Q2 2026 Lumentum Holdings Inc Earnings Call

February 3, 2026

Listen only mode, please. Also note. This event is being recorded for replay purposes. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press star 9, to raise your hand, and star 6 to unmute. At this time, I would like to turn the conference call over to Kathy to vice president of investor relations MTA, please go ahead.

Thank you, Kevin and welcome to the mentioned, second quarter of fiscal year, 2026 earnings call. This is Kathy Todd lumens, vice president of investor relations joining me today are Michael Hurston president and chief executive officer, Roger Ali, Executive Vice, President and Chief Financial Officer and Wu president Global business units. Today's call will include Ford looking statements including without limitation statements regarding our future operating results, strategies Trends and expectations for our products and technologies that are being made under the Safe. Harbor of the Securities, litigation Reform, Act of 1995, these statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations, particularly the risks set forth in our SEC filings under risk factors and elsewhere.

We encourage you to review our most recent filings with the SEC. Particularly the risk factors described in our 10 queue for the fiscal quarter ended, September 27th 2025 and in our most recent 10q for the fiscal quarter end of December 27th.

2025 to be filed by lamentum with the FCC.

The forward-looking statements provided during this call are based on momentum as reasonable beliefs and expectations as of today. The momentum undertakes. No obligation to update or revise these statements except as required by applicable law.

please also note that unless otherwise stated all Financial results and projections just discussed in this call are non-gaap

Non-gaap financials have inherent limitations and are not to be considered in isolation, from, or as a substitute for or Superior to financials prepared in accordance with gaap.

You can find a Reconciliation between non-gaap and gaap measures and information of about our use of non-gaap measures and practices that could impact your financial results in our press release and our filings with the SEC.

The mentors press release with the fiscal second quarter results in accompanying, supplemental. Sides are available on our website at www.am.com under the investors section.

We encourage you to be viewed. These materials carefully with that, I'll turn the call over to Michael.

Thank you, Cathy and good afternoon. Everyone lamentum, delivered a standout second quarter with over 65% year-over-year, Revenue growth and non-gaap operating margin increasing by greater than 1700 basis points.

Q2 2026 Lumentum Holdings Inc Earnings Call

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Tuesday, February 3rd, 2026 at 10:00 PM

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Michael Hurlston: Thank you, Kathy, and good afternoon, everyone. Lumentum delivered a standout second quarter, with over 65% year-over-year revenue growth and non-GAAP operating margin increasing by greater than 1,700 basis points. At $665.5 million, we set a company record for quarterly revenue for the second reporting period in a row. We are now recognized as a foundational engine of the AI revolution. Virtually every AI network is powered by Lumentum Technology, either through our direct hyperscaler partnerships or as the critical component supplier that enables our network, equipment, manufacturer, customers. Our momentum is accelerating. While we previously projected crossing $750 million in quarterly revenue by mid-2026, we now expect to comfortably surpass that milestone next quarter. Our March revenue guidance, with an $805 million midpoint, represents an impressive 85+% year-over-year increase.

Michael Hurlston: We previously identified three primary catalysts for Lumentum's future growth: Cloud Transceivers, Optical Circuit Switches, or OCS, and Co-packaged Optics, or CPO. The headline for this quarter is that the vast majority of this growth is still ahead of us, and we have increased confidence as to the timing and magnitude of the ramps. While our Q2 results and Q3 guidance reflect meaningful contributions from Cloud Transceivers, we are only just beginning to unlock the massive potential of OCS and CPO. Beyond these high-growth drivers, our Q2 performance was anchored by sustained execution on our foundational components business, specifically in laser chips for cloud applications and in specialized components for DCI. I will now break down our Q2 performance, starting with execution and our primary growth drivers. Our OCS business is exceeding internal expectations.

Michael Hurlston: While we originally targeted our first $10 million quarter for fiscal Q3, we cleared that bar three months ahead of schedule. This outperformance is a direct result of the seamless collaboration between our engineering and operations teams, proving our ability to scale complex technology at pace. Customer demand for OCS is intensifying. Our order backlog now has surged well past $400 million, the majority of which is slated for shipment in the second half of this calendar year. Barring any unforeseen manufacturing or supply chain disruptions, we are well positioned to deliver on this substantial pipeline. Our execution in Cloud Transceivers has reached a definitive turning point. In Q2, transceiver revenue grew significantly and outperformed the legacy CloudLite run rate, and we expect continued growth in Q3. We have focused on time-to-market in the business and have greatly improved our execution through the design cycle.

Michael Hurlston: As a result, we are now in the lead pack of transceiver suppliers as customers transition their networks to 1.6T speeds. Beyond design execution, we are also improving the profitability of our transceiver business with better yields and lower scrap rates. Turning to CPO, we have secured an additional $multi-hundred million purchase order for ultra-high power lasers that support optical scale-out applications. We expect shipments for this incremental order in the first half of calendar 2027. Meanwhile, we continue to execute on the initial orders we have discussed previously and remain firmly on track for material shipment inflection of UHP chips in the second half of this calendar year. Furthermore, we have established a clear line of sight into the broader External Light Source (ELS) market, which would enable us to participate more holistically than as a standalone laser chip supplier.

Michael Hurlston: By expanding into pluggable external light source modules, we would dramatically increase our serviceable market. In addition, the ELS allows us to diversify our customer base, as several new partners adopting next-generation scale-out architectures are looking for more turnkey solutions. We have built significant momentum through our leadership in Cloud Transceiver, OCS, and scale-out CPO. Now, a fourth growth driver is taking shape, one poised to be a generational game changer for the industry: optical scale-up. Today, data center architectures have a clear divide. Optical links handle scale-out networking, connecting relatively longer links within the data center. Conversely, copper links dominate scale-up connectivity, referring to the ultra-short reach, high-speed paths within a single rack or a cluster. While copper has long been the gold standard for scale-up for simplicity and cost, it is hitting a physical wall. An industry pivot is underway to bypass the scaling limits of copper.

Michael Hurlston: By late calendar 2027, we would expect our first scale-up CPO shipments, replacing longer copper connections. We are already deeply embedded in design in cycles for this, leveraging our ultra-high power lasers and external light source modules. As we look into the not-so-distant future, it is only right to assume that optics begins to capture more and more of the connectivity, eventually subsuming copper. In response to these demand projections, we have initiated proactive capacity planning. Given the sheer magnitude of the scale-up optics market, we are carefully assessing our projected wafer output plans. We are in active negotiations with leading customers to offset our capital requirements in exchange for long-term supply assurances. These discussions underscore the critical nature of our technology and their roadmaps. Now, let's look closer at the key performance metrics that defined our second quarter.

Michael Hurlston: In our last earnings call, we introduced two primary product categories: components, the foundational building block for larger solutions, and systems, which are standalone products providing full functionality such as optical transceivers, optical circuit switches, and industrial lasers. Components revenue for the quarter reached $444 million, representing a 17% sequential increase and 68% year-over-year growth. This performance was fueled by broad-based demand across laser chips, laser assemblies, and inline subsystems going primarily into inter-data center (DCI) and long-haul applications. Our laser chip business, serving Cloud Transceiver customers, drove outsized sequential growth this quarter. We achieved another quarterly company record in EML laser shipments, led by 100 gig lane speeds and bolstered by a ramp in 200 gig devices. Simultaneously, we expanded our footprint in next-generation architectures, shipping CW lasers for 800 gig manufacturers, and increased volumes of ultra-high power laser shipments for CPO applications.

Michael Hurlston: Our indium phosphide wafer fab capacity remains at a premium, fully allocated to meet surging customer demand. We have front-loaded our 40% expansion target, delivering on over half of that this past quarter. We are scaling rapidly through precision tool optimization and yield gains. This execution will help to ensure that additional capacity comes online as planned over the next two quarters and beyond. While not able to size it, we now have line of sight to a significant block of additional capacity starting in the second half of 2026, both through current activities in Sagamahara and better utilization of our Caswell (United Kingdom), and Takao (Japan) fabs. Beyond sheer volume, our Q2 revenue was propelled by a favorable mix shift toward 200 gig lane speeds, which provide a meaningful ASP uplift.

Michael Hurlston: While these high-speed devices represented approximately 5% of unit volume, they contributed roughly 10% of data center laser chip revenue. Moving to our scale-out business, we continue to see sustained momentum in components supporting optical links ranging from inner campus to longer reach topologies. Shipments of our narrow linewidth laser assemblies grew for the eighth consecutive quarter, a clear proof point of robust market demand and our successful manufacturing expansion. Our long-haul portfolio also saw gains, with both coherent components and inline subsystem products growing sequentially and year-over-year. In addition, we achieved another record quarter for our pump lasers, supporting not only long-haul terrestrial and subsea networks, but also new scale-out architectures, with revenue in this product line surging over 90% compared to the prior year. Finally, 3D Sensing grew modestly following a new smartphone launch and some incremental share gains.

Michael Hurlston: In systems, revenue reached $222 million, representing a significant 43% sequential, and 60% year-over-year increase. Cloud Transceivers accounted for the lion's share of this growth, increasing by approximately $50 million on quarter as we successfully leveraged our expanded manufacturing capacity in Thailand. As noted last quarter, we have moved past the production volatility seen in earlier calendar 2025 and are now on a sustainable growth trajectory. Our Q3 guidance reflects this momentum as we begin to see the revenue layering benefits typically enjoyed by larger transceiver makers. As noted earlier, optical circuit switches continue to grow and were the good news story of the last quarter. On the other hand, as our cloud-related business continues to accelerate, we see a different dynamic in the industrial end market. Here, shipments remain roughly flat sequentially in Q2.

Michael Hurlston: This performance reflects the persistent cyclical softness we continue to see in the broader industrial market. With that said, we have an increasing design wind funnel for our newly introduced Pico compact line of products. Looking ahead to Q3, we expect to achieve a new quarterly revenue record, with our guidance midpoint exceeding historical revenue levels by a substantial margin. Within this outlook, we anticipate that approximately 2/3 of the sequential increase in revenue will be driven by our components portfolio, reflecting broad-based strength across cloud applications. The remaining 1/3 will stem from systems, fueled by the continued ramp of high-speed transceivers and additional contributions from OCS. In summary, Lumentum has established itself as a market leader in transformative optical technologies. Our position across OCS, optical scale-out, and optical scale-up is the envy of the industry.

Michael Hurlston: Due to better manufacturing utilization across the majority of our product lines, increased pricing on select products, and favorable product mix. Mix improvement was primarily driven by our ramp in data center laser chips. Q2 non-GAAP operating margin was 25.2%, which was up 650 basis points sequentially and up 1,730 basis points year-over-year, primarily driven by revenue growth and components products. While continuing to invest in critical R&D programs serving cloud and AI customers, we have maintained the rigorous cost controls necessary to optimize our business model. Q2 non-GAAP operating profit was $167.7 million, and adjusted EBITDA was $198.3 million. Q2 non-GAAP operating expenses totaled $114.9 million, or 17.3% of revenue, an increase of $4.4 million from the Q1 and an increase of $16.6 million from the same quarter last year in order to support our expanding cloud opportunities.

Wajid Ali: Due to better manufacturing utilization across the majority of our product lines, increased pricing on select products, and favorable product mix. Mix improvement was primarily driven by our ramp in data center laser chips. Q2 non-GAAP operating margin was 25.2%, which was up 650 basis points sequentially and up 1,730 basis points year-over-year, primarily driven by revenue growth and components products. While continuing to invest in critical R&D programs serving cloud and AI customers, we have maintained the rigorous cost controls necessary to optimize our business model. Q2 non-GAAP operating profit was $167.7 million, and adjusted EBITDA was $198.3 million. Q2 non-GAAP operating expenses totaled $114.9 million, or 17.3% of revenue, an increase of $4.4 million from the Q1 and an increase of $16.6 million from the same quarter last year in order to support our expanding cloud opportunities.

Michael Hurlston: Q2 non-GAAP SG&A expense was $45 million, non-GAAP R&D expense was $69.9 million, interest and other income was $4.6 million on a non-GAAP basis. Second quarter non-GAAP net income was $143.9 million, and non-GAAP net income per share was $1.67. Our diluted weighted shares for the second quarter were 86.1 million on a non-GAAP basis. Turning to the balance sheet, during the second quarter, our cash and short-term investments increased by $33 million to $1.16 billion. Our inventory levels increased by $39 million sequentially to support the expected growth in our cloud and AI revenue. In Q2, we spent $84 million in CapEx, primarily focused on manufacturing capacity to support cloud and AI customers. Turning to revenue details, components revenue was $443.7 million, which increased 17% sequentially in Q2 and 68% year-on-year. Systems revenue of $221.8 million increased 43% sequentially in Q2 and 60% year-on-year.

Wajid Ali: Q2 non-GAAP SG&A expense was $45 million, non-GAAP R&D expense was $69.9 million, interest and other income was $4.6 million on a non-GAAP basis. Second quarter non-GAAP net income was $143.9 million, and non-GAAP net income per share was $1.67. Our diluted weighted shares for the second quarter were 86.1 million on a non-GAAP basis. Turning to the balance sheet, during the second quarter, our cash and short-term investments increased by $33 million to $1.16 billion. Our inventory levels increased by $39 million sequentially to support the expected growth in our cloud and AI revenue. In Q2, we spent $84 million in CapEx, primarily focused on manufacturing capacity to support cloud and AI customers. Turning to revenue details, components revenue was $443.7 million, which increased 17% sequentially in Q2 and 68% year-on-year. Systems revenue of $221.8 million increased 43% sequentially in Q2 and 60% year-on-year.

Michael Hurlston: Now let me move to our guidance for the third quarter of fiscal year 2026, which is on a non-GAAP basis and is based on our assumptions as of today. We anticipate net revenue for the third quarter of fiscal year 2026 to be in the range of $780 to $830 million. The $805 million midpoint would represent another new all-time quarterly revenue record for Lumentum. We project third quarter non-GAAP operating margin to be in the range of 30% to 31%, and diluted net income per share to be in the range of $2.15 to $2.35. Our non-GAAP EPS guidance is based on a non-GAAP annual effective tax rate of 16.5%. These projections also assume shares used for non-GAAP diluted earnings of approximately 92 million shares. With that, I'll turn the call back to Kathy to start the Q&A session. Kathy? Thank you, Wajid.

Michael Hurlston: So I just wanted to see if you could maybe double-click on the OCS market, which sounds quite a bit better than what you discussed last quarter. So maybe if we could hear a little bit more color in terms of how you're seeing the market, the exit rate, and the customer diversifications. And I'll give you my follow-up because it's relatively quick, in that you've raised prices. Is there any way you can help us quantify what impact your price increases have had on the growth? Thank you. Yeah, hey, Simon. Yeah, the OCS market is definitely developing a lot better than we believed. It's accelerated, certainly from a time standpoint. So the data point we gave today is that our backlog has increased to well in excess of $400 million, most of which is going to be shipped in the first two quarters of fiscal 2027.

Michael Hurlston: On the second question, obviously, price increases are definitely having an impact both on top line and gross margin. They are starting to flow through in the Q1 or the March guide, right, where we're seeing a lot more of that. As we said last quarter to you and to others, we'd expect a little bit of impact in the December quarter, and we've had a little bit but not a lot. We see a little bit more in March. I don't know if we've quantified how much of it is. I think it's relatively modest in terms of the overall revenue impact. Margin, certainly a little bit more, but we're doing a lot of things to benefit margin, including cost down, a lot of work on manufacturing, scrap, and yield. There's just been a lot of intense focus from myself, Wupen Yuen, Wajid, on the gross margin line.

Samik Chatterjee [Managing Director: Thank you. Thanks for taking my questions. Michael, Wajid, Kathy, good to speak to you. Maybe I'll start off on the indium phosphide capacity ramp. And just to clarify what you said in your prepared remarks, you pulled forward or front-end loaded some of that capacity increase that you had planned, and we're going to see the effect of that in the March quarter guide just to confirm that. And then what does it mean for the end state in terms of the sort of 40, 50% capacity increase that you had planned? Does that change the end state in terms of how much capacity you can add to those existing fabs? And as you're talking about alternatives with your customers, does it really sort of focus on the existing fab, or are you assessing sort of new fabs? And then have a quick follow-up. Thank you.

Thank you, thanks for taking my questions. Michael, was it good to speak to you? Um, maybe I'll start off on the, um, Indian first fight capacity ramp, and just to clarify what you said in your prepared remarks, you pulled forward, or front-end loaded, some of that capacity increase that you planned. And we're going to see the effect of that in the March quarter guide, just to confirm that. And then, what does it mean for the end state in terms of the sort of 40-50% capacity increase that you had planned? Um, does that change the end state in terms of how much capacity you can add to those existing Fabs? And as you're talking about alternatives with your customers, does it really sort of focus on the existing Fab, or are you assessing sort of new Fabs? And then I have a quick follow-up. Thank you.

Michael Hurlston: So all of these things together say that we have line of sight to do a little bit better than we outlined on the last call and certainly extend the ramp more appreciably than perhaps we said on the last call. Got it. Got it. And Michael, I mean, just following up on that, any new fabs being considered when you're sort of talking to your customers? And then for my second question on transceivers, I mean, you took a sizable step up here in the December quarter. I think you're taking another bit of a step up into March. You had previously indicated you sort of want to maybe manage that business to $250 million a quarter run rate. I mean, is that still sort of how you're thinking about it, or because most of the demand is from on-customer, you sort of can scale further than that?

Wajid Ali: Yeah, no, that's fair. I mean, I think when we made the comments about $250 million a quarter or $1 billion that Michael alluded to, our thinking on the rest of the business probably wasn't as large as how we're thinking about it today. Certainly, OCS, CPO, the $multi-hundred-million-dollar order that Michael talked about in his prepared remarks, all of those things are contributing to a larger pie for Lumentum. And so as part of our operating margin profile is revenue growth. So the fact that the rest of the business is growing faster than we expected allows us to grow the transceiver business. And then because 1.6T margins are significantly better than 800G, that's also helping us say yes to more orders that are coming in. And Michael's right. They're coming in substantially higher than we had expected.

Michael Hurlston: We're certainly looking at how we can bring on more capacity, whether it be creatively in the current fabs that we have or bringing on new fab capacity by acquisition or something of that nature. So it's an active discussion, the company. Nothing to talk about at this particular point, but it is certainly something that's top of mind for us. Thank you. Thanks for taking my questions. Thanks, Samik. And your next question comes from Ryan Koontz of Needham & Co. Your line is open. Please go ahead. Great. Thank you. I want to double-click on the transceiver market if we could and the transition to 1.6T. Obviously, some great progress at 800G here. Is that primarily being driven by EMLs today? How do you see the readiness of SiPh at 1.6T being prepared? And then what are your kind of derivative laser supplier opportunities?

The ball to, to woo pack. Is it 2 separate things, and certainly for our business, the transceivers. As we've characterized a couple of times our transceivers are mostly silicon photonics. But what we're seeing right now from our customers is is a strong EML demand. Most of the initial transceivers that are going to 1.6 are based on emls and that's good. Um, our 200 gig lane speed as we, as we said is, is actually doing a little bit better than we expected. I think, in the last call, we had said that the 5% revenue of 5% a mix would be this quarter. It was a quarter earlier than we'd expected and that's primarily because 1.6t is a coming on, I think faster than we initially anticipated. Uh, and that is heavily being driven by 200 gig emls. Uh, that being said, I still think, you know, consistent with what we said over the past, we would expect silicon photonics,

Michael Hurlston: So we feel pretty good about the way that's setting up. Wupen Yuen, on the transceiver side, you want to talk about our transceivers and how we're thinking about 1.6T? Yeah, thanks, Michael. So on the transceiver 1.6T products, there's still really, by and large, two groups of applications. One group requires WDM-based solutions. One group requires basically parallel fiber-based solutions. And therefore, you will see that EML is pretty dominant in the WDM-based architectures. And then the silicon photonics starting to take more share on the kind of parallel fiber applications. We see these kind of hand-in-hand grow at a similar pace. And that's why Michael was talking about EML will continue to grow despite the fact silicon photonics will take up more share in 1.6T generation. But overall, as what you talk about, we see 1.6T generation of products having a higher gross margin at the module level.

Wupen Yuen [President: Yeah, thanks, Michael. So on the transceiver 1.6T products, there's still really, by and large, two groups of applications. One group requires WDM-based solutions. One group requires basically parallel fiber-based solutions. And therefore, you will see that EML is pretty dominant in the WDM-based architectures. And then the silicon photonics starting to take more share on the kind of parallel fiber applications. We see these kind of hand-in-hand grow at a similar pace. And that's why Michael was talking about EML will continue to grow despite the fact silicon photonics will take up more share in 1.6T generation. But overall, as what you talk about, we see 1.6T generation of products having a higher gross margin at the module level. Then, of course, we'll benefit continuously on the laser front in this generation as well.

Michael Hurlston: Then, of course, we'll benefit continuously on the laser front in this generation as well. Great. Any update on your plans on vertically integrating your own CW lasers at 1.6T? Is that still the plan, right? Still the plan. Yeah, we had shipped CW lasers to the external market for the first time, Ryan, last quarter. Those shipments continue to sort of help us develop and improve our CW laser technology. I would say our timeline has pushed out a bit in terms of that introduction. We were talking about introducing our own CW lasers in our own transceivers kind of Q2-ish. I think it's probably pushed out to late Q2, early Q3. It's probably been a 2 to 3-month push out relative to that introduction, but still very much part of the plan to continue to increase the gross margin in our transceiver business. Great. Thanks.

Yeah that's Michael. So you know on the trans people who is 16 products there's still really by and large 2 groups of applications. 1 group requires wdm based uh Solutions 1 group requires basically a parallel fiber based Solutions and therefore you will see that EML is uh pretty dominant in the wdm based architectures and then the single topics starting to take more share on the kind of parallel fiber applications. We see these kind of the hand in hand grow at a similar pace. And that's why, you know, Michael is talking about EML will continue to grow despite the facts. Uh, single comments will take up more share, uh, in 1, more specific generation. But overall, as a as a, what you talked about, we see 1.60 generation of products, having a higher growth module and the module level. Uh, and then we, of course, we benefited continuously on the, on the, on the laser fronts, uh, each generation as well.

Michael Hurlston: Maybe just a quick follow-up on the laser opportunity in CPO. Do you view that competitive landscape any different than you view the transceiver laser market? Are there nuances there that investors should be aware of relative to bigger barriers to entry or your capabilities relative to the overall market for CPO? Yeah. I mean, look, I think on CPO, we feel really good about our position. I mean, certainly for EMLs, we also feel very good about our position, but I think we feel even better about our position on high-powered lasers going into CPO. Remember a couple of things, right? One, the power level that needs to be delivered here, 400 milliwatts, is not something that many people can do. But perhaps more importantly, remember, you and I have talked about this, that the technology has been proven out in our subsea applications.

Michael Hurlston: One of the big issues with CPO has always been reliability. I think now we've gained real customer confidence. I mean, it is much more broad-based, I think, than people think in terms of customer engagement now on CPO. That is primarily driven by the reliability that we're able to prove out. Terrific. Thanks for the commentary. Thanks, Ryan. Good question. Thanks, Ryan. And your next question comes from Vijay Rakesh of Bank of America. Your line is open. Please go ahead. Yeah, hi. Thanks, Michael, Wajid, and Kathy. This is Vijay from Mizuho. Congratulations on a great, fantastic set of numbers here. Just a quick question. I know you're on CPO. You mentioned another multi-hundred-million-dollar order there. Also your own CPO ramping well. Can you size what the CPO quarterly run rate would be with a new multi-million-dollar, multi-hundred-million-dollar order?

Michael Hurlston: Also, I believe, CPO for scale-up, as you mentioned, so. Yeah, I mean, what we're talking about now is mostly scale out, right? So what we've said in the past is that we would expect somewhere around $50 million in the fourth calendar quarter, perhaps more, but we're kind of pegging it there. And then this multi-hundred million dollar order, while we're not prepared to give the size, really is kicking in in the first half of 2027. So it kind of gives you a rough feel. This is definitely ramping. It's ramping across not just one customer, multiple customers. The strain on our fab is high, right? We're very much sold out in our high-powered laser fab. And this is one of actually Wupen Yuen's primary tasks is to figure out how we can bring more capacity online much more quickly.

Michael Hurlston: Even as we add capacity, it seems that the demand-supply imbalance increases. We talked about that last quarter. And I'd say again, even as we've added this 20% additional capacity, the demand-supply imbalance has increased. And I'm going to have Wupen Yuen comment. I think his team is spending a tremendous amount of time trying to squeeze product into our allocation bucket. It's really like a jigsaw puzzle for these guys to figure it out. The good news for us is that we'd expect now to increase supply throughout the calendar year. We've obviously sort of indicated that we have another 20% to go over the next couple of quarters. That probably is going to come up a bit just given our current trajectory. And now what we're saying is we have line of sight for additional capacity in the last two quarters of the calendar year.

Michael Hurlston: So yeah, in addition to what Michael described, right, in terms of capacity increase, and I think our team continue to really drive the yield up and reduce the die size of the chips, for example, definitely we're trying to squeeze every bit of the capacity output that we can get from our current fabs. As Michael already pointed out, the demand-supply imbalance continued to increase. And therefore, we're doing everything we can trying to grow that supply base and then continue to drive the yield up. So all very good, but very challenging. We look forward to serving the market with better chips and more chips. Got it. Thanks. Fantastic. Thanks, Michael, Wajid, Wupen Yuen, and Kathy. Thank you. Thank you, Vijay. Good speaking. Thanks. And your next question comes from Papa Sylla of City. Your line is open. Please go ahead. Thank you for taking my questions.

Michael Hurlston: Congrats on the impressive result. So Michael, I guess for my first question, it is on visibility. I'm curious if you continue to see further visibility from your key AI customers on the EML front. I think previously, you quantified for us that the supply-demand gap has moved from 20% to 25% to 30%. Has that gap extended? And tied to that, it would be helpful to understand how has your longer-term contract or commitment with customers changed now versus one to two years ago? Are newer commitments, for instance, kind of longer in duration? Are we able to add more pricing versus before? Just any color. Yeah, Papa. Look, first, I want to thank you for some of the insightful notes you've written over the last couple of weeks. We certainly appreciate the diligence you're doing on the business.

Michael Hurlston: Number one, obviously, the supply-demand imbalance is still very much there. I would say that it's about the same this quarter as last quarter, even in the face of adding the 20% and what we anticipate in the March guide. If anything, it's incrementally up, but I'd still say it's roughly 25% to 30% off. We're undershipping our customers' demand by somewhere around 30%. It's a relatively big gap. And again, tremendous pressure on Wupen Yuen's team. With respect to the long-term agreements, I mean, frankly, and I'll have Wajid comment, the company never had these long-term agreements. I mean, it was a very tactical business until Wajid and I got involved in the business and started seeing there was a lot of opportunity to institute these long-term agreements. All of our capacity, just to be very clear, on EML is spoken for in these LTAs.

Because then there aren't those same type of quarterly negotiations uh for Price Downs, if anything prices are holding or they're increasing uh, for what customers want. And what we're actually seeing is is that customers are coming back and asking for even more, uh, capacity, uh, and, and more product than we had agreed to in the LTA. And, uh, and that's actually allowing us to uh, have incremental pricing discussions, uh, around those incremental units that they're asking for. Um, so the, the ltas are serving as a nice Baseline. And if customers want more than that, then it allows for a discussion with who pens team and our sales team to ask, for incremental, uh, pricing optimization. So, it's worked out very well for us from a process standpoint. And for those customers that are not willing to sign an LTA, uh, our our, our our having, you know, concerns about their their, uh, continuity of Supply. Because we are allocating to those partners

Michael Hurlston: No, I mean, I think you've captured it. Actually, the whole LTA process has actually helped us from a pricing standpoint overall because then there aren't those same type of quarterly negotiations for price downs. If anything, prices are holding or they're increasing for what customers want. And what we're actually seeing is that customers are coming back and asking for even more capacity and more product than we had agreed to in the LTA. And that's actually allowing us to have incremental pricing discussions around those incremental units that they're asking for. So the LTAs are serving as a nice baseline. And if customers want more than that, then it allows for a discussion with Wupen Yuen's team and our sales team to ask for incremental pricing optimizations. So it's worked out very well for us from a process standpoint.

Wajid Ali: No, I mean, I think you've captured it. Actually, the whole LTA process has actually helped us from a pricing standpoint overall because then there aren't those same type of quarterly negotiations for price downs. If anything, prices are holding or they're increasing for what customers want. And what we're actually seeing is that customers are coming back and asking for even more capacity and more product than we had agreed to in the LTA. And that's actually allowing us to have incremental pricing discussions around those incremental units that they're asking for. So the LTAs are serving as a nice baseline. And if customers want more than that, then it allows for a discussion with Wupen Yuen's team and our sales team to ask for incremental pricing optimizations. So it's worked out very well for us from a process standpoint.

We are, we do have pricing leeway in there. I mean, I think as, as, as conditions change, uh, watching, woo pad and I will continue to look at the pricing. As you know, we've we've done a couple of steps and um, you know, our our, our products are just in high demand right across the board. So I think it gives us some some pricing latitude. Uh, and and we'll certainly look at that. I mean, why did any comments from you on? No, no. I mean, I think you've captured it actually. The whole LTA process is actually helped us from a, from a pricing standpoint overall. Because then there aren't those same type of Corgi negotiations, uh, for Price Downs, if anything prices are holding or they're increasing, uh, for what customers want. And what we're actually seeing is is that customers are coming back and asking for even more, uh, capacity, uh, and, and more product than we had agreed to in the LTA. And, uh, and that's actually allowing us to, uh, have incremental pricing discussions.

Michael Hurlston: For those customers that are not willing to sign an LTA are having concerns about their continuity of supply because we are allocating to those partners that are committing to us first. Then whatever's left over, then we can talk to those that are not. Got it. Thank you. That's very helpful. Thank you, Michael, for the feedback. Just quickly on the follow-up, and apologies if it's a little bit of a long-winded type of question. I just wanted to double down on the CPO opportunity, particularly if we contrast it with the opportunity you have on the EML/transceiver front. I think previously, you discussed in terms of content per accelerator or content per AI server, the two opportunities are mostly on par. You really benefit from having a higher market share on the CPO side versus the transceiver front.

Michael Hurlston: Now that I guess you have more cells or you have more visibility, any change on how you are thinking about content for CPO versus the transceiver business? Yeah, I mean, it's exactly as you said. I mean, obviously, the dollars are lower for our lasers than they would be if we were able to sell a transceiver. But given the strength of our product in the laser product, we have quite high market share. So in general, and Kathy's run the numbers for us a number of times, the math works out very favorably for us as CPO comes online. What I'll say, and I want to highlight again what we said in our prepared remarks, which is new, there is an opportunity for us to participate now in something that looks like a module, this ELS, the external light source. And that is obviously a much higher ASP.

Michael Hurlston: So therefore, I would say that our overall market share in the scale-out market will be improving because of positioning the laser front and then by extension, the pluggable light source market. And then on top of that, when the scale-up actually happens, then that's another big chunk of TAM that didn't exist before. And therefore, overall, I think this scale-out and scale-up with CPO will benefit us meaningfully going forward. Very helpful. Thank you so much. Thank you. Thanks, Papa. Thank you, Papa. And your next question comes from Ruben Roy of Stifel. Your line is open. Please go ahead. Yeah, hi. Thank you. Michael, apologies if he answered this already, but I just wanted to go back to the OCS momentum. And just thinking through the order backlog improving, is that still sort of relegated to a single customer and just sort of momentum at that customer?

Yeah. Uh, certainly. Thanks Michael. Um, yeah. Not only the, the plugable usfp opportunity but we talked about earlier actually the skill up opportunity there. I think that that's brand new, right? When we compare it before the module opportunity is double module opportunity versus the CPU opportunity. It was a wasp, just from a scale out, uh, kind of a, a comparison. But now, you know, scale up opportunity, here is a brand new market that didn't exist before. So therefore, I would, I would say that, you know, our overall market share on the scale all markets uh, will be improving because our position in the laser front and then by extension the plugable light source market and then on top of that, when the scale up actually happens, then that's another, uh, big chunk of time, that didn't exist before. And therefore, overall, I think this, uh, scale all

Michael Hurlston: This $400 million that we're talking about, primarily deliverable in the back half of the year, sets us up well above what we previously outlined, which was sort of $100 million exiting calendar Q4. So our run rate going into 2027 is quite a bit higher. And we would expect, obviously, in 2027 to do better again. So it is setting up for us, and I believe it's broad-based, right? It's three customers who are making up that backlog. And we definitely have stepped on the accelerator relative to deliveries, even this quarter, to all three of those customers. Wupen Yuen on the applications, right? Again, fairly broad-based, but why don't you give some color to Ruben? Yeah. I will say no changes to the applications. As you recall, I think we talked about before, there were primarily four different applications, right? One is the spine replacement, as you mentioned.

Yeah. Um I will say no changes uh to the applications, I would recall, I think we talked about before they were primarily you know, 4 different applications. Write 1 is the respond replacement. As you mentioned 1 is the uh, um, you know, the the scale across applications we also talked about and 2 more are really the optical scaled Up application and the, uh, for for protection or redundancy in the network. Actually, we see these applications in all the customers, uh, to to different degrees. And therefore, I would say that these multiple customers are covering these 4 different use cases, uh, in the in, in the uh, in the applications. Um, I think there may be some other potential uh, scenarios showing up. I would definitely watching very, very closely but these 4 uh, to us today. There they are dominant in dominant. Uh, application scenarios.

Michael Hurlston: Is it accelerating towards 1.6T for any reason in terms of volumes from a single customer or multiple customers, or is it relatively unchanged from how you're thinking about it 90 days ago? Thanks. Yeah. 1.6T is definitely stronger than we felt than we felt 90 days ago. So 1.6T is definitely accelerating. Our 800G volume actually is doing better than we would have expected. So in 800G, what you're seeing right now from us is an acceleration in revenue on our 800G shipments. But in the market, to your question, Ruben, 1.6T is definitely going better. We have exposure to a couple of customers, a couple of large customers on 1.6T, and we've been surprised by how quickly they're trying to push us to deliver and their forecast to us relative to the different SKUs that we're being asked to deploy.

You know, then then we felt 90 days ago. So 1.6t is definitely accelerating. Uh, our 800 gig volume actually is doing better than we would have expected. So, in 800 gig the, what you're seeing right now from us is an acceleration and revenue on on our 800 gig shipments, but in the market to your question room and 1.6t is definitely going better. You know, we have exposure to a couple customers, a couple large customers, not 1.6 C. And we've been surprised by how quickly, they're trying to push us to deliver and they're forecast to us relative to the different skus that we're being asked to deploy. I mean, any different thoughts woopen? Yeah, definitely. I think the, uh, the 2 factors there, right? So, what is the, uh, 800 is still very large market today. Um, however, you know, all market share at 1.60 or like, how about earlier is actually higher? So we, uh, kind of get all

Yeah, we are. I mean that is uh, that is definitely been a pain point because I think that there's been a lack of recognition from the historical Telecom customers as to, you know, right now it's it's a seller's market. And so a couple of a couple of our key customers have been uh, problematic around the ltas and we been, and I have been able to sort of get to to a reasonable compromise with those customers. But honestly, we'd like to do more there. I think there's more opportunity for us to increase price on the Telecom customers than we have in the past. And we're going to look at that. Uh, you know, and pick some partners that really are working with us, quite frankly, uh, better and those customers I think we're going to treat favorably and you know, we'll figure out how to how to service the rest with the volume that's left over.

Michael Hurlston: I mean, that has definitely been a pain point because I think that there's been a lack of recognition from the historical telecom customers as to right now, it's a seller's market. And so a couple of our key customers have been problematic around the LTAs. And Wupen Yuen and I have been able to sort of get to a reasonable compromise with those customers. But honestly, we'd like to do more there. I think there's more opportunity for us to increase price on the telecom customers than we have in the past. And we're going to look at that and pick some partners that really are working with us, quite frankly, better. And those customers, I think, we're going to treat favorably. And we'll figure out how to service the rest with the volume that's left over. Thank you. Thank you, George.

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Q2 2026 Lumentum Holdings Inc Earnings Call

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