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17 Aug 2023
But the photonics company remains confident in long-term trends while its customers work through excess inventories.
Lumentum has posted sales of $371 million for the quarter ending July 1, down 12 per cent on the same period last year - with a substantial further decline now anticipated for the September quarter.
The drop in demand saw the San Jose, California, photonics company swing to an operating loss of $56 million, compared with an operating income of $55 million a year ago.
CEO Alan Lowe told investors that although the firm’s long-term prospects remained strong, like others in the optical communications sector it was suffering a period of lower demand while customers continued to work their way through excess inventories of components purchased previously.
Ultrafast lasers aid PV production
His comments echoed those made by Coherent CEO Chuck Mattera a day earlier, with both companies exposed to the same market forces in the communications area.
Lumentum has also been impacted in recent months by a loss of market share in the smart phone 3D sensing sector, where key customers have looked to diversify their supply chains and made Lumentum a less dominant supplier.
However, Lowe pointed to strong recent performance of the firm’s commercial lasers business as one bright spot - with the business unit delivering sales of $209 million in the fiscal year just completed (Lumentum’s financial year runs June-June).
That total represented an increase of 8 per cent on the prior year, with Lowe highlighting new applications for ultrafast lasers in solar cell production, and a strong uptick in fiber laser sales for industrial use as key reasons for the increase.
But following last year's acquisition of NeoPhotonics and the additional expense of running that operation, Lumentum posted a net loss of $132 million in its latest full-year results, compared with a net income of nearly $200 million in the prior year.
With weaker macroeconomic conditions now expected to impact the commercial lasers division as well, Lowe said that the firm was enacting expense controls across all areas except research and development spending.
Inventory correction cycle
On the plus side, Lowe stressed that export controls on gallium and germanium material introduced by the Chinese government as a response to similar measures from the US covering semiconductor manufacturing technology would have no impact, with Lumentum able to source the critical metals from elsewhere.
Again echoing comments by Coherent CEO Mattera, Lowe pointed to demand for datacom products prompted by planned deployments in artificial intelligence (AI) as a key market trend in the near future - and one that would help drive business next year.
“With generational upgrades in the backbone of the network and increased customer activity for AI in the data center, we expect year-over-year telecom and datacom growth in calendar 2024,” he said.
“We believe that the current customer inventory correction cycle will continue through the balance of the calendar year, and therefore, our shipments will be below end-market demand.
“During this transition period, we are delivering as planned on our product roadmaps and are tracking ahead of our previously announced synergy plans.”
Looking ahead, Lowe and his executive team said that company revenues would likely tick down to somewhere between $300 million and $325 million in the September quarter - with the firm only just breaking even in terms of operating profit.
At the lower end of the range, that revenue figure would represent as much as a 40 per cent drop on the $507 million posted in the equivalent quarter last year - indicating the extent of the current inventory malaise.
• That outlook did not appear to surprise investors, with Lumentum’s stock price holding steady following the latest figures.
However, the stock had already dropped by around 10 per cent the day before Lowe's commentary, in a likely response to Coherent’s downbeat assessment of near-term prospects in the wider communications sector.
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