Q3 2026 Lumentum Holdings Inc Earnings Call

May 5, 2026

Operator 2: Good day, everyone, welcome to the Lumentum Holdings Q3 fiscal year 2026 earnings call. All participants will be in a listen-only mode. Please also note today's 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 press star one on your telephone keypad. To withdraw your question, press star one again. At this time, I would like to turn the conference call over to Kathy Ta, Vice President of Investor Relations. Ms. Ta, please go ahead.

Operator: Good day, everyone, welcome to the Lumentum Holdings Q3 fiscal year 2026 earnings call. All participants will be in a listen-only mode. Please also note today's 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 press star one on your telephone keypad. To withdraw your question, press star one again. At this time, I would like to turn the conference call over to Kathy Ta, Vice President of Investor Relations. Ms. Ta, please go ahead.

Speaker #1: Please also note today's 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 press star 1 on your telephone keypad.

Speaker #1: To withdraw your question, press star 1 again. At this time, I would like to turn the conference call over to Kathy Ta Vice President of Investor Relations, Ms. Ta, please go ahead.

Kathy Ta: Thank you, Melissa, and welcome to Lumentum's Q3 fiscal year 2026 earnings call. This is Kathy Ta, Lumentum's Vice President of Investor Relations. Joining me today are Michael Hurlston, President and Chief Executive Officer; Wajid Ali, Executive Vice President and Chief Financial Officer; and Wupen Yuen, President, Global Business Units. Today's call will include forward-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 Private 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.

Speaker #2: Thank you, Melissa, and welcome to Lumentum's third quarter fiscal year 2026 earnings call. This is Kathy Ta, Lumentum's Vice President of Investor Relations. Joining me today are Michael Hurlston, President and Chief Executive Officer; Wajid Ali, Executive Vice President and Chief Financial Officer; and Rupen Nguyen, President, Global Business Unit.

Speaker #2: Today's call will include forward-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.

Speaker #2: 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.

Kathy Ta: We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our 10-Q for the fiscal quarter ended 27 December 2025, and in our most recent 10-Q for the fiscal quarter ended 28 March 2026, to be filed by Lumentum with the SEC. The forward-looking statements provided during this call are based on Lumentum's reasonable beliefs and expectations as of today. Lumentum 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 discussed in this call are non-GAAP. Non-GAAP financials have enhanced limitations and are not to be considered in isolation from or as a substitute for or superior to financials prepared in accordance with GAAP.

Speaker #2: We encourage you to review our most recent filings with the SEC, particularly the risk factors described in our 10Q for the fiscal quarter ended December 27, 2025, and in our most recent 10Q for the fiscal quarter ended March 28, 2026, to be filed by the Lumentum with the SEC.

Speaker #2: The forward-looking statements provided during this call are based on Lumentum's reasonable beliefs and expectations as of today. Lumentum undertakes no obligation to update or revise these statements, except as required by applicable law.

Speaker #2: Please also note that unless otherwise stated, all financial results and projections discussed in this call are non-yes. Non-yes financials have inherent limitations and are not to be considered in isolation from or as a substitute or as a substitute for or superior to financials prepared in accordance with yes.

Speaker #2: You can find the reconciliation between non-yes and gap measures and information about our use of non-gap measures and factors that could impact our financial results in our press release and our filings with the SEC.

Kathy Ta: You can find the reconciliation between non-GAAP and GAAP measures and information about our use of non-GAAP measures and factors that could impact our financial results in our press release and our filings with the SEC. Lumentum's press release with the fiscal Q3 results and accompanying supplemental slides are available on our website at www.lumentum.com under the Investors section. We encourage you to review these materials carefully. With that, I'll turn the call over to Michael.

Speaker #2: Lumentum's press release with the fiscal third quarter results and accompanying supplemental slides are available on our website at www.lumentum.com under the Investors section. We encourage you to review these materials carefully.

Speaker #2: With that, I'll turn the call over to Michael.

Speaker #3: Thank you, Kathy, and good afternoon, everyone. Lumentum delivered an exceptional third quarter with revenue growing 90% year over year to a record $808 million.

Michael Hurlston: Thank you, Kathy. Good afternoon, everyone. Lumentum delivered an exceptional Q3 with revenue growing 90% year over year to a record $808 million. Topline growth was primarily driven by our transceiver business and laser chips. Our revenue growth was impressive. Our non-GAAP operating margin was more so, expanding by over 2,100 basis points year over year, fueled by a rich product mix and strong operating leverage. The margin expansion was primarily driven by our industry-leading scale-out portfolio. Another part of the story was our broad array of scale-across products. As hyperscalers exhaust the power and space limits of individual data center buildings, they are shifting to distributed architectures that link compute domains across disparate geographies. These scale-across networks require high bandwidth synchronization across multiple data centers.

Speaker #3: Top-line growth was primarily driven by our transceiver business and laser chips. Our revenue growth was impressive, our non-gap operating margin was more so, expanding by over 2,100 basis points year over year.

Speaker #3: Fueled by a rich product mix and strong operating leverage, the margin expansion was primarily driven by our industry-leading scale-out portfolio, but another part of the story was our broad array of scale-across products.

Speaker #3: As hyperscalers exhaust the power and space limits of individual data center buildings, they are shifting to distributed architectures that link commute domains across disparate geographies.

Speaker #3: These scale-across networks require high-bandwidth synchronization across multiple data centers. To enable this, we provide critical hardware components that provide high-density optical interconnects while meeting aggressive power and performance targets.

Michael Hurlston: To enable this, we provide critical hardware components that provide high-density optical interconnects while meeting aggressive power and performance targets. Our pump lasers allow scale-across architectures to amplify the light signal over 4, 8, or 16 fiber pairs simultaneously. Complementing this, our narrow linewidth lasers assemblies provide the precision required for 1.6T speeds and a higher order modulation, all within highly compact pluggable form factors. To manage all this traffic, our wavelength selectable switches, or WSS, function as the optical traffic cops. WSS keeps traffic in the optical domain, bypassing the latency of electrical buffers while enabling the high port counts essential for massive fiber routing between data center buildings. Looking forward, our emerging multi-rail technology will be vital for the increased parallelism required by the massive fiber counts in scale-across networks.

Speaker #3: Our pump lasers allow scale-across architectures to amplify the light signal over 4, 8, or 16 fiber-pairs simultaneously. Complementing this, our narrow line width lasers assemblies provide the precision required for 1.6T speeds and a higher-order modulation all within highly compact pluggable form factors.

Speaker #3: To manage all this traffic, our wavelength selectable switches or WSS function as the optical traffic cops. WSS keeps traffic in the optical domain bypassing the latency of electrical buffers while enabling the high port counts essential for massive fiber routing between data center buildings.

Speaker #3: Looking forward, our emerging multi-rail technologies will be vital for the increased parallelism required by the massive fiber counts and scale-across networks. While we have spent the last few calls detailing our revenue growth drivers, it is important to outline the considerable role scale-across portfolios will play in our ability to expand gross and operating margins.

Michael Hurlston: While we have spent the last few calls detailing our revenue growth drivers, it is important to outline the considerable role scale-across portfolio will play in our ability to expand gross and operating margins. As we look forward, we expect this part of our business to grow appreciably and, with the supply demand imbalance, likely improve profitability at the same time. Now, let's look closer at the metrics that define our Q3, starting with the components product category. Components revenue for the quarter was $533 million, reflecting a 20% sequential increase and 77% year-over-year growth. Shipments of our narrow linewidth laser assemblies grew for the ninth consecutive quarter, rising over 120% year-over-year, while pump laser shipments grew 80% year-over-year.

Speaker #3: As we look forward, we expect this part of our business to grow appreciably and that the supply-demand imbalance likely improves profitability at the same time.

Speaker #3: Now, let's look closer at the metrics to define our third quarter, starting with the components product category. Components revenue for the quarter was $533 million, reflecting a 20% sequential increase and $77% year over year growth.

Speaker #3: Shipments of our narrow line width laser assemblies grew for the ninth consecutive quarter, rising over 120% year over year while pump laser shipments grew 80% year over year.

Michael Hurlston: These components remain effectively sold out for the pre-foreseeable future. We are actively working to secure Long-Term Agreements that will help offset anticipated capital expenditures. Turning to laser chips, we achieved another quarterly company record in EML shipments led by 100 gig lane speeds. 200 gig EML revenue more than doubled sequentially. We continued to ship CW lasers to 800 gig transceiver manufacturers. Starting in fiscal Q3, we began supplying CW lasers for internal use in our cloud transceiver business. Our wafer fab capacity in Japan remains at a premium and is fully allocated to meet surging customer demand.

Speaker #3: These components remain effectively sold out for the foreseeable future, and we are actively working to secure long-term agreements that will help offset anticipated capital expenditures.

Speaker #3: Turning to laser chips, we achieved another quarterly company record in EML shipments, led by 100 gig lane speeds, 200 gig EML revenue, more than doubled sequentially.

Speaker #3: We continue to ship CW lasers to 800-gig transceiver manufacturers and, starting in fiscal Q3, we began supplying CW lasers for internal use in our cloud transceiver business.

Speaker #3: Our wafer capacity in Japan remains at a premium and is fully allocated to meet surging customer demand. We ship twice the number of laser chips as we did in the same quarter last year, and we are on track to achieve more than 50% growth in EML units by the December quarter of 2026, as compared to the December quarter of 2025.

Michael Hurlston: We shipped twice the number of laser chips as we did in the same quarter last year, and we are on track to achieve more than 50% growth in EML units by Q4 2026 as compared to Q4 2025. Our ultra-high power laser chip manufacturing ramp for CPO applications is also proceeding according to plan. We achieved sequential growth this quarter and are on schedule to both deliver meaningful revenue in our Q4 and fulfill the multi-hundred million dollar purchase order slated for H1 calendar year 2027. In addition, our development work continues with multiple CPO customers through collaborations that leverage our laser chip technologies within a pluggable turnkey ELS module solution.

Speaker #3: Our ultra-high-power laser chip manufacturing ramp for CPO applications is also proceeding according to plan. We achieved sequential growth this quarter and are on schedule to both deliver, meaningful revenue in our December quarter, and fulfill the multi-hundred million dollar purchase order slated for the first half of calendar year 2027.

Speaker #3: In addition, our development work continues with multiple CPO customers through collaborations that leverage our laser chip technologies within a pluggable turnkey ELS module solution.

Michael Hurlston: In mid-March, we announced our acquisition of a fifth indium phosphide fab in Greensboro, North Carolina, which provides the capacity needed for years of future growth. At our grand opening ceremony held just days ago, we highlighted our commitment to US manufacturing and the significant job creation we expect to generate in the state. We onboarded the plant team and plans to convert the facility from gallium arsenide to indium phosphide are well underway. Another positive note is that we expect to take advantage of a significant number of the tools that already exist in our Greensboro site. Now we'll move to our systems product category. Systems revenue reached $275 million, representing a 24% sequential and 121% year-over-year increase.

Speaker #3: In mid-March, we announced our acquisition of a fifth indium phosphide fab in Greensboro, North Carolina. Which provides the capacity needed for years of future growth.

Speaker #3: At our grand opening ceremony held just days ago, we highlighted our commitment to U.S. manufacturing and the significant job creation we expect to generate in the state.

Speaker #3: We onboarded the plant's team and plans to convert the facility from gallium arsenide to indium phosphide are well underway. Another positive note is that we expect to take advantage of a significant number of the tools that already exist in our Greensboro site.

Speaker #3: Now I'll move to our systems product category. Systems revenue reached $275 million representing a 24% sequential and over year increase. Cloud transceivers accounted for the lion's share of this growth, increasing over 40% sequentially as we successfully leveraged our expanded manufacturing footprint in Thailand.

Michael Hurlston: Cloud transceivers accounted for the lion's share of this growth, increasing over 40% sequentially as we successfully leveraged our expanded manufacturing footprint in Thailand. In addition, we are poised to ramp 1.6T speed transceiver shipments in fiscal Q4 with a portion of this volume leveraging our own CW lasers. We are improving transceiver profitability through better yields and lower scrap rates. Despite these gains, supply constraints on critical components keep our shipments well below customer demand. In OCS, the multi-year, multi-billion dollar purchase agreement we recently announced ensures sustained long-term growth. Our OCS ramp is largely on track, although our pace and slope are gated by the supply chain. We are experiencing considerable tightness in this product area, due largely to the significant step up in requested output.

Speaker #3: In addition, we are poised to ramp 1.6T speed transceiver shipments in fiscal Q4 with a portion of this volume leveraging our own CW lasers.

Speaker #3: We are improving transceiver profitability through better yields and lower scrap rates. Despite these gains, supply constraints on critical components keep our shipments well below customer demand.

Speaker #3: In OCS, the multi-year, multi-billion dollar purchase agreement we recently announced ensures sustained long-term growth. Our OCS ramp is largely on track, although our pace and slope are gated by the supply chain.

Speaker #3: We are experiencing considerable tightness in this product area due largely to the significant step-up in requested output. On the other hand, the number of new opportunities we are seeing for optical switches is putting tension on our roadmap, and we are having to make choices across the company in order to service them.

Michael Hurlston: On the other hand, the number of new opportunities we're seeing for optical switches is putting tension on our roadmap, and we're having to make choices across the company in order to service them. Rounding out our systems business, performance industrial lasers and cable access remains muted. Industrial lasers were approximately flat sequentially, while cable access shipments declined on quarter due to customer and timing factors. Looking ahead to Q4, we expect to set another quarterly revenue record. We anticipate that over half of the sequential growth will stem from our components business. The remainder will be driven by the continued ramp of our systems portfolio, primarily through high-speed transceivers and additional contributions from OCS. Our current numbers and guidance reflect continued success in EML lasers and our scale across components. We are seeing improved performance in our cloud modules business, which has grown significantly across the last few quarters.

Speaker #3: Rounding out our systems business, performance industrial lasers and cable access remains muted. Industrial lasers were approximately flat sequentially, while cable access shipments declined on quarter due to customer and timing factors.

Speaker #3: Looking ahead to Q4, we expect to set another quarterly revenue record. We anticipate that over half of this sequential growth will stem from our components business; the remainder will be driven by the continued ramp of our systems portfolio, primarily through high-speed transceivers and additional contributions from OCS.

Speaker #3: Our current numbers and guidance reflect continued success in EML lasers and our scale-across components. We are seeing improved performance in our cloud modules business, which has grown significantly across the last few quarters.

Michael Hurlston: In addition, while we're seeing initial contributions from both scale-out CPO and OCS, they are still relatively modest. Furthermore, our largest single growth driver, scale-up CPO, is still very much in its infancy. Taken together, this gives us confidence that we are very much on track to reach our $2 billion quarterly revenue goal as we articulated at our OFC event. Now, I'll hand the call over to Wajid.

Speaker #3: In addition, while we are seeing initial contributions from both scale-out CPO and OCS, they are still relatively modest. Furthermore, our largest single growth driver, scale-up CPO, is still very much in its infancy.

Speaker #3: Taken together, this gives us confidence that we are very much on track to reach our $2 billion quarterly revenue goal as we articulated at our OFC events.

Speaker #3: Now, I'll hand the call over to Wajid.

Speaker #2: Thank you, Michael. Third quarter revenue of $808.4 million was above the midpoint of our guidance range, and non-gap EPS of $2.37 was above our prior expectation range, demonstrating the leverage of our business model.

Wajid Ali: Thank you, Michael. Q3 revenue of $808.4 million was above the midpoint of our guidance range, and non-GAAP EPS of $2.37 was above our prior expectation range, demonstrating the leverage of our business model. GAAP gross margin for Q3 was 44.2%. GAAP operating margin was 21.6%. GAAP net income was $144.2 million, and GAAP net income per share was $1.50. Turning to our non-GAAP results, Q3 gross margin was 47.9%, which was up 540 basis points sequentially and up 1,270 basis points year-on-year, due to better manufacturing utilization across the majority of our product lines, increased pricing on select products, and favorable product mix.

Speaker #2: Gap gross margin for the third quarter was 44.2%, gap operating margin was 21.6%, gap net income was $144.2 million, and gap net income per share was $1.50.

Speaker #2: Turning to our non-gap results, third quarter gross margin was 47.9%, which was up 540 basis points sequentially and up 1,270 basis points year on year.

Speaker #2: Due to better manufacturing utilization across the majority of our product lines, increased pricing on select products, and favorable product mix, the improvement in product mix was primarily driven by growth in data center laser chips.

Wajid Ali: The improvement in product mix was primarily driven by growth in data center laser chips. Q3 non-GAAP operating margin was 32.2%, which was up 700 basis points sequentially and up 2,140 basis points year-on-year, primarily driven by revenue growth in 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. Q3 non-GAAP operating profit was $260.7 million, and adjusted EBITDA was $293.5 million.

Speaker #2: Third quarter non-GAAP operating margin was 32.2%, which was up 700 basis points sequentially and up 2,140 basis points year on year, primarily driven by revenue growth in components products.

Speaker #2: 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.

Speaker #2: Third quarter non-gap operating profit was 260.7 million, and adjusted EBITDA was 293.5 million. Third quarter non-gap operating expenses totaled $126.2 million, or 15.6% of revenue, an increase of 11.3 million dollars, from the second quarter and an increase of 22.8 million dollars, from the same quarter last year, in support of expanding cloud opportunities.

Wajid Ali: Q3 non-GAAP operating expenses totaled $126.2 million or 15.6% of revenue, an increase of $11.3 million from Q2, and an increase of $22.8 million from Q3 last year in support of expanding cloud opportunities. Q3 non-GAAP SG&A expense was $47.8 million. Non-GAAP R&D expense was $78.4 million. Interest and other income was $9.6 million on a non-GAAP basis. Q3 non-GAAP net income was $225.7 million, and non-GAAP net income per share was $2.37. Our diluted weighted shares for Q3 was 95.2 million on a non-GAAP basis. Turning to the balance sheet.

Speaker #2: Q3 non-gap SG&A expense was $47.8 million, non-gap R&D expense was $78.4 million. Interest and other income was $9.6 million, on a non-gap basis. Third quarter non-gap net income was $225.7 million, and non-gap net income per share was $2.37.

Speaker #2: Our diluted weighted shares for the third quarter was 95.2 million, on a non-GAAP basis. Turning to the balance sheet, during the third quarter, our cash and short-term investments increased by $2.02 billion, to $3.17 billion.

Wajid Ali: During Q3, our cash and short-term investments increased by $2.02 billion to $3.17 billion, with the increase primarily driven by NVIDIA's direct investment in Lumentum. Our inventory levels increased by $62 million sequentially to support the expected growth in our cloud and AI-related revenue. In Q3, we spent $125 million in CapEx, primarily focused on manufacturing capacity to support cloud and AI customers. Turning to revenue details. Components revenue of $533.3 million increased 20% sequentially in Q3 and 77% year-on-year. Systems revenue of $275.1 million increased 24% sequentially in Q3 and 121% year-on-year.

Speaker #2: With the increase primarily driven by NVIDIA's direct investment in momentum. Our inventory levels increased by 62 million dollars sequentially, to support the expected growth in our cloud and AI-related revenue.

Speaker #2: In Q3, we spent $125 million in CapEx, primarily focused on manufacturing capacity to support cloud and AI customers. Turning to revenue details, components revenue of $533.3 million, increased 20% sequentially in Q3, and $77% year on year.

Speaker #2: Systems revenue of $275.1 million increased 24% sequentially in Q3, and 121% year on year. Now, let me move to our guidance for the fourth quarter of fiscal '26, which is on a non-GAAP basis and is based on our assumptions as of today.

Wajid Ali: Now let me move to our guidance for Q4 of fiscal 2026, which is on a non-GAAP basis and is based on our assumptions as of today. We anticipate net revenue for Q4 of fiscal year 2026 to be in the range of $960 million to $1.01 billion. The $985 million midpoint would represent another new all-time quarterly revenue record for Lumentum.

Speaker #2: We anticipate net revenue for the fourth quarter of fiscal year '26 to be in the range of $960 million, to $1.01 billion. The $985 million midpoint would represent another new all-time quarterly revenue record for Lumentum.

Michael Hurlston: We project Q4 non-GAAP operating margin to be in the range of 35% to 36%, and diluted net income per share to be in the range of $2.85 to 3.05. 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 102 million shares. With that, I'll turn the call back to Kathy Ta to start the Q&A session. Kathy Ta?

Wajid Ali: We project Q4 non-GAAP operating margin to be in the range of 35% to 36%, and diluted net income per share to be in the range of $2.85 to 3.05. 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 102 million shares. With that, I'll turn the call back to Kathy Ta to start the Q&A session. Kathy Ta?

Speaker #2: We project fourth quarter non-gap operating margin to be in the range of 35% to 36%. And diluted net income per share to be in the range of $2.85 to $3.05.

Speaker #2: 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 102 million shares.

Speaker #2: With that, I'll turn the call back to Kathy to start the Q&A session. Kathy?

Kathy Ta: Thank you, Rajen. To allow as many as possible an opportunity to ask questions, please keep to one question and one follow-up. Now let's begin the Q&A session.

Kathy Ta: Thank you, Wajid. To allow as many as possible an opportunity to ask questions, please keep to one question and one follow-up. Now let's begin the Q&A session.

Speaker #3: Thank you, Wajid. To allow as many as possible in opportunity to ask questions, please keep to one question and one follow-up. Now let's begin the Q&A session.

Operator 2: We will now begin the question and answer session. Your first question comes from the line of Samik Chatterjee with J.P. Morgan.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Please stand-by while we comply the Q&A roster. Your first question comes from the line of Samik Chatterjee with J.P. Morgan. Your line is now open, please go ahead. A reminder to unmute your device locally.

Speaker #1: We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker #1: To withdraw your question, press star 1 again. Please stand by while we compile the Q&A roster. Your first question comes from the line of Samek Chatterjee with JPMorgan.

Speaker #1: Your line is now open. Please go ahead. A reminder to unmute your device locally.

Michael Hurlston: Go to Ryan.

Speaker #4: Good morning.

Operator 2: Thank you. Our next question comes from the line of Ryan Koontz with Needham & Company. Your line is now open. Please go ahead.

Operator: Thank you. Our next question comes from the line of Ryan Koontz with Needham & Company. Your line is now open. Please go ahead.

Speaker #1: Thank you. Our next question comes from the line of Ryan Koontz with Needham & Co. Your line is now open. Please go ahead.

Ryan Koontz: Great. Thanks. Can you hear me?

Speaker #5: Great, thanks. Can you hear me?

Michael Hurlston: Yes, we can.

Speaker #2: Yes, we can.

Kathy Ta: Yes.

Speaker #3: Yes.

Ryan Koontz: We do. Great. Maybe let's start with, you know, your strength in EMLs and laser supply. Clearly, demand is not a concern here. You guys have just done an incredible job of executing. You know, what are the dynamics both on the supply side as well as your ability to ramp production? Maybe give some color on kind of where you are in meeting demand, you know, what the gap looks like, as well as, you know, what are some of the puts and takes that you're battling with on a quarter-to-quarter basis?

Speaker #5: We do. Great. Maybe let's start with your strengths in emails and laser supply. Clearly, demand is not a concern here, and you guys have just done an incredible job of executing. What are the dynamics both on the supply side as well as your ability to ramp production?

Speaker #5: Maybe give some color on kind of where you are in meeting demand, what the gap looks like, as well as what are some of the puts and takes that you're battling with on a quarter-to-quarter basis?

Michael Hurlston: Yeah. Hey, Ryan. Thanks for the question. Look, I think we're still chasing behind relative to demand. We are steadily increasing supply. I think we just gave the benchmark that we'd expect our supply line to increase 50% on year, meaning as measured from Q4 to Q4. We're actually stepping up our supply in a pretty significant way. That being said, as we've said kind of over and over again, we continue to lag demand. The supply-demand imbalance is probably even higher than we reported in our last call, somewhere greater than 30%. I think last time we gave a metric of 25 to 30. We still seem to be behind significantly.

Speaker #4: Yeah. Hey, Ryan. Thanks for the question. Look, I think we're still chasing behind relative to demand. We are steadily increasing supply. I think we just gave the benchmark that we'd expect our supply line to increase 50% on year, meaning as measured from December quarter.

Speaker #4: To December quarter. So we're actually stepping up our supply in a pretty significant way. That being said, as we said kind of over and over again, we continue to lag demand.

Speaker #4: The supply-demand imbalance is probably even higher than we reported in our last call. Somewhere greater than 30%, I think last time we gave a metric of 25 to 30.

Speaker #4: We still seem to be behind significantly. We had conversations today with customers significant customers looking to really up their demand and get output from us.

Michael Hurlston: We had conversations today with customers, you know, significant customers looking to really up their demand, and get output from us, and we simply can't service that. We are stepping up. We're doing everything we can to step that up. I think you know that story pretty well. We continue to lag demand.

Speaker #4: And we simply can't service that. So we are stepping up. We're doing everything we can to step that up. I think you know that story pretty well.

Speaker #4: But we continue to lag demand.

Ryan Koontz: Is that largely in your own control? Sorry, Michael, but, largely in your own control in terms of executing against that and getting the equipment you need? Or do you have input that is a big challenge?

Speaker #5: And is that largely in your own control? Sorry, Michael, but largely in your own control in terms of executing against that and getting the equipment you need?

Speaker #5: Or do you have input that is a big challenge?

Speaker #4: Yeah. Right now, it's largely within our own control. So some of these, for example, substrate shortages that's been reported out, I think you know our story better than most.

Michael Hurlston: Yeah. Right now it's largely within our own control. Some of these, for example, substrate shortages that's been reported out, you know, I think you know our story better than most, and that is that we've executed some Long-Term Agreements that we feel leave us in pretty good shape on substrates. That being said, I mean, the number of lasers that we're gonna have to output, for example, at 2027, is really a massive step up, just given the scale out and scale up demands that we're seeing in that timeframe. It certainly near term it's mostly on us. I think as we head into 2027, we're gonna continue to have to work the substrates.

Speaker #4: And that is that we've executed some long-term agreements that we feel leave us in pretty good shape on substrates. That being said, I mean, the number of lasers that we're going to have to output, for example in 2027, is really a massive step up, just given the scale-out and scale-up demands that we're seeing in that time frame.

Speaker #4: So it's certainly near-term, it's mostly on us. I think as we head into 2027, we're going to continue to have to work the substrates.

Speaker #4: I think we have that mostly under control. But we've got a lot of work to do to sort of catch up to demand at this point.

Michael Hurlston: I think we have that mostly under control, but, you know, we got a lot of work to do to sort of catch up to demand at this point.

Ryan Koontz: That's great. Maybe on the, on the scale across part, you really highlighted that as, you know, I think something that's a market opportunity is probably less appreciated with Lumentum. Obviously you've got the kind of the components there among lasers, and you talked about the multi-rail opportunity. Can we expand on that in terms of, you know, where you fit in that supply chain, in that value chain, and then how big you size that opportunity as it moves to multi-rail, you know, amplification high densification? Thanks.

Speaker #5: That's great. And maybe on the scale across part, you really highlighted that as I think something that's a market opportunity that's probably less appreciated with Lumentum.

Speaker #5: Obviously, you've got kind of the components there, among lasers. And you talked about the multi-rail opportunity. Can we expand on that in terms of where you fit in that supply chain and that value chain?

Speaker #5: And then how big you size that opportunity as it moves to multi-rail amplification densification? Thanks.

Michael Hurlston: Yeah. Look, it's a significant opportunity. I think we chose this call to talk about it because I think it's a significant contributor to our margin enhancement. We focus very much on sort of the four main growth drivers. I think you know those well, the transceiver business, OCS, optical scale out, and optical scale up. We spend less time, I think, on our scale across components, and they are actually big contributors to the gross margin line. As we look out right now, we are probably more constrained in this area than even EMLs, particularly on things like pump lasers, narrow linewidth lasers for sure.

Speaker #4: Yeah. Look, it's a significant opportunity. I think we chose this call to talk about it because I think it's a significant contributor to our margin enhancement.

Speaker #4: So we've focused very much on sort of the four main growth drivers. I think you know those well: the transceiver business, OCS, optical scale-out, optical scale-up.

Speaker #4: We spend less time, I think, on our scale-across components. And they are actually big, big contributors to the gross margin line. As we look out right now, we are probably more constrained in this area than even EMLs, particularly on things like pump lasers, narrow line lift lasers, for sure.

Michael Hurlston: Both of those are going into the coherent subassemblies that drive a lot of the scale across activity, the synchronization and high bandwidth that we mentioned in the pre-prepared remarks. A multi-rail increases that content, right, because you got more pumps that need to go into those. We are focused right now on ramping our pump capacity. We expect to make pretty appreciable step-ups, and at the right time, we'll give you some color around that. Those numbers are going up from an output perspective, actually to a much greater degree than even our EML output. We would expect to output a lot more of these here in the near term because there's a little bit less constraint on the fab that puts these out, so we have a little more ability to reflect that line.

Speaker #4: And both of those are going into the coherent subassemblies that drive a lot of this scale-across activity, the synchronization and high bandwidth that we mentioned in the prepared remarks.

Speaker #4: A multi-rail increases that content, right, because you've got more pumps that need to go into those. We are focused right now on ramping our pump capacity.

Speaker #4: We expect to make pretty appreciable step-ups. And at the right time, we'll give you some color around that. But those numbers are going up from an output perspective actually to a much greater degree than even our EML output.

Speaker #4: We would expect to output a lot more of these here in the near term because there's a little bit less constraint on the fab that puts these out.

Speaker #4: So we have a little more ability to inflect that line. Whoop, had any more on sort of the multi-rail and how you think about it?

Michael Hurlston: Wupen Yuen, any more on the sort of the multi-rail and how you think about it?

Wupen Yuen: Yeah. A couple things, right? First of all, the pump lasers actually goes into the optical amplifiers, right? We call them inline amplifiers at the, at the, at the site. That's where, you know, a lot of the traffic and then the density has to really increase, right, to get the traffic through. That's one big areas of growth. Frankly, the multi-rail opportunities are huge. You know, with all the special clients that Michael talked about just now, you know, our view actually is that the multi-rail could be even bigger than that. We don't yet have a full quantification. We'll share that when we are more ready.

Speaker #2: Yeah.

Speaker #4: So a couple of things, right? So first of all, the pump lasers actually goes into the optical amplifiers, right, at the we call the inline amplifiers at the sites.

Speaker #4: And that's where a lot of the traffic and then the density has to really increase, right, to get the traffic through. So that's one big area of growth.

Speaker #4: And, frankly, the multi-rail opportunities are huge. And then, with all the expansion plans that Michael talked about just now, our view actually is that the multi-rail could be even bigger than that.

Speaker #4: So we don't yet have a full quantification. We'll share that when we are more ready. But we believe there's a huge opportunity for Lumentum to grow our business and gross margins.

Wupen Yuen: We believe there's a huge opportunity for Lumentum and it's going to grow our business and gross margins.

Ryan Koontz: That's great, guys. Really appreciate it. Thank you.

Speaker #5: That's great, guys. Really appreciate it. Thank you.

Michael Hurlston: Thanks, Ryan.

Speaker #4: Thanks, Brian.

Speaker #3: Thanks, Brian.

Operator 2: Our next question comes from the line of Samik Chatterjee with JPMorgan. Your line is now open. Please go ahead.

Operator: Our next question comes from the line of Samik Chatterjee with JPMorgan. Your line is now open. Please go ahead.

Speaker #1: Our next question comes from the line of Semic Chatterjee with JPMorgan. Your line is now open. Please go ahead.

Samik Chatterjee: Hi, guys. Can you hear me now?

Speaker #6: Hi, guys. Can you hear me now?

Michael Hurlston: We can hear you now. Samik, you figured out the mute button. Good, good. We knew you're a smart guy.

Speaker #3: We can hear you now.

Speaker #6: It sounds like you figured out. You figured out the mute button. Good. Good. We knew you were a smart guy. Still learning. Still learning, Michael.

Samik Chatterjee: Still learning. Still learning, Michael. Maybe on OCS, I know you mentioned sort of multiple customers that you're still working with, and you had the customer announcement at OFC. Can you just talk about sort of where maybe the engagements are in terms of how close you are to finalizing additional sort of award wins on the OCS front? Do you see some of the wins being sizable compared to what you announced at OFC? How should we think about the additional wins that you can sort of lock in, and how should we size them relative to the win that you announced at OFC? I have a follow-up. Thank you.

Speaker #6: So maybe on OCS, I knew you mentioned sort of multiple customers that you're still working with. And you had the customer announcement at OFC.

Speaker #6: Can you just talk about sort of where maybe the engagements are in terms of how close you are to finalizing additional sort of award wins on the OCS front?

Speaker #6: And do you see some of the wins being sizable compared to what you announced at OFC? How should we think about the additional wins that you can sort of lock in?

Speaker #6: And how should we size them relative to the win that you announced at OFC? And have a follow-up. Thank you.

Michael Hurlston: Yeah. I mean, look, we continue to work with the three customers that we've been talking to. Two of those three are making up the majority of the volume, as we've been saying. I think that we are really making progress now on sort of additional wins. I think it's too early to call when we would be able to talk to those, but I would say that they're quite sizable. We really are, as I said in the remarks, working the roadmap to add differentiation, different port counts, different configurations to service these multiple opportunities. These multiple opportunities are substantial. They're on the order of what we've talked to relative to, you know, this backlog that we're seeing for 2027. It is our biggest area.

Speaker #4: Yeah. I mean, I think, look, we continue to work with the three customers that we've been talking to. Two of those three are making up the majority of the volume as we've been saying.

Speaker #4: I think that we are really making progress now on sort of additional wins. I think it's too early to call when we would be able to talk to those.

Speaker #4: But I would say that they're quite sizable. We really are as I said in the remarks, working the roadmap to add differentiation different port counts, different configurations, to service these multiple opportunities.

Speaker #4: And these multiple opportunities are substantial. They're on the order of what we've talked to relative to this backlog that we're seeing for 2027. So it is our biggest area.

Michael Hurlston: Wupen Yuen and the engineering teams are working aggressively to drive those new designs.

Speaker #4: Whoop and the engineering teams are working aggressively to drive those new designs.

Samik Chatterjee: Got it. Okay, great. For my follow-up, maybe I can ask you on the revenue guide a bit. You did deliver, when I look quarter over quarter, like a $140 million increase. You're expecting that to accelerate as you get into the Q4, which is in the backdrop of sort of the supply constraints that you're also dealing with. Maybe if you can just sort of highlight which of the areas you see accelerating compared to the Q3 itself as you go into Q4. Where are the supply constraints maybe impacting you more than others, if you can sort of highlight that. Thank you.

Speaker #5: Got it. Got it. Okay. Great. And for my follow-up, maybe I can ask you on the revenue guide a bit. You did deliver when I looked quarter over quarter like a 140 million increase.

Samik Chatterjee: Got it. Okay, great. For my follow-up, maybe I can ask you on the revenue guide a bit. You did deliver, when I look quarter-over-quarter, like a $140 million increase. You're expecting that to accelerate as you get into the Q4, which is in the backdrop of sort of the supply constraints that you're also dealing with. Maybe if you can just sort of highlight which of the areas you see accelerating compared to the Q3 itself as you go into Q4. Where are the supply constraints maybe impacting you more than others, if you can sort of highlight that. Thank you.

Speaker #5: And you're expecting that to accelerate as you get into the June quarter. Which is in the backdrop of sort of the supply constraints that you're also dealing with.

Speaker #5: So maybe if you can just sort of highlight which are the areas you see accelerating compared to the March quarter itself as you go into June.

Speaker #5: And where are the supply constraints maybe impacting you more than other if you can sort of highlight that. Thank you.

Michael Hurlston: I think in the guide is contemplated obviously sort of the basic business, meaning EMLs we'd expect to go up. We'd expect the scale across components to go up. We continue to increment OCS, that will go up. Really the big story is transceivers, right? That is gonna be quite strong. You know, I think it's impressive to note that you and I have talked about our margins, they are relatively challenged. We expect to see margin improvement in the face of a growing transceiver business. I think that's important to highlight. As we go into H2, you know, that's when you're gonna start seeing much bigger contributions from OCS. In Q4, you're gonna see more contributions from the scale out CPO.

Speaker #4: Yeah. I think in the guide, it's contemplated, obviously, sort of the basic business, meaning EMLs. We'd expect to go up. We'd expect the scale-across components to go up.

Speaker #4: We continue to increment OCS. So that will go up. But really, the big story is transceivers, right? That is going to be quite strong.

Speaker #4: And I think it's impressive to note that as you and I have talked about, our margins are relatively challenged. We expect to see margin improvement in the face of a growing transceiver business.

Speaker #4: So I think that's important to highlight. As we go into the back half of the year, that's when you're going to start seeing much bigger contributions from OCS.

Speaker #4: In the fourth calendar quarter, you're going to see more contributions from the scale-out CPO. So there's a lot of things that begin to layer in.

Michael Hurlston: There's a lot of things that begin to layer in. Specific to your question in the guide, I think the big headline is gonna be transceivers. We appear to be ahead on 1.6. We seem to be executing relatively well. I think Wupen Yuen and the team have done a really, really good job turning around our designs. Our constraint is gonna be on transceivers, so we could ship quite a bit more in the guide, actually quite a bit more this quarter, in the quarter we just completed. Certainly quite a bit more in the guide had we not the supply constraints that we see. As we detailed, there's, you know, electrical components are driving that. Laser diodes are in that mix, right? Which is necessitating the switch to our internal laser diodes.

Speaker #4: But specific to your question in the guide, I think the big headline is going to be transceivers. We appear to be ahead on 1.6T.

Speaker #4: We seem to be executing relatively well. I think Whoop and the team have done a really, really good job turning around our designs. Our constraint is going to be on transceivers.

Speaker #4: So we are we could ship quite a bit more in the guide, actually quite a bit more this quarter in the quarter we just completed.

Speaker #4: Certainly, quite a bit more in the guide have we not the supply constraints that we see? And as we detail, there's electrical components are driving that.

Speaker #4: The laser diodes are in that mix, right, which is necessitating the switch to our internal laser diodes. So there's quite a few things that are contributing there.

Michael Hurlston: There's quite a few things that are contributing there. The main headline is we're under shipping demand there quite significantly.

Speaker #4: But the main headline is we're undershipping demand there quite significantly.

Samik Chatterjee: Great. Thank you. Thanks for taking my questions.

Speaker #5: Got it. Great. Thank you. Thanks for taking my questions.

Michael Hurlston: Yeah. Thanks, Samik.

Speaker #3: Thanks, Tommy.

Operator 2: The next question comes from the line of Vijay Rakesh with Mizuho. Your line is now open. Please go ahead.

Operator: The next question comes from the line of Vijay Rakesh with Mizuho. Your line is now open. Please go ahead.

Speaker #1: The next question comes from the line of Vijay Rakesh with Mizuho. Your line is now open. Please go ahead.

Vijay Rakesh: Hi. Thanks, Michael and Wajid. A question back to the pump laser side on a scale across. Just wondering, you know, given that demand pickup obviously, looks like those will need pretty high power lasers as well. Just wondering, what is the mix of demand you're seeing going to scale across? Does that imply, you know, given that significant pickup in demand with that and 1.60, that you continue to see this supply demand imbalance of 30% as you go through into next year as well? A follow-up.

Speaker #7: Hi. Thanks. Michael and Rajiv, just a question back to the pump laser side on a scale-across. Just wondering, given that demand pickup, obviously, looks like those will need pretty hyper-lasers as well.

Speaker #7: Just wondering, what is the mix of demand you're seeing going to scale-across? And does that imply given that significant pickup in demand with that and 1.6T that you continue to see this supply-demand imbalance of 30% as you go through into next year as well?

Speaker #7: And a follow-up.

Michael Hurlston: Yeah, Vijay, I mean, a couple things I'd say. One, you know, the constraints on lasers, pumps are probably the biggest. It's run somewhat unanticipated. I mean, we haven't talked to you about this in the last couple quarters, but it's somewhat unanticipated. It's hit us relatively suddenly. You know, I don't think we've given a number of the supply demand imbalance, but it's certainly greater than that 30% number. We are significantly under shipping demand, and we're having to make choices as to who we support. We're trying to be as fair and reasonable as possible, but we are having to make choices as to how we allocate our pump demand. That being said, you know, I think we're trying to ramp capacity here quickly.

Speaker #4: Yeah. Vijay, I mean, a couple of things I'd say. One, the constraints on lasers of pumps are probably the biggest that we are it's somewhat unanticipated.

Speaker #4: I mean, we haven't talked to you about this in the last couple of quarters. But it's somewhat unanticipated. It's hit us relatively suddenly. And I don't even I don't think we've given a number of the supply-demand imbalance.

Speaker #4: But it's certainly greater than that 30% number. We are significantly undershipping demand, and we're having to make choices as to who we support.

Speaker #4: We're trying to be as fair and reasonable as possible, but we are having to make choices as to how we allocate our pump demand.

Speaker #4: That being said, I think we're trying to ramp capacity here quickly. We have a plan to ramp capacity over the next four quarters. That's coming out of our local facility here in the United States, our Rose Orchard facility.

Michael Hurlston: We have a plan to ramp capacity over the next 4 quarters. That's coming out of our local facility here in the US, our Rose Orchard facility. We think we have room there to build some significant capacity. We're obviously spending a lot of money on CapEx to try to enable that, as Wajid highlighted. Hopefully that caught the gist of your question, Vijay.

Michael Hurlston: We have a plan to ramp capacity over the next four quarters. That's coming out of our local facility here in the US, our Rose Orchard facility. We think we have room there to build some significant capacity. We're obviously spending a lot of money on CapEx to try to enable that, as Wajid highlighted. Hopefully that caught the gist of your question, Vijay.

Speaker #4: And we think we have room there to build some significant capacity, and we're obviously spending a lot of money on CapEx to try to enable that, as Rajiv highlighted.

Speaker #4: So hopefully, that caught the gist ist of your question, Vijay.

Vijay Rakesh: Yeah, sure. Just a quick follow-up too. Back on the OCS side, you know, obviously it looks like Google is now talking the V8 inference rack with 1,152 TPUs and the training rack with, like, 130,000 TPUs. Does that drive your OCS, should drive a pretty nice uptick there back to the, like the, 300 Radix or the 500 Radix, OCS racks into next year, right? Looks like even Anthropic now announcing a massive potential. Not Anthropic, but looks like there's some information actually noting Anthropic could do $200 billion with Google. Positive for you guys, but just wondering how you're looking at OCS into 2027, 2028. Thanks.

Speaker #7: Yeah, sure. Just a quick follow-up too. Back on the OCS side, obviously, it looks like Google is now talking about the V8 inference rack with 1,152 TPUs and the training rack with 130,000 TPUs.

Speaker #7: Does that drive your OCS should drive a pretty nice uptick there back to the 300 Radix or the 500 Radix OCS racks into next year, right?

Speaker #7: And looks like even Anthropic now announcing a massive potential not Anthropic, but looks like there's some information etc., noting Anthropic could do 200 billion with Google.

Speaker #7: Positive for you guys. But just wondering how you're looking at OCS into 2027, 2028. Thanks.

Michael Hurlston: Yeah, look, I mean, you know, we're not sort of commenting on specific customers and specific customer architectures. You know, based on what we know, I would say that Google is obviously doing very, very well in the market. I would say that Google is driving a lot of demand on our business, right? They're certainly one of our largest customers, and we've benefited greatly from that relationship. As we know it, as we understand it, the sort of the difference in V7 and V8 in terms of OCS pull is a little bit. It's incremental. It's not that big. We would expect, as you are correctly saying, that they are doing Look, hopefully we can get engaged.

Speaker #4: Yeah. Look, I mean, we're not sort of commenting on specific customers and specific customer architectures. Based on what we know, I would say that Google is obviously doing very, very well in the market.

Speaker #4: I would say that Google is driving a lot of demand on our business, right? They're certainly one of our largest customers. And we've benefited greatly from that relationship.

Speaker #4: As we know it, as we understand it, sort of the difference in V7 and V8 in terms of OCS pull is a little bit.

Speaker #4: It's incremental. It's not that big. But we would expect as you are correctly saying, that they are doing hopefully, we can get engaged. I think it would drive significant upside for us just given the expansion of their business as they look at V8.

Michael Hurlston: I think it would drive significant upside for us just given the expansion of their business as they look at v8.

Vijay Rakesh: Got it. Thank you.

Speaker #7: Got it. Thank you.

Michael Hurlston: Thank you, Vijay.

Speaker #3: Thank you, Vijay.

Operator 2: The next question comes from the line of Meta Marshall with Morgan Stanley. Your line is now open. Please go ahead.

Operator: The next question comes from the line of Meta Marshall with Morgan Stanley. Your line is now open. Please go ahead.

Speaker #1: The next question comes from the line of Meta Marshall with Morgan Stanley. Your line is now open. Please go ahead.

Meta Marshall: Great. Thanks. Maybe a couple questions just on, you know, you expecting to supply some of the CW lasers into the transceivers into the next quarter. Just any kind of further commentary there on just the path and progression of kind of the insourcing of your own lasers into that piece of the transceiver portfolio. Maybe just as a follow-up, just any kind of disclosure we could have in terms of, you know, obviously a great step up in the gross margins just on kind of like rough mix of pricing yield mix and kind of the contributions there. Thanks.

Speaker #8: Great. Thanks. Maybe a couple of questions. Just on you expecting to supply some of the CW lasers into the transceivers, into the next quarter, just any kind of further commentary there on just the path and progression of kind of the insourcing of your own lasers into that piece of the transceiver portfolio?

Speaker #8: And then maybe just as a follow-up, just any kind of disclosure we could have in terms of obviously, a great step up in the gross margins, just on kind of rough mix of pricing, yield, mix, and kind of the contributions there.

Speaker #8: Thanks.

Michael Hurlston: Yeah. I mean, I would say, Meta, maybe to the second question on mix, it's sort of all of the above. I think, you know, the headline has been better factory absorption. I mean, that helps. I think our mix, and we've made some big decisions here throughout the last year to drop certain product lines that are not margin beneficial. We really worked on the portfolio to a great degree, and I think that's helped considerably. Of course there is price increases. Obviously, pricing with this kind of supply-demand imbalance is something that we consider, is something that where we see biggest area of constraints, we have applied and we continue to think about applying. We think there's, you know, continued room, right?

Speaker #4: Yeah. I mean, I would say Meta maybe to the second question, on mix, it's sort of all of the above. I think the headline has been better factory absorption.

Speaker #4: I mean, that helps I think our mix. And we've made some big decisions here throughout the last year to drop certain product lines that are not margin beneficial.

Speaker #4: So, we really worked on the portfolio to a great degree, and I think that's helped considerably. And then, of course, there are price increases.

Speaker #4: Obviously, pricing with this kind of supply-demand imbalance is something that we consider. It's something that where we see biggest area of constraints, we are have applied.

Speaker #4: And we continue to think about applying we think there's continued room, right? Gross margin is something that as a management team, we have focused on tremendously.

Michael Hurlston: Gross margin is something that as a management team we have focused on tremendously, you know, look, I think people who follow my history know that gross margin is super important. Although we're trailing what we've done in our previous instantiations, I do think there's a lot of room for improvement on the gross margin line. Relative to the insourcing of the lasers, you know, that's something that's driven by margin, right? We are forced to do that probably faster than that forecast oscillated, as you know. I mean, you follow our story extremely closely. We had initially forecasted sometime in calendar Q2 we'd be introducing the lasers, then we backed off just seeing so much tension on the EML line.

Speaker #4: And look, I think people who have followed my history know that gross margin is super, super important. And although we're trailing what we've done in our previous instantiations, I do think there's a lot of room for improvement on the gross margin line.

Speaker #4: Relative to the insourcing of the lasers, that's something that's driven by margin, right? But we are forced to do that probably faster than and that forecast oscillated, as you know.

Speaker #4: I mean, you followed our story extremely closely. We had initially forecasted sometime in calendar Q2 we'd be introducing the lasers. Then we backed off just seeing so much tension on the EML line.

Michael Hurlston: Now we've seen a little bit of tension in our own supply line externally to get lasers from the external market, CW lasers. As such, now we've allocated more of our FAB capacity to CW lasers. I think in our mix, you know, roughly as we think about it in the guide, it would be about 20% of our modules would have our own CW lasers. It's still minority, but we'd expect to step that up through time and see some of the associated margin benefit as a result. Great. Thanks, Mia.

Speaker #4: But now we've seen a little bit of tension in our own supply line. Externally, to get lasers from the external market, CW lasers. And as such, now we've allocated more of our fab capacity to CW lasers.

Speaker #4: I think in our mix, roughly, as we think about it in this in the guide, it would be about 20% of our modules would have our own CW lasers.

Speaker #4: It's still minority, but we'd expect to step that up through time. And see some of the associated margin benefit as a result.

Speaker #8: Great. Thanks.

Speaker #4: Thanks, Meta.

Operator 2: The next question comes from the line of Atif Malik with Citi. Your line is now open. Please go ahead.

Operator: The next question comes from the line of Atif Malik with Citi. Your line is now open. Please go ahead.

Speaker #1: The next question comes from the line of Papa Silah with Citi. Your line is now open. Please go ahead.

Atif Malik: Thank you, congrats on the very strong results. Michael, I guess one, a little bit longer term question kind of on the CPO slash scale-up opportunity. It seems like even at, kind of, you mentioned kind of the longer term target, and most of it may be more ultra-high power lasers, but at a high level, it seems like there is also a real opportunity into becoming more kind of vertical and doing some more ELS.

Speaker #7: Thank you. And congrats on the Vase team results. Michael, I guess one a little bit longer-term question, kind of on the CPO/scale-up opportunity. It seems like even at—kind of, you mentioned—the longer-term target, and most of it may be more ultra-high-power lasers.

Speaker #7: But at a high level, it seems like there's also a real opportunity into becoming more kind of vertical and doing some more ELS-type?

Michael Hurlston: Hey, Atif, I don't know. Hopefully it's not us, but at least your line seems to be cutting out a bit. I didn't catch the last part of your question. Sorry for that.

Speaker #4: Hey, Papa. I don't know. I hopefully, it's not us. But at least your line seems to be cutting out a bit. I didn't catch the last part of your question.

Speaker #4: Sorry for that.

Atif Malik: Hopefully it's better now.

Speaker #7: Hopefully, it's better now.

Michael Hurlston: It's better, Atif. It's better now. We can hear you.

Speaker #4: It's better, Papa. We can hear you.

Atif Malik: Yeah, sorry about that. Yeah, I was just asking on just the opportunity around the kind of CPO kind of market. Most of it seems like you are mostly around the ultra-high power lasers, looking into maybe H2 2027. I'm just curious on the opportunity around kind of being more vertically integrated as well, kind of providing more ELS type of product. I'm curious if you are also getting engagement from the same customers you are providing ultra-high power lasers opportunities.

Speaker #7: Yeah. Sorry about that. Yeah. I was just asking on just the opportunity around the kind of CPO kind of market. Most of it, it seems like you are mostly around the ultra-high-power lasers, looking into maybe the second half of the year in 2027.

Speaker #7: I'm just curious on the opportunity around kind of being more vertically integrated as well, kind of providing more ELS type of product. I'm curious if you are also getting engagement from the same customers you are providing ultra-high-power lasers opportunities.

Michael Hurlston: Yeah, great question, Papa, and I, of course, I continue to thank you for following the company. Look, I think that on ELS we definitely have a very significant opportunity. It's, you know, we've only talked about opportunities there. I think we're getting ever closer to being able to convert and start thinking about that as part of our numbers. As we've outlined on previous calls, what I would say with ELS in particular is the non-primary customer engagements are largely driven by ELS. Simply the engineering teams there are less familiar with optics, although frankly everybody's becoming a lot more conversant on optics. Our currency to engage those customers, at least initially, will be the ELS.

Speaker #4: Yeah. Great question, Papa. And of course, I continue to thank you for following the company. Look, I think that on ELS, we definitely have a very significant opportunity.

Speaker #4: And we have not we've only talked about opportunity there. I think we're getting ever closer to being able to convert and start thinking about that as part of our as part of our numbers.

Speaker #4: As we've outlined on previous calls, what I would say with ELS in particular is the non-primary customer engagements are largely driven by ELS, simply the engineering teams there.

Speaker #4: Are less familiar with optics, although frankly, everybody's becoming a lot more conversant on optics. But our current C to engage those customers, at least initially, will be the ELS.

Michael Hurlston: Again, we've not really talked about as yet any significant wins there. I feel that's just around the corner, quite frankly, and it's something that, you know, at the right time we'll be able to articulate more deeply. As, in particular, as we expand the CPO horizon, we are gonna need that vertical integration strategy that you asked in your question.

Speaker #4: And so again, we've not really talked about as yet any significant wins there. I feel that's just around the corner, quite frankly. And it's something that at the right time, we'll be able to articulate more deeply.

Speaker #4: But in particular, as we expand the CPO horizon, we are going to need that vertical integration strategy that you asked in your question.

Atif Malik: Got it. That's very helpful. For my follow-up, it might be for you again, Michael, as well. On the kind of supply front, kind of E-EML capacity, it seems like across the board demand continues to be very strong despite the very strong effort you're making on raising supply. We are also hearing kind of a lot of competitors also providing very large growth numbers. I'm just curious on the risk of oversupply, if any, I guess where would you put that risk? Is it still very low at this point?

Speaker #8: Got it. That's very helpful. And for my follow-up, maybe for you again, Michael, as well, on the kind of supply front—kind of EML capacity—it seems like across the board, demand continues to be very strong despite the very strong effort you're making on raising supply.

Speaker #8: But we are also hearing kind of a lot of competitors also providing very large growth numbers. I'm just curious on the risk of oversupply, if any, I guess, where would you put that risk?

Speaker #8: Is it still very low at this point?

Speaker #4: I mean, I feel it's low. We are engaging all sorts of transceiver customers right now. WuPen's team is out doing that. Actually, as we speak, I just got a report in this morning from our sales leader and the discussion is very much around extending the long-term agreements that we already have.

Michael Hurlston: I mean, I feel it's low. We are, you know, engaging all sorts of transceiver customers right now. Wupen's team is out doing that actually as we speak. I just got a report in this morning from our sales leader. The discussion is very, very much centered around, you know, extending the Long-Term Agreements that we already have. If there was an expectation from our customers that they'd see a, an oversupply of any kind of laser, whether it be EML or CW laser, I just think there'd be a lot more reticence to engage in the kind of conversations we're having. Yes, we're hearing the same things. I mean, we know that everybody is trying to add supply, but the reality on the ground now seems to be quite a bit different.

Speaker #4: So if there was an expectation from our customers that they'd see an oversupply of any kind of laser, whether it be EML or CW laser, I just think there'd be a lot more reticence to engage in the kind of conversations we're having.

Speaker #4: So yes, we're hearing the same things. I mean, we know that everybody is trying to add supply. But the reality on the ground now seems to be quite a bit different.

Michael Hurlston: We definitely have some pricing flexibility, which would indicate that that supply-demand imbalance isn't gonna be so solved for a while, and we certainly are engaging in extending some of these Long-Term Agreements that we currently have.

Speaker #4: We definitely have some pricing flexibility. Which would indicate that that supply-demand imbalance isn't going to be solved for a while. And we certainly are engaging in extending some of these long-term agreements that we currently have.

Atif Malik: Got it. That's very helpful. Thank you so much.

Speaker #8: Got it. That's very helpful. Thank you so much.

Speaker #4: Thanks, Papa.

Michael Hurlston: Thanks, Atif Malik. Thanks, Atif Malik.

Speaker #3: Thanks, Papa.

Operator 2: The next question comes from the line of Ruben Roy with Stifel. Your line is now open. Please go ahead.

Operator: The next question comes from the line of Ruben Roy with Stifel. Your line is now open. Please go ahead.

Speaker #1: The next question comes from the line of Ruben Roy with Stifel. Your line is now open. Please go ahead.

Sahej Singh: Hey, guys, this is Sahej Singh for Ruben Roy. Maybe just, Michael, tagging on to the LTAs that you're mentioning there. You know, even on the scale across portfolio, you sort of outlined that, you know, it's pump lasers, narrow linewidth lasers, WSS. These are not only supply constrained, but real margin levers for you guys, distinct from the four growth levers. You know, 9 consecutive quarter of narrow linewidth at, I think you said 120% year on year, and pump lasers at 80%. That's impressive. You're still describing this as sort of an unanticipated bump up. You know, you're talking about these LTAs. Maybe we can dive a little deeper there.

Sahej Singh: Hey, guys, this is Sahej Singh for Ruben Roy. Maybe just, Michael, tagging on to the LTAs that you're mentioning there. You know, even on the scale across portfolio, you sort of outlined that, you know, it's pump lasers, narrow linewidth lasers, WSS. These are not only supply constrained, but real margin levers for you guys, distinct from the four growth levers. You know, 9 consecutive quarter of narrow linewidth at, I think you said 120% year-on-year, and pump lasers at 80%. That's impressive. You're still describing this as sort of an unanticipated bump up. You know, you're talking about these LTAs. Maybe we can dive a little deeper there.

Speaker #8: Hey, guys. This is the head, saying on for Ruben Roy. Maybe just, Michael, tagging on to the LTAs that you’re mentioning there. Even on a scale across portfolio, you sort of outlined that it’s pump lasers, narrow line width lasers, WSS.

Speaker #8: These are not only supply constrained but real margin leverage for you guys, distinct from the four growth levers. And nine consecutive quarter of narrow line width at, I think you said, 120% year-on-year and pump lasers at 80%.

Speaker #8: That's impressive. And you're still describing this as sort of an unanticipated bump up. And so you're talking about these LTAs. Maybe we can dive a little deeper there.

Sahej Singh: You mentioned that the long-term agreements being negotiated, are helping in some sense to offset CapEx, and I think that was with scale across, but it sounds like more broadly. Could you maybe give us a sense of the structure? Are these, you know, prepayment style commitments, maybe similar in maybe spirit, I would say, to the NVIDIA agreement, or are they take or pay capacity reservations, or are they, you know, volume commitments tied to ASP floors? How should we be thinking about, you know, the CapEx, whether build, buy, offshore, these agreements are effectively underwriting? I'll stop there and I have one other.

Speaker #8: You mentioned that the long-term agreements being negotiated are helping in some sense to offset CapEx and I think that was with scale across. But it sounds like more broadly, so could you maybe give us a sense of the structure?

Speaker #8: Are these prepayment-style commitments, maybe similar and maybe spirit, I would say, to the NVIDIA agreement? Or are they take or pay capacity reservations? Or are they volume commitments tied to ASP floors?

Speaker #8: How should we be thinking about the CapEx for the build buy offshore? These agreements are effectively underwriting? I'll stop there and I have one other.

Michael Hurlston: Yeah, look, I mean, it's all of the above. We're in active discussions right now on our pump lasers. Again, we have sort of a finite amount of capacity, and we're being asked to put on considerably more. You know, we are talking to the major customers around trying to help, right, and put some skin in the game around the CapEx that we're gonna try to lay out, one. That can entail prepayment, that can entail take or pay, that can entail price increases. You know, Wupen's team is in active negotiation with all of the scale across suppliers on how that looks.

Speaker #4: Yeah, look, I mean, it's all of the above. We're in active discussions right now on our pump lasers and, again, we have sort of a finite amount of capacity, and we're being asked to put on considerably more.

Speaker #4: And so we are talking to the major customers around trying to help, right, and put some skin in the game around the CapEx that we're going to try to lay out, one.

Speaker #4: That can entail prepayment. That can entail take-or-pay. That can entail price increases. And WuPen's team is in active negotiation with all of the scale across suppliers on how that looks.

Michael Hurlston: You know, again, as I say, we have some really big customers and important historical customers of ours that are involved in that, and we wanna treat them obviously as fairly as we can. It's really coming down to, you know, how these discussions play out as to how I think Wupen and his team think about the allocation.

Speaker #4: And again, as I say, we have some really big customers and important historical customers of ours that have been involved in that. And we want to treat them, obviously, as fairly as we can.

Speaker #4: But it's really coming down to how these discussions play out as to how, I think, WuPen and his team think about the allocation.

Sahej Singh: Understood. Thank you. For the second, you know, as I read through the print, you know, the beat was really a margin beat. You know, system sales, as you're mentioning, was a driver and seems to be so. This is happening all while sort of the capacity story is happening and new programs are ramping. As we look to the next quarter, I think the margin story kind of gets a little washed out with the diluted shares jumping up. Maybe could you help frame the waterfall dynamics on margins right now?

Speaker #8: Understood. Thank you. And for the second, as I read through the print, the beat was really a margin beat. And system sales as you're mentioning was a driver and seems to be so.

Speaker #8: And this is happening all while sort of the capacity story is happening and new programs are ramping. And then as we look to the next quarter, I think the margin story kind of gets a little washed out with the diluted shares jumping up.

Speaker #8: So maybe could you help frame the waterfall dynamics on margins right now? I mean, you set out the targets that you did during OFC.

Sahej Singh: I mean, you set out the targets that you did during OFC, and I think this sort of ties into, I believe Meta asked a question around this as well. You know, the waterfall dynamics may be more across a matrix of product mix and the program ramps within those segments. You know, how CapEx is dragging on that, again, on the build, buy, offshore sort of dynamic. Then maybe also on the volume versus ASP conversation that is becoming more and more prevalent amid, you know, this supply constraint.

Speaker #8: And I think this sort of ties into I believe Meta asked a question around this as well. But the waterfall dynamics, maybe more across a matrix of product mix and the program ramps within those segments, how CapEx is dragging on that again on the build buy offshore.

Speaker #8: Sort of dynamic and then maybe also on the volume versus ASP conversation that is becoming more and more prevalent amid this supply constraint.

Michael Hurlston: Look, I mean, as we said, there are many contributing factors to our margin improvement. I think we've had a big step up. It's an area of focus for us. I think we're gonna continue to work the margin line. It comes from, obviously comes from mix, and we keep making mix decisions every single day, allocating toward the most margin-rich parts of the portfolio. It comes from factory utilization, right? We've historically been underutilized, we're just now getting our utilization up to where it needs to be. As we've outlined, we have some of our fabs that are still underutilized. Some of the, for example, our fab in the United Kingdom that now Wupen has put products in that we expect to see a margin-contributing output from them and fixing some of the underutilization.

Speaker #4: Yeah. Look, I mean, as we said, there are many, many contributing factors to our margin improvement. I think we've had a big step up.

Speaker #4: It's an area of focus for us. I think we're going to continue to work the margin line. It comes from obviously comes from mix and we keep making mixed decisions every single day, allocating toward the most margin-rich parts of the portfolio.

Speaker #4: It comes from factory utilization, right? We've historically been underutilized and we're just now getting our utilization up to where it needs to be. As we've outlined, we have some of our fabs that are still underutilized.

Speaker #4: Some of the, for example, our fab in the United Kingdom that now WuPen has put products in, that we expect to see a margin-contributing output from them.

Speaker #4: And fixing some of the underutilization. And then, as we said, there is some price dynamics that are working in our favor. So we think there's a lot of room on the margin line.

Michael Hurlston: As we said, there is some price dynamics that are working in our favor. We think there's a lot of room on the margin line. We gave a long-term target. We feel very comfortable with that. I think there's, you know, room from here to continue to really step up margin. We've been surprised, to a certain extent, by how quickly we've been able to move up that margin line. Again, people that know my history know that we had, you know, 30% type moves in my last company. It's not a total surprise that you'd be seeing this kind of step up on the margin line.

Speaker #4: We gave a long-term target. We feel very comfortable with that. I think there's room from here to continue to really step up margin. We've been surprised to a certain extent by how quickly we've been able to move up that margin line.

Speaker #4: And again, people that know my history know that we had 30% tight moves in my last company. So it's not a total surprise that you'd be seeing this kind of step up on the margin line.

Sahej Singh: Thank you, guys.

Speaker #8: Thank you, guys.

Michael Hurlston: Thanks, Manoj.

Speaker #1: Thanks, Pathosh.

Operator 2: The next question comes from the line of Christopher Rolland with Susquehanna. Your line is now open. Please go ahead.

Operator: The next question comes from the line of Christopher Rolland with Susquehanna. Your line is now open. Please go ahead.

Speaker #3: The next question comes from the line of Christopher Roland with Susquehanna. Your line is now open. Please go ahead.

Christopher Rolland: Thanks for the question. Michael, I am familiar with the margin focus you have. My question is actually, I think in your prepared remarks, you might have also mentioned some constraints around OCS. I guess, first of all, I wanted to dig a little bit more into that, but also, at OFC, there were some Chinese competitors showing off some OCS boxes. I was wondering if you could speak to competition there, whether you think it's viable or whether you think the kind of MEMS market might be yours for quite some time.

Speaker #8: Thanks for the question. And Michael, I am familiar with the margin focus you have. My question is actually—I think in your prepared remarks, you might have also mentioned some constraints around OCS.

Speaker #8: So I guess first of all, I wanted to dig a little bit more into that. But also at OFC, there were some Chinese competitors showing off some OCS boxes.

Speaker #8: I was wondering if you could speak to competition there, whether you think it's viable, or whether you think the kind of MEMS market might be yours for quite some time.

Michael Hurlston: Yeah, Chris. No, I appreciate that. Look, one, my colleague to the right, Wajid Ali, is personally responsible for getting the supply chain right on OCS. We've assigned that to one of the most important people in the company. It's a challenge. Look, I mean, it's a big step up, right? We've gone in many instances, really from zero to, you know, a significant number very, very quickly. We, you know, we think we have things under control. We've outlined this sort of $400 million that we can ship in the H2 of the year. We think we have that under control. As we look into 2027, that number continues to step up. You know, we think we have that under control, but we are definitely on a tightrope on this product line, right?

Speaker #4: Yeah, Chris. No, I appreciate that. Look, one, my colleague to the right, Wajid Ali, is personally responsible for getting the supply chain right on OCS.

Speaker #4: We've assigned that to one of the most important people in the company. It's a challenge. Look, I mean, it's a big step up, right?

Speaker #4: We've gone, in many instances, really from zero to a significant number very, very quickly. We think we have things under control. We've outlined this sort of $400 million that we can ship in the back half of the year.

Speaker #4: We think we have that under control. As we look at the 2027, that number continues to step up. We think we have that under control.

Speaker #4: But we are definitely on a tightrope on this product line, right? It's probably our biggest ramp now. Honestly, pump lasers, CPO—all of these things are keeping us awake.

Michael Hurlston: It's probably our biggest ramp. You know, now, like honestly, pump lasers, CPO, all of these things are keeping us awake. The big three ramps are these pumps, right, OCS and the high-powered lasers. We've got a lot of work on our hands, and the biggest single tightrope that we're walking probably is OCS. I think relative to competition, you know, we feel pretty good about our position. We really do. I think we feel like we're in a very strong position. That's not gonna last forever, right? We know that. I think certainly in the next year, it's hard for me to imagine anybody is gonna be able to ship one of these very innovative solutions. We are also, you know, not standing still. We are working on cost reducing.

Speaker #4: The big three ramps are these pumps, right? OCS, and the high-powered lasers. So we've got a lot of work on our hands. And the biggest single tightrope that we're walking probably is OCS.

Speaker #4: I think relative to competition, we feel pretty good about our position. We really do. I think we feel like we're in a very, very strong position.

Speaker #4: That's not going to last forever, right? We know that. But I think certainly in the next year, it's hard for me to imagine anybody is going to be able to ship one of these very innovative solutions.

Speaker #4: We are also not standing still. We are working on cost-reducing. We are working on some innovative solutions in our OCS. Which increases the complexity of the decisions that I was outlining relative to what WuPen is facing, right?

Michael Hurlston: We are working on some innovative solutions in our OCS, which increases the complexity of the decisions that I was outlining relative to what Wupen is facing, right? We've got a lot of new customer demands coming on, and meanwhile, we are trying to focus on new architectures that would keep us in a leading position with MEMS, right? We do believe that that's the right technology for us long term, but we do believe that there's costs we can take out, simplifications we can make to continue to compete with these very innovative solutions.

Speaker #4: Because we've got a lot of new customer demands coming on. And meanwhile, we are trying to focus on new architectures that would keep us in a leading position with MEMS, right?

Speaker #4: We do believe that that's the right technology for us long-term. But we do believe that there are costs we can take out, simplifications we can make.

Speaker #4: To continue to compete with these very innovative solutions.

Christopher Rolland: Excellent. I do know you have your hands full with those three very large opportunities. Are there some more adjacencies for you guys to pursue? I think at OFC, you talked about maybe full module design and assembly. I don't know if this would involve silicon photonics chips, you know, PICs, EICs, et cetera. Are there any other adjacencies or components that you may be able to absorb or organically create that you can bring into the organization as you look forward?

Speaker #8: Excellent. And I do know you have your hands full with those three very large opportunities. But are there some more adjacencies for you guys to pursue?

Speaker #8: I think it, OFC, talked about maybe full module design and assembly. I don't know if this would involve silicon photonics chips, PICs, EICs, etc.

Speaker #8: Are there any other adjacencies or components that you may be able to absorb or organically create that you can bring into the organization as you look forward?

Michael Hurlston: Look, there's a ton of stuff that goes into these transceivers or into a CPO-based solution that today we don't ship, right? PICs, photodiodes, right, laser drivers. There's a ton of stuff, to your point, and we're looking at all of these areas. I mean, I think we have roadmaps that contemplate all sorts of different things around our strength in lasers, and I think there is quite a bit more that we can do around that. A previous questioner asked, and I'd say again on ELS, which is a vertically integrated module that your question sort of led to, we believe that there's significant opportunity there, right? We think that we can integrate up and take more of the dollars by generating a vertically integrated ELS.

Speaker #4: Look, there's a ton of stuff that goes into these transceivers or into a CPO-based solution that today we don't ship, right? PICs, photodiodes, right?

Speaker #4: Laser drivers. There's a ton of stuff, to your point. And we're looking at all of these areas. I mean, I think we have roadmaps that contemplate all sorts of different things around our strength in lasers.

Speaker #4: And I think there is quite a bit more that we can do around that. A previous questioner asked, and I'd say again on ELS, which is a vertically integrated module that your question sort of led to, we believe that there's significant opportunity there, right?

Speaker #4: We think that we can integrate up and take more of the dollars by generating a vertically integrated ELS. And I think as we engage on CPO, we're finding that to be a more convincing and shorter path to market than is just supplying lasers.

Michael Hurlston: I think as we engage on CPO, we're finding that to be a more convincing and shorter path to market than is just supplying lasers. Thank you, Chris.

Michael Hurlston: I think as we engage on CPO, we're finding that to be a more convincing and shorter path to market than is just supplying lasers.

Speaker #1: Thank you, Chris.

Kathy Ta: Thank you, Chris.

Christopher Rolland: Thank you, Michael.

Speaker #8: Thank you, Michael.

Operator 2: The next question comes from the line of Vivek Arya with Bank of America Securities. Your line is now open. Please go ahead.

Operator: The next question comes from the line of Vivek Arya with Bank of America Securities. Your line is now open. Please go ahead.

Speaker #3: The next question comes from the line of Vivek Arya with Bank of America Securities. Your line is now open. Please go ahead.

Michael Filosi: Hi, this is Michael Filosi on for Vivek Arya. Thanks so much for taking our questions. My first question is on the transceiver business. Number 1, how large would it have been if you had been able to address all the demand that you saw in the quarter? If you could peg that number relative to the 30% overall imbalance you gave for the entire company. On 1.60 specifically, you talked about how, you know, the margin structure is still the challenge and is a work in progress. You know, as we move into 1.60, what we're hearing from many of the suppliers in the ecosystem is that the margins are just significantly better, maybe led by pricing.

Speaker #9: Hi, this is Michael Nani on from Questions. My first question is on the transceiver business. Number one, how large would it have been if you had been able to address all the demand that you saw in the quarter?

Speaker #9: Or, if you could peg that number relative to the 30% overall imbalance you gave for the entire company. And then on 1.60 specifically, you talked about how the margin structure is still a bit challenged and is a work in progress.

Speaker #9: But as we move into 1.60, what we're hearing from many of the suppliers in the ecosystem is that the margins are just significantly better.

Speaker #9: Maybe led by pricing. So to what extent does that transition that's happening in the next quarter or two help your margin structure for transceivers?

Michael Filosi: To what extent does that transition that's happening in the next quarter or 2, help your margin structure for transceivers? Thank you.

Speaker #9: Thank you.

Michael Hurlston: Yeah. I mean, on the first one, I don't think that we've given a figure of merit around our own transceiver imbalance. It was significant. I mean, we had a lot of demand that was placed on us, and we simply weren't able to ship due to largely due to supply constraints. The 30% number that I gave is on our EMLs, right? It's a supply and imbalance. It's not relative to our whole business, it's on that particular line of business. I would say here, you know, the supply-demand imbalance on our own transceivers was somewhere in that ZIP code, but it was definitely appreciable, although I don't, I don't know that we've calculated that.

Speaker #4: Yeah. I mean, on the first one, I don't think that we've given a figure of merit around our own transceiver imbalance. It was significant.

Speaker #4: I mean, we had a lot of demand that was placed on us, and we simply weren't able to ship, largely due to supply constraints.

Speaker #4: The 30% number that I gave is on our EMLs, right? So it's a supply imbalance. It's not relative to our whole business. It's on that particular line of business.

Speaker #4: I would say here the supply demand imbalance on our own transceivers was somewhere in that zip code. But it was definitely appreciable. Although I don't know that we've calculated that.

Speaker #4: I think the second part of your question we what was it? What was the second part was on? 1.60. Yeah. No doubt, right? The margins are definitely better.

Michael Hurlston: I think the second part of your question, you know, What was it? What is it the second part was on?

Michael Filosi: $1.60.

Michael Hurlston: 1.60. Yeah. No, no doubt, right? The margins are definitely better. I would say that too. When I said the margins are challenging, our transceiver business, as we've outlined over and over again, is definitely a challenge for us on the margin line. I think we are underperforming peers. We have room to grow. We're getting better. I think we've certainly gotten the lead in terms of design, and now in terms of margin, I think we're improving. We still trail. That being said, to your point, 1.60 definitely better structurally from a margin standpoint, is definitely better than 800 gigs. There's definitely, we will see step up in our margin line. We have room as a unique Lumentum entity to do better, and we will do better.

Speaker #4: I would say that too. When I said the margins are challenging, our transceiver business, as we've outlined over and over again, is definitely a challenge for us on the margin line.

Speaker #4: I think we are underperforming peers. We have room to grow. We're getting better. I think we certainly got in the lead in terms of design.

Speaker #4: And now in terms of margin, I think we're improving. We still trail. That being said, to your point, 1.60 is definitely better. Structurally, from a margin standpoint, it's definitely better than 800 gigs.

Speaker #4: So there's definitely we will see step up in our margin line we have room as a unique momentum entity to do better. And we will do better.

Kathy Ta: Thank you, Michael.

Speaker #1: Thank you, Michael.

Michael Filosi: Thank you. For my follow-up, on OCS specifically, you said you're still constrained. Maybe that's more due to your current output right now relative to demand. How do you think about engaging with more contract manufacturers? I know you mentioned that at OFC, where are you in that process? Maybe not just for OCS, for other product areas as well. Within OCS specifically, how do you think getting demand you're seeing from multiple customers, maybe multiple different applications and multiple types of products between medium radix, high radix products, how do you think about prioritizing all those different sources of demand, right? Applications based on your own competitiveness or share? Thank you.

Speaker #8: Thank you. And for my follow-up, on OCS specifically, you said you're still constrained maybe that's more due to your current output right now relative to demand.

Speaker #8: How do you think about engaging with more contract manufacturers? I know you mentioned that at OFC. But where are you in that process? Maybe not just for OCS, but for other product areas as well.

Speaker #8: And then within OCS specifically, how do you think given the demand you're seeing from multiple customers, maybe multiple different applications in multiple types of products between medium rate X, high rate X products, how do you think about prioritizing all those different sources of demand, right, or applications based on your own competitiveness or share?

Speaker #8: Thank you.

Michael Hurlston: Yeah. Look, I'm gonna answer the first part of it, right, just in the interest of time and to get some more questions. I think one of the, you know, levers we do have is contract manufacturing. We have historically insourced everything, and we found that working with good contract manufacturers, of which there are several, we can actually improve our margins. As we have started to shift, and we're early in those innings, back to a contract manufacturing base, we would actually expect to see improvement in our margins. The margins that we pay to those contract manufacturers are more than offset by the efficiency and cost benefit that they can drive on common components. That ends up being a lever for us.

Speaker #4: Yeah. Look, I'm going to answer the first part of it, right, just in the interest of time and to get some more questions. I think one of the levers we do have is contract manufacturing.

Speaker #4: We have historically insourced everything, and we found that working with good contract manufacturers—of which there are several—we could actually improve our margins.

Speaker #4: So as we have started to shift, and we're early in those innings, back to a contract manufacturing base, we would actually expect to see improvement in our margins.

Speaker #4: The margins that we pay to those contract manufacturers are more than offset by the efficiency and cost benefit that they can drive on common components.

Speaker #4: So that ends up being a lever for us.

Michael Filosi: Thanks.

Speaker #8: Thanks, Paul.

Kathy Ta: Great. Thank you, Michael. Melissa, I think we have time for one more question.

Speaker #1: Thank you, Michael. So Melissa, I think we have time for one more question.

Operator 2: Thank you. Our last question comes from the line of Ananda Baruah with Loop Capital. Your line is now open. Please go ahead.

Operator: Thank you. Our last question comes from the line of Ananda Baruah with Loop Capital. Your line is now open. Please go ahead.

Speaker #3: Thank you. Our last question comes from the line of Ananda Barua with Loop Capital. Your line is now open. Please go ahead.

Ananda Baruah: Yeah. Thanks, guys, for taking the question. Really appreciate it. I guess I have to say apologies if this has already been asked. Hopefully, it hasn't been. Michael, you announced, I think it was last week, the opening of the Greensboro, new Greensboro facility that you recently purchased. I think it was also in the press release that that capacity was new, and I think it's for the clarification, is it also incremental to the revenue projections that you gave at OFC? Could you clarify that? Then also, what's a good way to think about the capacity potential coming out of Greensboro? Appreciate that. Thanks.

Speaker #10: Yeah. Thanks, guys, for taking the question. Really appreciate it. I guess I have to say apologies if this has already been asked. Hopefully, it hasn't been.

Speaker #10: But Michael, you announced, I think it was last week, the opening of the new Greensboro facility that you recently purchased. And I think it was also in the press release that that capacity was new.

Speaker #10: And I think is it also it goes to clarification. Is it also incremental to the revenue projections that you gave it at OFC? So could you clarify that?

Speaker #10: And then also, what's a good way to think about the capacity potential coming out of Greensboro? Appreciate that. Thanks.

Michael Hurlston: I mean, look, that is not in our numbers, right? It is very significant. I think what we've said is that we will have a massive supply-demand imbalance on CPO. It's gonna be very significant. We've seen multi-billion dollar orders that we've characterized on previous calls come in mostly on scale out. We expect the scale up to be, you know, significantly more than that in terms of revenue opportunity. I think it's gonna be, you know, somewhere greater than $5 billion of incremental revenue that we can add if we execute properly. What I would say is the Greensboro fab is not gonna come online until 2028. We've sort of set expectation that it's sort of in the early 2028 line we start to be adding that incremental revenue.

Speaker #4: Yeah, I mean, look, that is not in our numbers, right? It is very, very significant. I mean, I think what we've said is that we will have a massive supply-demand imbalance on CPO.

Speaker #4: It's going to be very, very significant. We've seen multibillion-dollar orders that we've characterized on previous calls. Come in mostly on scale-out. We expect the scale-up to be significantly more than that in terms of revenue opportunity.

Speaker #4: I think it's going to be somewhere greater than $5 billion of incremental revenue that we can add if we execute properly. Now, what I would say is the Greensboro fab is not going to come online until 2028.

Speaker #4: So, we've sort of set expectations. It's sort of in the early 2028 line—we start to be adding that incremental revenue. So, we're still six or so quarters away from seeing significant contribution from Greensboro.

Michael Hurlston: We're still, you know, 6 or so quarters away from seeing significant contribution from Greensboro.

Michael Hurlston: We're still, you know, six or so quarters away from seeing significant contribution from Greensboro.

Ananda Baruah: Got it. Super helpful. I appreciate it. I'll keep it there. Thank you, guys.

Speaker #10: Got it. Super helpful. I appreciate it. I'll keep it there. Thank you, guys.

Michael Hurlston: Okay. Thanks, Ananda.

Speaker #4: Okay. Thanks, Ananda.

Kathy Ta: Thank you so much, Ananda.

Speaker #1: Thank you so much, Ananda.

Operator 2: Thank you for your questions. I will now turn the call back to Kathy for closing remarks.

Operator: Thank you for your questions. I will now turn the call back to Kathy for closing remarks.

Speaker #3: Thank you for your questions. I will now turn the call back to Kathy for closing remarks.

Kathy Ta: Thank you, Melissa. That is all the time we have for questions, and we look forward to connecting with you at upcoming investor conferences and meetings throughout this next quarter. With that, I'd like to thank you for joining us today.

Speaker #1: Thank you, Melissa. That is all the time we have for questions. And we look forward to connecting with you at upcoming investor conferences and meetings throughout this next quarter.

Speaker #1: And with that, I'd like to thank you for joining us today.

Operator 2: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Speaker #3: This concludes today's call. Thank you for attending. You may now disconnect.

Operator 1: This event has now concluded. Access the Lumentum Operations, LLC IR website for more information. This line will now disconnect.

Operator: This event has now concluded. Access the Lumentum Operations, LLC IR website for more information. This line will now disconnect.

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Q3 2026 Lumentum Holdings Inc Earnings Call

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Lumentum Holdings

LITE

Earnings

Q3 2026 Lumentum Holdings Inc Earnings Call

Tuesday, May 5th, 2026 at 9:00 PM

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Lumentum Holdings

Earnings