Lumentum to acquire Cloud Light in $750 million deal

02 Nov 2023

To accelerate optical data center speed and scalability; union set to deliver five-fold expansion in cloud business.

Diverse photonics technologies company Lumentum is to acquire Hong Kong-headquarterd Cloud Light, which makes fiber optic equipment and automotive sensors, in a transaction valued at $750 million, subject to approvals.

The acquisition of Cloud Light is expected to accelerate Lumentum’s push into what it describes as “the fastest growing segments of the multibillion-dollar opportunity for optical modules used in cloud computing data center infrastructure”.

Cloud Light has a track record of developing high-speed connectivity solutions. Nearly all of Cloud Light’s more than $200 million revenue in the past 12 months was derived from 400G or higher speed transceiver sales. And in the latest trading quarter, over half of Cloud Light’s optical transceiver revenue was derived from 800G modules.

With the acquisition, Lumentum will be well-positioned to serve the growing needs of cloud and networking customers, particularly those focused on optimizing their data center infrastructure for the demands of AI/ML.

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Lumentum says it will be able to deliver immediate customer value with a more comprehensive product and technology portfolio, enabling customers to more effectively manage the escalating compute and interconnect requirements of AI workloads. The combination also brings best-in-class design and assembly, test, and packaging capabilities together with Lumentum’s global customer reach.

“With Cloud Light, we are making a strategic investment to significantly expand our opportunities in the cloud data center and networking infrastructure space,” said Alan Lowe, Lumentum president and CEO. “Cloud Light provides us with the highest speed transceiver solutions at scale and complements our advanced component capabilities. This results in a broad product and technology portfolio that addresses a wide range of cloud operator needs.”

Dr. Dennis Tong, Cloud Light Founder and CEO, said, “This announcement is a pivotal milestone in the history of Cloud Light. We founded the company with a vision that our expertise in high-volume precision manufacturing would result in a superior value proposition for cloud data center customers.

“We believe we can build upon our success to date and further accelerate cloud data center growth by combining Lumentum’s advanced photonic integration and transmission technologies with our highly automated packaging and manufacturing processes.”

Highlights of the deal, according to Lumentum

• Complementary combination positions Lumentum as a leading player in providing photonics to cloud operators, enabling more than a five-fold expansion in the company’s served opportunity inside of data centers.
• With the advent of generative AI, cloud network needs for 400G and higher speed optical transceivers have accelerated rapidly, with the opportunity for these intra-data center products anticipated to grow at a 30% CAGR and exceed $10B by 2028.
• Cloud Light provides the highest speed optical transceiver products to leading hyperscale cloud customers, with even higher-speed solutions well along in their development, complementing Lumentum’s existing portfolio of laser transmitters and other components for data center transceivers.
• Better equipped to address future customer roadmaps: AI models are driving an exponential increase in compute requirements, where performance is now doubling every 3 to 4 months, compared to the historical doubling every two years according to Moore’s Law. Scaling workloads even higher is limited by existing network and interconnect bottlenecks.
• With Cloud Light, Lumentum can more effectively address the growing and diverse needs of cloud operator and AI infrastructure providers. This includes providing next-generation optical connectivity and optical switching within data centers, as well as coherent pluggable modules and optical line system components for data center interconnect applications.
• The transaction is expected to be “immediately accretive” to Lumentum’s non-GAAP earnings per share and is expected to more than double Lumentum’s cloud data center infrastructure revenue in the 12-month period following the transaction close.

Lumentum’s statement concluded that it “intends to finance the transaction through cash from its balance sheet. The transaction is expected to close by the end of calendar 2023, subject to receipt of regulatory approvals and other customary closing conditions.”