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08 Feb 2024
Photonics company says 'skyrocketing' bandwidth demands of AI data centers is behind strategic investment.
Lumentum has revealed plans to ramp up optical transceiver production capacity at its site in Thailand, in response to what the photonics company described as “skyrocketing” demand for cutting-edge optical transceivers to be deployed in high-speed data centers supporting artificial intelligence (AI) applications.
But CEO Alan Lowe also told an investor conference call discussing the US firm’s latest financial results that its other key business areas - largely telecoms, 3D sensing, and industrial lasers - were facing various challenges in the near term as major customers continue to work through a stockpile of products purchased last year.
Export restrictions hit
Overall the company posted sales of $367 million for the December quarter, up from September’s low point but still down more than 27 per cent compared with the same period last year.
Lumentum’s “industrial technology” business unit, largely made up of 3D sensing and industrial laser sales, fared even worse, declining nearly 35 per cent year-on-year to $80 million.
The company’s annual sales will also be hit by around $45 million as a result of new US export regulations concerning the Chinese networking giant Huawei.
And despite Lowe’s outlook indicating a strong return to growth across the business from June onwards, the short-term issues appeared to hit investor sentiment, with Lumentum’s stock price falling by more than 15 per cent following the latest update.
“We are shaping the future of data transmission,” the CEO told investors. “Lumentum stands at the leading edge of photonics innovation, partnering with customers to enable the future of data centers and the networks that connect them.
“Given the surging bandwidth demands of AI data centers, and our strong traction on new transceiver opportunities, we are strategically expanding our leading-edge transceiver manufacturing capacity.
“As a key part of this expansion, we are investing in state-of-the-art production lines at our manufacturing facility in Thailand.”
Site consolidation
That investment comes at the same time that Lumentum is consolidating its wafer fabrication facilities in Japan and other sites in China, the latter partly in response to the recently extended US export restrictions.
Lowe said that Lumentum was expecting to qualify its silicon photonics approach to support more energy-efficient 800 Gb/s optical transceivers initially, with production of the firm’s latest high-speed vertical-cavity surface-emitting lasers (VCSELs), each operating at 100 Gb/s, expected to ramp in the second half of this year.
Since acquiring the Hong Kong-based transceiver business Cloud Light - originally a TDK spin-off - last November, Lumentum has been able to target the fast-growing AI data center market with both transceiver products and laser components.
Lowe and his team believe that the Thailand facility ramp will enable the firm to lead an initial wave of 1.6 Tb/s transceivers that will end up becoming the “workhorse” of next-generation data centers.
“High-speed data center demand is skyrocketing,” said the CEO, adding that Lumentum should be able to grow its market share in the sector as it rises from a relatively low base.
Short-term pain
With demand for its telecommunications products and ultrafast industrial lasers expected to bounce back later this year alongside the site consolidation effort, he is expecting both sales and margins to improve towards the end of the year.
But the more immediate future will see Lumentum’s industrial technology sales fall sharply, partly as a result of excess ultrafast laser inventory at a key customer, and partly as a result of lost market share in 3D sensing applications for Apple’s smart phones.
Despite that CEO Lowe said he was “very excited” about future prospects for ultrafast lasers, with applications in solar cell, displays, PCB, and electric vehicle battery production all expected to ramp up later this year.
• In their outlook for the March quarter, Lumentum’s executives suggested that the firm’s sales revenues would remain close to the December quarter figure, at somewhere between $350 million and $380 million.
That is despite the additional contribution of a full quarter of sales from the growing Cloud Light business, with other elements of the Lumentum business experiencing a decline in demand.
After digesting that forecast, investors sent Lumentum’s share price tumbling more than 15 per cent. Trading at close to $49 on the Nasdaq, the stock currently commands a market capitalization of around $3.3 billion.
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