Lumentum stock rises as annual sales top $3BN

Lumentum, one of the key providers of laser chips and photonic systems used across high-speed optical communications and data center infrastructure, has posted annual sales of just over $3 billion - nearly double the prior year’s total.

The San Jose firm closed out its latest fiscal year with quarterly revenues just north of $1 billion, and saw its stock price rise 8 per cent after CEO Michael Hurlston and his team said that revenues in the current September quarter would jump to around $1.25 billion.

“Lumentum is positioned at the heart of a secular industry shift,” Hurlston told investors. “As AI compute workloads increase in both speed and bandwidth, data center architects are turning to optical links as a primary means of connectivity.”

For Lumentum that has meant increasing demand for ultra-high-power lasers used in co-packaged optics (CPO) designs, alongside an initial order for external laser source (ELS) modules, and broad interest in near-packaged optics (NPO) components.

“[These] engagements are the first signs that optics are starting to penetrate in-rack connectivity, significantly upping our optical total addressable market,” added the CEO.

InP expansion continues

Delving into the details of the latest quarter’s numbers, Hurlston said that sales of optics and photonics components jumped to $649 million, thanks in part to an 80 per cent year-on-year surge in shipments of pump lasers and increased production of various indium phosphide (InP) emitters in line with recent capacity expansions.

The CEO added that any worries about the true level of market traction for CPO and NPO were unfounded, with customer plans still very much on track and a ramp in production for deliveries in the second half of 2027 going ahead as planned.

Asked about potential competition from China-based InP laser manufacturers, Hurlston said that Lumentum’s much more consistent output performance differentiated its lasers from emerging challengers, with profit margins remaining extremely healthy as demand continues to outstrip supply by some margin.

Lumentum is looking to close that supply-demand gap through InP fab expansions in Japan and at its recently acquired site in Greensboro, North Carolina, that is currently migrating from gallium arsenide to InP wafer fabrication and expected to come online in early 2028.

The healthy demand and margins seen currently meant that the firm was able to post an operating income of $279 million in the latest quarter, compared with a loss of $8.4 million a year ago.

Debt converted

Thanks to the recent appreciation in Lumentum’s stock price - up 600 per cent over the past year - Hurlston and his executive team have also taken the opportunity to convert a large chunk of the company’s loan notes into equity.

CFO Wajid Ali told the investor conference call that although that decision led to a one-time, non-cash loss of $7.8 billion written down in the June quarter, the action reduced Lumentum’s debt by $1.1 billion, or approximately 35 per cent of the firm’s convertible debt.

In after-hours trading following the latest update, Lumentum’s stock price rose in value by around 8 per cent. Now trading at around $885 per share, that price represents a market capitalization in the region of $70 billion.