09 May 2023
Stock drops in value as buyers work through excess inventories, but long-term outlook remains bright.
Down from $506 million in the seasonally strong December quarter, that figure also represented a decline of 3 per cent compared with the same period last year - which came before Lumentum’s acquisition of NeoPhotonics.
The latest sales total pushed the firm to an operating loss of $51 million, compared with an operating income of $47 million a year ago.
CEO Alan Lowe said that the current dip in demand, which is expected to continue for the next couple of quarters, was the result of “customer inventory digestion”, as firms work through excess components ordered in response to earlier supply constraints.
“We believe we are currently under-shipping end-market demand across our business,” Lowe told an investor conference call discussing the latest trends.
“I am confident about our overall competitiveness and market share positions in our optical communications and commercial lasers segments, and believe that mid- to long-term demand drivers are very favorable.”
In the meantime, the firm is prioritizing cost-cutting measures and accelerating savings expected in conjunction with the ongoing NeoPhotonics assimilation.
While the current sales slump has been largely prompted by communications network equipment companies stockpiling critical photonic products like reconfigurable optical add-drop multiplexers (ROADMs), Lumentum is also facing challenges in the other parts of its business.
In 3D sensing applications, where the company has benefited historically from being the lead supplier to Apple for its iPhone facial recognition hardware, it now faces a much more competitive environment.
Alongside that, global demand for high-end smart phones has waned in recent months, while other applications of 3D sensing components in the automotive and industrial realms remain in their infancy.
Lowe highlighted that the latest quarter saw Lumentum generate $3 million in sales of 3D sensing products for automotive lidar applications, largely from China.
The CEO is confident of the market becoming a major one for the company over the next decade, for both in-cabin and road-facing applications, but pointed out the typically very long design periods that have always characterized the auto industry.
Over the next five years Lowe and his colleagues are expecting a multi-billion market for automotive lidar modules to emerge - with lidar chips of the sort produced by Lumentum commanding a market worth around 10-15 per cent of that total.
In a decade from now, those numbers could jump by an order of magnitude, the CEO suggested.
One area where Lumentum enjoyed sharp growth in the most recent quarter was ultrafast lasers, as sales jumped 70 per cent year-on-year thanks particularly to applications in solar cell manufacturing.
However, the firm’s “commercial lasers” unit still reported a 6 per cent year-on-year decline in revenues to $48 million, partly because of the transition to a new fiber laser product - typically one of the biggest contributors to the division’s sales.
Despite the tricky current landscape, Lowe reiterated his confidence in the firm’s long-term prospects, particularly as major computing companies begin to deploy new application-specific data center equipment for the emerging era of artificial intelligence and machine learning.
“Data traffic will continue to grow at a relentless rate, and networks and data centers will need to keep pace with a double-digit increase in data capacity each year,” he told investors.
And although the near-term focus will be on expense control, the firm’s long-term expectations are unchanged, with Lowe stressing that “crucial” research spending would be maintained.
• Lumentum’s executive team said that they expect quarterly sales to decline again in the June quarter, to somewhere between $350 million and $380 million.
That outlook and the management commentary appeared to prompt a 5 per cent fall in the Nasdaq-listed company’s stock price. Currently trading at around $45, the stock equates to a market capitalization of just over $3 billion.