer Apple uses VCSEL-based lidar arrays in its latest iPhone 12 models to support new AR/VR and computational photography features.

While larger and higher-density VCSEL arrays for improved 3D imaging and new lasers are in development for the consumer electronics sector, it appears that automotive applications - both inside and outside the cabin - may soon present major opportunities for VCSELs and 3D sensing.

Planting automotive ‘seeds’
Describing the latest company activity as “planting seeds for growth in markets beyond consumer electronics”, Lowe said:

“In the past quarter, our VCSEL arrays have completed the important AEC [Automotive Electronics Council] automotive qualification through a module partner, and we expect initial deployments of these products to be [for] automobile in-cabin applications.”

On top of the opportunity in driver monitoring systems, the CEO said that Lumentum was also now sampling high-power VCSEL arrays for qualification in external lidar systems for driver assistance and autonomous driving.

“According to our customers, these ‘last-mile’ applications could be one of the largest lidar opportunities in the next several years,” Lowe noted.

Beyond phones and cars, Lowe said that Lumentum was now shipping VCSEL-based sensors in volume for facial recognition systems in payment kiosks.

“We are engaged with providers of security and access control systems who are looking to add 3D sensing to enable touchless or contactless high-security access control,” he explained. “These applications are also accelerating due to public health and safety concerns.”

5G push-outs and Huawei restrictions
While the picture looks overwhelmingly positive in 3D sensing, the immediate outlook doesn’t look quite as bright in the telecoms sector, where Covid-related delays to 5G infrastructure build-out and the thorny issue of Huawei sales are having a negative impact.

Despite the 5G slowdown, demand for Lumentum’s photonics products in data center applications remains extremely strong, even outstripping the firm’s manufacturing capacity.

“As such, we are continuing to aggressively expand our wafer fab capacity based on long-term demand trends and expectations,” Lowe said. “On the new product front, we are working closely with our lead customers on their needs for future 800G [and higher] datacom transceivers.”

Switching focus to Huawei, the CEO outlined a complex picture concerning exactly which products Lumentum could and couldn’t now ship to the Chinese communications giant - the upshot of which is that Huawei no longer represents a “10 per cent customer”. In the fiscal year ending June 2019, sales to the Chinese firm represented 15 per cent of Lumentum's total annual sales.

But the regulations imposed by the Trump administrations will see that contribution shrink further in the current quarter and beyond, with Lowe saying that Huawei would soon account for less than 5 per cent of Lumentum’s turnover.

Despite that and another sharp contraction in sales of commercial lasers, Lowe struck a positive note overall, telling investors:

“The world is accelerating its shift to increasingly digital and virtual approaches to work, entertainment, education, healthcare, social interaction, and commerce - which all drive increasing needs for our differentiated products and technology.”

• CEO Lowe and his executive team said that sales in the current quarter should rise to around $475 million. Lumentum’s stock price, little changed following the latest update, continues to trade close to its all-time high. At around $84 on the Nasdaq, the company’s market capitalization stands at more than $6 billion.

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