Q4 2026 Lumentum Holdings Inc Earnings Call

August 11, 2026

Operator 2: Everyone, and welcome to the Lumentum Holdings Q2 and 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: Everyone, and welcome to the Lumentum Holdings Q2 and 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: remarks, we will host a Q&A session. If you would like to ask a question, please press *1 on your telephone keypad. To withdraw your question, press *1 again.

Speaker #1: 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 #2: Thank you, Matthew, and welcome to Lumentum's Q4 and 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.

Kathy Ta: Thank you, Matthew, and welcome to Lumentum's fiscal fourth quarter and full 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 Unit. 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.

Kathryn Ta: Thank you, Matthew, and welcome to Lumentum's fiscal fourth quarter and full 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 Unit. 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.

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. These statements are being made under the safe harbor provisions 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. We encourage you to review our most recent filings with the SEC, particularly the risks described under risk factors, and elsewhere in our 10Q for the fiscal quarter ended March 28, 2026, and in our most recent 10K for the fiscal year ended June 27, 2026, to be filed by Lumentum with the SEC.

Kathy Ta: We encourage you to review our most recent filings with the SEC, particularly the risks described under Risk Factors and elsewhere in our 10-Q for the fiscal quarter ended 28 March 2026, and in our most recent 10-K for the fiscal year ended 27 June 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 inherent limitations and are not to be considered in isolation from, or as a substitute for or superior to, financials prepared in accordance with GAAP.

Kathryn Ta: We encourage you to review our most recent filings with the SEC, particularly the risks described under Risk Factors and elsewhere in our 10-Q for the fiscal quarter ended 28 March 2026, and in our most recent 10-K for the fiscal year ended 27 June 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 inherent limitations and are not to be considered in isolation from, or as a substitute for or superior to, financials prepared in accordance with GAAP.

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

Speaker #2: You can find a 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.

Kathy Ta: You can find a 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 Q4 and full year 2026 results and accompanying supplemental slides are available on our website at investor.lumentum.com. We encourage you to review these materials carefully. With that, I'll turn the call over to Michael.

Kathryn Ta: You can find a 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 Q4 and full year 2026 results and accompanying supplemental slides are available on our website at investor.lumentum.com. 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 Q4 and FY 2026 results and accompanying supplemental slides are available on our website at investor.lumentum.com. 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 is positioned at the heart of a secular industry shift. As AI compute workloads increase in both speed and bandwidth, data center architects are turning to optical links as a primary means of connectivity.

Michael Hurlston: Thank you, Kathy, and good afternoon, everyone. Lumentum is positioned at the heart of a secular industry shift. As AI compute workloads increase in both speed and bandwidth, data center architects are turning to optical links as a primary means of connectivity. Our Q4 results reflect the early stages of this transition, driven by broad-based momentum across our scale-out and scale-across product lines, revenue surged 109% year over year to $1.01 billion, marking our eighth consecutive quarter of top-line growth. Additionally, we are maintaining revenue velocity as we saw our third consecutive quarter of greater than 20% sequential growth, notable as the compare point is getting ever larger. While we experience broad-based success, some of our previously highlighted growth drivers are just starting to layer in. Notably, in cloud transceivers, we achieved record 800 gig shipments while initiating production of our next generation 1.6T modules.

Speaker #3: Our Q4 results reflect the early stages of this transition. Driven by broad-based momentum across our scale-out and scale-across product lines, revenue surged 109% year-over-year to $1.01 billion, marking our eighth consecutive quarter of top-line growth.

Speaker #3: Additionally, we are maintaining revenue velocity, as we saw our third consecutive quarter of greater-than-20% sequential growth—notable, as the compare point is getting ever larger.

Speaker #3: While we experienced broad-based success, some of our previously highlighted growth drivers are just starting to layer in. Notably, in cloud transceivers, we achieved record 800 Gb shipments while initiating production of our next-generation 1.6T modules.

Speaker #3: In OCS, we successfully navigated supply chain constraints to meet steep customer demand, ramping internal manufacturing shipments according to plan. In addition to strong top-line performance, non-GAAP gross margin crossed 50%.

Michael Hurlston: In OCS, we successfully navigated supply chain constraints to meet steep customer demand, ramping internal manufacturing shipments according to plan. In addition to strong top-line performance, non-GAAP gross margin crossed 50%. We had originally targeted this threshold at a $2 billion quarterly run rate, so this milestone came quite a bit sooner than expectations. We expect gross margin expansion to continue, driven by product mix and tight operational execution. Non-GAAP operating margins expanded by more than 2,150 basis points year over year. These results prove two things: our differentiated technology commands premium value, and our operating model delivers outsized leverage. Driven by sharp acceleration in AI revenue, the midpoint of our Q1 revenue guidance reaches our $1.25 billion target more than one quarter ahead of schedule. Additionally, our Q1 non-GAAP operating margin guidance exceeds the high end of our target model that we associated with this revenue level.

Speaker #3: We had originally targeted this threshold at a $2 billion quarterly run rate, so this milestone came quite a bit sooner than expected. We expect gross margin expansion to continue, driven by product mix and tight operational execution.

Speaker #3: Non-GAAP operating margins expanded by more than 21,250 basis points year-over-year. These results prove two things: our differentiated technology commands premium value, and our operating model delivers outsized leverage.

Speaker #3: Driven by sharp acceleration in AI revenue, the midpoint of our Q1 revenue guidance reaches our $1.25 billion target more than one quarter ahead of schedule.

Speaker #3: Additionally, our Q1 non-GAAP operating margin guidance exceeds the high end of our target model that we associated with this revenue level. I'd like to address some recent market noise around co-packaged and near-packaged optics.

Michael Hurlston: I'd like to address some recent market noise around co-packaged and near packaged optics. First, our lead CPO customer's production plans remain very much on track, and their demand signal has increased since our last update. Our visibility into the timing of CPO scale-up deployments has also sharpened. We remain confident in a demand ramp for our ultra-high power laser chips in the H2 of calendar 2027, ahead of customer scale-up deployments in calendar 2028. Because the first phase of scale-up optical connections will span across compute racks within the cluster, this demand ramp applies to any topology larger than one rack. Adding to our confidence, we were recently given our first external light source, or ELS, module purchase for delivery by the H2 of calendar 2027.

Speaker #3: First, our lead CPO customers' production plans remain very much on track, and their demand signal has increased since our last update. Our visibility into the timing of CPO scale-up deployments has also sharpened.

Speaker #3: We remain confident in a demand ramp for ultra-high-power laser chips in the second half of calendar 2027, ahead of customer scale-up deployments in calendar 2028.

Speaker #3: Because the first phase of scale-up optical connections will span across compute racks within the cluster, this demand ramp applies to any topology larger than one rack.

Speaker #3: Adding to our confidence, we were recently given our first external light source, or ELS, module purchase for delivery by the second half of calendar 2027.

Speaker #3: Second, the rest of our customer base is currently prioritizing near-packaged architectures as an intermediate step to the eventual adoption of CPO. The NPO opportunity is completely additive for us, significantly increasing the optical TAM.

Michael Hurlston: Second, the rest of our customer base is currently prioritizing near packaged architectures as an intermediate step to the eventual adoption of CPO. The NPO opportunity is completely additive for us, significantly increasing the optical TAM. We are seeing strong NPO momentum across multiple high velocity engagements using our differentiated laser chips. Even our largest CPO customer is looking at NPO for specific new use cases, further increasing the optical TAM at that account. These architectural shifts represent a major market inflection that plays directly to our core strengths as a premier laser chip manufacturer, benefiting us as optics begin to penetrate the copper domain. NPO offers a faster time to market option by placing optical engines on the board right next to the XPU accelerator, trading power and cost for simplicity in optical scale-up applications. Customers are evaluating 2 types of laser chips for NPO.

Speaker #3: We're seeing strong NPO momentum across multiple high-velocity engagements using our differentiated laser chips. Even our largest CPO customer is looking at NPO for specific new use cases, further increasing the optical TAM at that account.

Speaker #3: These architectural shifts represent a major market inflection that plays directly to our core strengths as a premier laser chip manufacturer. Benefiting us is that optics are beginning to penetrate the copper domain.

Speaker #3: NPO offers a faster time-to-market option by placing optical engines on the board right next to the XPO accelerator, trading power and costs for simplicity in optical scale-up applications.

Speaker #3: Customers are evaluating two types of laser chips for NPO: a mid-power laser integrated directly with the optical engine, and a high-power laser used in an external light source module.

Michael Hurlston: A mid-power laser integrated directly with the optical engine, and a high-power laser used in an external light source module. Our mid-power lasers inherit the reliability and engineering of our flagship high-power platform. Our family of NPO and CPO lasers utilizes common design and process know-how to achieve industry-leading efficiency across 120 milliwatt, 150 milliwatt, and 400 milliwatt output levels. Looking ahead, CPO continues to be viewed as the natural end state on the technology roadmap, placing optics directly on the substrate or interposer for maximum power efficiency through foundry-level advanced packaging. Now let's look closer at the metrics that defined our Q4, starting with the components product category. Components revenue for the Q4 was $649 million, reflecting 22% sequential and 103% year-over-year growth increases.

Speaker #3: Our mid-power lasers inherit the reliability and engineering of our flagship high-power platform. Our family of NPO and CPO lasers utilizes common design and process know-how to achieve industry-leading efficiency across 120MW, 150MW, and 400MW output levels.

Speaker #3: Looking ahead, CPO continues to be viewed as a natural end state on the technology roadmap, placing optics directly on the substrate or interposer for maximum power efficiency through foundry-level advanced packaging.

Speaker #3: Now let's look closer at the metrics that defined our Q4, starting with the Components product category. Components revenue for Q4 was $649 million, reflecting 22% sequential and 103% year-over-year growth increases.

Speaker #3: Our laser portfolio continues to demonstrate strong momentum across every vector. Shipments of our narrow-linewidth laser assemblies grew sequentially for the tenth consecutive quarter, and we were up over 130% year-over-year.

Michael Hurlston: Our laser portfolio continues to demonstrate strong momentum across every vector. Shipments of our narrow-line width laser assemblies grew sequentially for the 10th consecutive quarter, and we were up over 130% year-over-year. Pump laser shipments surged more than 80% year-over-year, and we will remain effectively sold out for the foreseeable future despite our rapid capacity expansion. Expanding inferencing and training applications are driving full-rate connectivity between data centers, while political and regulatory constraints favor smaller, more modular builds. These 2 factors, among others, are substantially increasing the demand for our pump laser solutions. To put this in perspective, for one major hyperscaler, the network capacity connecting just 2 AI data center sites is double the total global backbone capacity they built over the entirety of the last decade. To support the growth and scale across deployments, we have secured multiple long-term customer agreements that help offset our planned capital expenditures.

Speaker #3: Pump laser shipments surged more than 80% year-over-year and we will remain effectively sold out for the foreseeable future, despite our rapid capacity expansion. Expanding inferencing and training applications are driving full-rate connectivity between data centers, while political and regulatory constraints favor smaller, more modular builds, these two factors among others are substantially increasing the demand for our pump laser solutions.

Speaker #3: To put this in perspective, for one major hyperscaler, the network capacity connecting just two AI data center sites is double the total global backbone capacity they built over the entirety of the last decade.

Speaker #3: To support the growth and scale across deployments, we have secured multiple long-term customer agreements that help offset our planned capital expenditures. We continue to expect a fourfold increase in our pump laser shipments over the next several quarters to meet this escalating we delivered another record-breaking quarter for EMLs, primarily driven by strong demand for 100GB per lane devices.

Michael Hurlston: We continue to expect a fourfold increase in our pump laser shipments over the next several quarters to meet this escalating demand. Turning to laser chips, we delivered another record-breaking quarter for EMLs, primarily driven by strong demand for 100G per lane devices. Momentum for our 200G EMLs is also accelerating rapidly, now accounting for over 25% of total EML revenue. Simultaneously, we are expanding our laser chip strategy to capture broader market opportunities in ways that align with our financial model. A key example is our CW laser chip for 200G per lane applications, which delivers high yield, proven reliability, and industry-leading performance in a compact form factor to a multitude of customers. Internal deployment of these lasers reinforces what our customers regularly confirm. We have a distinctive ability to deliver at scale to a very tight set of specifications, which enables superior yields in transceiver manufacturing.

Speaker #3: Momentum for our 200GB EMLs is also accelerating rapidly, now accounting for over 25% of total EML revenue. Simultaneously, we are expanding our laser chip strategy to capture broader market opportunities in a ways that allow with our financial model.

Speaker #3: A key example is our CW laser chip for 200 Gb per lane applications, which delivers high yield, proven reliability, and industry-leading performance in a compact form factor to a multitude of customers.

Speaker #3: Internal deployment of these lasers reinforces what our customers regularly confirm. We have a distinctive ability to deliver at scale to a very tight set of specifications, which enables superior yields in transceiver manufacturing.

Speaker #3: Importantly, these new CW laser products will deliver margins that are creative to our long-term financial targets. Looking ahead, we expect demand for both EML and CW lasers to grow significantly through the second half of calendar '26 and into 2027.

Michael Hurlston: Importantly, these new CW laser products will deliver margins that are accretive to our long-term financial targets. Looking ahead, we expect demand for both EML and CW lasers to grow significantly through the H2 of calendar 2026 and into 2027. To capture the coming 200G and 300G lane speed opportunities, we are expanding capacity across our two indium phosphide wafer fabs in Japan, qualifying both CW and EML process flows on our newest tools as they come online. Even as we allocate additional capacity to CW lasers, we remain on track to deliver over 50% EML unit growth by the December 2026 quarter compared to the year ago quarter. Wrapping up our components commentary, we have visibility to an expanding set of 3D sensing applications. These new opportunities are expected to drive growth in upcoming product cycles with our primary customer.

Speaker #3: To capture the coming 200G and 300G lane speed opportunities, we are expanding capacity across our two indium phosphide wafer fabs in Japan, qualifying both CW and EML process flows on our newest tools as they come online.

Speaker #3: Even as we allocate additional capacity to CW lasers, we remain on track to deliver over 50% EML unit growth by the December 2026 quarter compared to the year ago.

Speaker #3: Wrapping up our components commentary, we have visibility to an expanding set of 3D sensing applications. These new opportunities are expected to drive growth in upcoming product cycles with our primary customer.

Speaker #3: Now I will move to our systems product category. Systems Q4 revenue reached $357M, representing a 30% sequential and 123% year-over-year increase. Both cloud transceivers and OCS were major drivers of the revenue growth quarter over quarter.

Michael Hurlston: Now I will move to our systems product category. Systems' Q4 revenue reached $357 million, representing a 30% sequential and 123% year-over-year increase. Both cloud transceivers and OCS were major drivers of the revenue growth quarter over quarter. While pockets of supply chain tightness for certain components capped shipments below total market demand, our factories executed to our aggressive plan for both product lines. The bulk of our cloud transceiver shipments in the quarter were at 800G speeds, and we began shipping 1.6T transceivers as planned. Meanwhile, profitability across our transceiver lines continues to improve, driven by gains in both yield and capacity utilization, as well as the initial rollout of higher ASP 1.6T transceivers. Our visibility into future cloud transceiver demand is clearer than ever. In fact, we expect the 1.6T transceiver uptake to intensify starting in fiscal Q1 and sustain through calendar 2027.

Speaker #3: While pockets of supply chain tightness for certain components capped shipments below total market demand, our factories executed to our aggressive plan for both product lines.

Speaker #3: The bulk of our cloud transceiver shipments in the quarter were at 800G speeds, and we began shipping 1.6T transceivers as planned. Meanwhile, profitability across our transceiver lines continues to improve, driven by gains in both yield and capacity utilization, as well as the initial rollout of higher ASP 1.6T transceivers.

Speaker #3: Our visibility into future cloud transceiver demand is clearer than ever. In fact, we expect the 1.6T transceiver uptake to intensify starting in fiscal Q1 and sustained through calendar 2027.

Speaker #3: This momentum is anchored by our lead Tier 1 hyperscale customers, whose strong rollouts of custom AI clusters are driving a rapid transition from 800 GB to 1.6T technology.

Michael Hurlston: This momentum is anchored by our lead tier 1 hyperscale customers, whose strong roll-outs of custom AI clusters are driving a rapid transition from 800G to 1.6T technology. Through the use of improved design engineering techniques, we appear to be first to market in many instances, ahead of larger competitors, giving us a market share advantage that we should be able to maintain through the cycle. The degree of difficulty with 1.6T designs, again, is playing to our strengths as our signal integrity team is widely acknowledged as the best in a competitive field. Turning to OCS, our internal manufacturing expansion is progressing smoothly. After doubling shipments from fiscal Q3 to Q4, our guidance includes our first triple-digit OCS revenue quarter.

Speaker #3: Through the use of improved design engineering techniques, we appear to be first to market in many instances, ahead of larger competitors, giving us a market share advantage that we should be able to maintain through the cycle.

Speaker #3: The degree of difficulty with 1.6T designs, again, is playing to our strengths, as our signal integrity team is widely acknowledged as the best in a competitive field.

Speaker #3: Turning to OCS, our internal manufacturing expansion is progressing smoothly. After doubling shipments from fiscal Q3 to Q4, our guidance includes our first triple-digit OCS revenue quarter.

Speaker #3: The demand signal for 2027 continues to be incredibly strong, and we have started the initial work to add capacity with contract manufacturers as well as continuing to increase output in our internal factories.

Michael Hurlston: The demand signal for 2027 continues to be incredibly strong, and we have started the initial work to add capacity with contract manufacturers, as well as continuing to increase output in our internal factories. Since our last call, the roadmap for OCS has also come into better view. We are now planning higher and lower port count products, including specialized in-tray offerings. Rounding out our systems category, performance in industrial lasers and cable access strengthened quarter over quarter. Within industrial lasers, we are seeing increased adoption of our ultrafast lasers targeting high-density PCB via drilling that supports advanced AI XPU boards and 1.6T optical modules. Looking ahead to Q1, we expect to set another quarterly record and, as stated earlier, reach our $1.25 billion revenue target more than one quarter ahead of the plan outlined at the last OFC.

Speaker #3: Since our last call, the roadmap for OCS has also come into better view. We are now planning higher and lower floor count products, including specialized in-tray offerings.

Speaker #3: Rounding out our systems category, performance in industrial lasers and cable access strengthened quarter over quarter. Within industrial lasers, we are seeing increased adoption of our ultrafast lasers targeting high-density PCB via drilling that supports advanced AI XPU boards and 1.6T optical modules.

Speaker #3: Looking ahead to Q1, we expect to set another quarterly record and, as stated earlier, reach our $1.25 billion revenue target more than one quarter ahead of the plan outlined at the last OFC.

Speaker #3: We anticipate that approximately half of the sequential growth will stem for our components portfolio driven by continued expansion and scale-out and scale across applications.

Michael Hurlston: We anticipate that approximately half of the sequential growth will stem from our components portfolio, driven by continued expansion, scale-out, and scale across applications. The other half will be powered by the ongoing ramp of our systems portfolio, led by 1.6T transceivers and accelerating OCS deliveries. Now I will hand the call over to Wajid. Mr. Ali?

Speaker #3: The other half will be powered by the ongoing ramp of our systems portfolio, led by 1.6T transceivers and accelerating OCS deliveries. Now, I'll hand the call over to Wajid.

Speaker #3: Mr. Ali.

Speaker #2: Thank you, Michael. Q4 revenue of $1.01 billion was at the high end of our guidance range, and non-GAAP EPS of $3.23 was well above our prior expected range, demonstrating the leverage of our business model.

Wajid Ali: Thank you, Michael. Q4 revenue of $1.01 billion was at the high end of our guidance range, and non-GAAP EPS of $3.23 was well above our prior expected range, demonstrating the leverage of our business model. GAAP gross margin for Q4 was 47.4% and GAAP operating margin was 27.8%. Both metrics exemplify the company's exceptional performance. As disclosed previously, in Q4, we proactively equitized a portion of our convertible notes, which were in the money following the appreciation of our stock over the past year. This action reduces our debt by $1.1 billion, or approximately 35% of our outstanding convertible debt. This transaction resulted in a one-time non-cash GAAP charge of $7.8 billion, bringing our Q4 GAAP net loss to $7.2 billion. Turning to our non-GAAP results.

Speaker #2: GAAP gross margin for Q4 was 47.4%, and GAAP operating margin was 27.8%. Both metrics exemplify the company's exceptional performance. As disclosed previously, in Q4, we proactively equitized a portion of our convertible notes, which were in the money following the appreciation of our stock over the past year.

Speaker #2: This action reduces our debt by $1.1 billion, or approximately 35% of our outstanding convertible debt. This transaction resulted in a one-time, non-cash GAAP charge of $7.8 billion, bringing our Q4 GAAP net loss to $7.2 billion.

Speaker #2: Turning to our non-GAAP results, Q4 gross margin was 50.4%, which was up 250 basis points sequentially and up 1,260 basis points year on year.

Wajid Ali: Q4 gross margin was 50.4%, which was up 250 basis points sequentially, and up 1,260 basis points year on year, due to better manufacturing utilization, favorable mix, and increased pricing on select products. Q4 non-GAAP operating margin was 36.6%, which was up 440 basis points sequentially and up 2,160 basis points year on year. We continue to invest in critical R&D programs serving cloud and AI customers while maintaining the rigorous cost controls necessary to optimize our business model. Q4 non-GAAP operating profit was $358.8 million, and adjusted EBITDA was $406.4 million. Q4 non-GAAP operating expenses totaled $138.1 million, or 13.7% of revenue, an increase of $11.9 million from Q3, and an increase of $28.8 million from the same quarter last year in support of expanding cloud and AI opportunities. Q4 non-GAAP SGA expenses were $50.6 million. Non-GAAP R&D expenses were $87.5 million.

Speaker #2: Due to better manufacturing utilization, favorable mix, and increased pricing on select products, Q4 non-GAAP operating margin was 36.6%, which was up 440 basis points sequentially and up 2,160 basis points year on year.

Speaker #2: We continue to invest in critical R&D programs serving cloud and AI customers, while maintaining the rigorous cost controls necessary to optimize our business model.

Speaker #2: Q4 non-GAAP operating profit was $368.8 million, and adjusted EBITDA was $406.4 million. Q4 non-GAAP operating expenses totaled $138.1 million, or 13.7% of revenue, an increase of $11.9 million from Q3 and an increase of $28.8 million from the same quarter last year, in support of expanding cloud and AI opportunities.

Speaker #2: Q4 non-GAAP SG&A expenses were $50.6 million, non-GAAP R&D expenses were $87.5 million. Total interest and other income, net, was $22 million on a non-GAAP basis. Q4 non-GAAP net income was $326.3 million, and non-GAAP net income per share was $3.23.

Wajid Ali: Total interest and other income net was $22 million on a non-GAAP basis. Q4 non-GAAP net income was $326.3 million, and non-GAAP net income per share was $3.23. Our diluted weighted shares for Q4 were 101.1 million on a non-GAAP basis. I will now turn to the balance sheet. During Q4, our cash and short-term investments decreased by $0.43 billion to $2.74 billion, with the decrease primarily driven by convertible debt conversions. Our inventory levels increased by $59 million sequentially to support the expected growth in our cloud and AI-related revenue. In Q4, we spent $167 million in CapEx, primarily focused on manufacturing capacity to support cloud and AI customers. Turning to revenue details. Components revenue of $649.4 million increased 22% sequentially in Q4 and 103% year on year. Systems revenue of $356.9 million increased 30% sequentially in Q4 and 123% year on year.

Speaker #2: Our diluted weighted shares for Q4 were 101.1 million on a non-GAAP basis. I will now turn to the balance sheet. During Q4, our cash and short-term investments decreased by $430 million to $2.74 billion, with the decrease primarily driven by convertible debt conversions.

Speaker #2: Our inventory levels increased by $59 million sequentially to support the expected growth in our cloud and AI-related revenue. In Q4, we spent $167 million in CapEx, primarily focused on manufacturing capacity to support cloud and AI customers.

Speaker #2: Turning to revenue details, components revenue of $649.4 million increased 22% sequentially in Q4 and 103% year over year. Systems revenue of $356.9 million increased 30% sequentially in Q4 and 123% year over year.

Speaker #2: Now let me move to our guidance for the first quarter of Q1 '27, 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 Q1 of fiscal year 2027, which is on a non-GAAP basis and is based on our assumptions as of today. We anticipate net revenue for Q1 of fiscal year 2027 to be in the range of $1.225 billion to $1.275 billion. The $1.25 billion midpoint reflects more than 130% year-over-year growth, setting yet another all-time quarterly revenue record for Lumentum. We project Q1 non-GAAP operating margin to be in the range of 39.5% to 40.5%, and diluted net income per share to be in the range of $4.05 to $4.35. At the midpoint, this operating margin represents an expansion of more than 2,100 basis points year-over-year. Our non-GAAP EPS guidance is based on a non-GAAP and annual effective tax rate of 16.5%.

Speaker #2: We anticipate net revenue for the first quarter of Q2 2027 to be in the range of $1.225 billion to $1.275 billion. The $1.25 billion midpoint reflects more than 130% year-over-year growth.

Speaker #2: Setting yet another all-time quarterly revenue record for Lumentum. We project Q4 non-GAP operating margin to be in the range of 39.5% to 40.5% and diluted net income per share to be in the range of $4.05 to $4.35.

Speaker #2: At the midpoint, this operating margin represents an expansion of more than 2,100 basis points year-over-year. Our non-GAAP EPS guidance is based on a non-GAAP annual effective tax rate of 16.5%.

Speaker #2: These projections assume shares used for non-GAP diluted earnings of approximately $102M. With that, I'll turn the call back to Kathy to start the Q&A session.

Wajid Ali: These projections assume shares used for non-GAAP diluted earnings of approximately 102 million. With that, I will turn the call back to Kathy to start the Q&A session. Kathy?

Speaker #2: Kathy?

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

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

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

Speaker #1: 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.

Operator 2: We will now begin the question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. To withdraw your question, press *1 again. Please stand by while we compile the Q&A roster. Your first question comes from the line of Joseph Cardoso with J.P. Morgan. Your line is now open. Please go ahead.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. To withdraw your question, press *1 again. Please stand by while we compile the Q&A roster. Your first question comes from the line of Joseph Cardoso with J.P. Morgan. Your line is now open. Please go ahead.

Speaker #1: To withdraw your question, press star one again. Please stand by while we compile the Q&A roster. Your first question comes from the line of Joseph Cardoso, with JP Morgan.

Speaker #1: Your line is now open. Please go ahead.

Speaker #4: Hi, good afternoon, guys. Congrats on the results here, and thanks for taking the questions. Maybe for the first one—obviously, you highlighted you're tracking to hit the $1.25 billion revenue target a quarter early and are already running well ahead of your high end of margin targets here.

Joseph Cardoso: Hi, good afternoon, guys. Congrats on the results here, and thanks for the questions. Maybe for the first one, obviously, you highlighted you are tracking to hit the $1.25 billion revenue target a quarter early and are already running well ahead of your high end of margin targets here. Just given both the stronger demand and maybe the more favorable mix, how should we be thinking about the read-through to the next set of financial targets, particularly given what looks like incremental opportunities forming relative to the framework, including ELS, NPO engagements, and I think you even mentioned scale-up OCS as well. Just curious in terms of how we should be thinking about the next set of targets here.

Speaker #4: Given both the stronger demand and possibly the more favorable mix, how should we be thinking about the read-through to the next set of financial targets?

Speaker #4: Particularly given what looks like incremental opportunities forming relative to the framework, including ELS, MPO engagements, and I think you even mentioned scale-up OCS as well.

Speaker #4: Just curious, in terms of how we should be thinking about the next set of targets here.

Speaker #2: Hey, Joe. This is Michael. First, thanks for your continued support. Look, we'll come out with some new financial targets probably at the next OFC.

Michael Hurlston: Hey, Joe. This is Michael. Firstly, thanks for your continued support. Look, we will come out with some new financial targets probably at the next OFC. We are obviously running well ahead on almost every metric, on revenue, on margin, on operating margin. We seem to be doing quite a bit better. And you are right, look, I think there are some new things that we did not factor into our discussion at OFC. NPO, we spent a bit of time on the prepared remarks on NPO. CW lasers, we think that that is an incremental opportunity for us that we have probably not spent a lot of time on before. And you are right, OCS I think is, we have discussed, but it seems to be doing a bit better than expected.

Speaker #2: We're obviously running well ahead on almost every metric—on revenue, on margin, on operating margin. We seem to be doing quite a bit better, and you're right.

Speaker #2: Look, I think there are some new things that we didn't factor into our discussion at OFC. NPO, we spend a bit of time on the prepared remarks on NPO.

Speaker #2: CW lasers—we think that's an incremental opportunity for us. We would probably not spend a lot of time on it, and you're right.

Speaker #2: OCS, I think, as we've discussed, seems to be doing a bit better than expected. So, we feel like we're executing; we're trying to keep our head down and run, and obviously adding nearly $250 million incrementally into the guide.

Michael Hurlston: So we feel like we are executing, we are trying to keep our head down and run, and obviously, adding nearly $250 million incrementally into the guide is pretty impressive. And we think we have the opportunity to do that more as we look out in future quarters.

Speaker #2: Is pretty impressive and we think we have the opportunity to do that more as we look out in future quarters.

Speaker #4: Nope. Got it. Fair. And then maybe just a follow-up and specifically on the MPO. Curious if you could provide any further details there, specifically how you're thinking about the time here, just given that it does sound like some of these opportunities are forming a little bit earlier than expected.

Joseph Cardoso: Nope. Got it. Fair. And then maybe just a follow-up and specifically on the NPO. Curious if you could provide any further details there, specifically how you are thinking about the time here, just given that it does sound like some of these opportunities are forming a little bit earlier than expected. And I know you talked about the different form factors or the different kind of content opportunities, as it relates to the laser opportunities there. But any way to kind of flesh out where you guys are seeing maybe the architecture of choice by your customers, and is that biased in any direction? And how we should think about content as it at least relates to maybe your large customer on the CPO side relative to the ultra high power laser. Thank you.

Speaker #4: And I know you talked about the different form factors, or the different kind of content opportunities as it relates to the laser opportunities there. But is there any way to kind of flesh out where you guys are seeing maybe the architecture of choice by your customers, and is that biased in any direction?

Speaker #4: And how should we think about content, at least as it relates to maybe your large customer on the CPO side, relative to the ultra-high power laser?

Speaker #4: Thank you.

Speaker #2: Yeah, I'm going to say a couple of things and then actually ask Lupen to comment a little bit on the differentiation in mid-power. Certainly, the timing of these opportunities is plus or minus what we have talked about for our lead CPO customer.

Michael Hurlston: Yeah. I am going to say a couple of things and then actually ask Wupen to comment a little bit on the differentiation in mid power. Certainly, the timing of these opportunities is plus or minus what we have talked about for our lead CPO customer. Our lead CPO customer we just said in the prepared remarks we would expect to start shipping in high volume for scale up. We are already, of course, shipping for scale out. But for scale up, we expect to be shipping in H2 of calendar 2027 for their deliveries in 2028. Our leading customers on NPO, plus or minus, probably maybe minus a quarter, are in that ZIP code.

Speaker #2: Our lead CPO customer—as we just said in the prepared remarks—we'd expect to start shipping in high volume for scale-up. We're already, of course, shipping for scale-up.

Speaker #2: But for scale-up, we expect to be shipping in the second half of calendar 27 for their deliveries in 28. Our leading customers on NPO, plus or minus, probably maybe minus a quarter are in that zip code.

Michael Hurlston: The first couple of those are more the same kind of ELS high-powered laser, and then maybe followed by a couple that are integrated where the optical engine of a mid-power laser is integrated inside the optical engine, and it is all one unit. I would say the ones that we have the best line of sight on and that are sooner are more of the high-powered laser type, very consistent with what we have been talking about for our largest CPO customer. With that said, I wanted Wupen maybe to give a few seconds of color because I think there is a little bit of a mischaracterization. We think that these mid-power lasers that are going inside the OE, a lot of things going on there in terms of differentiation. You want to give a few seconds on that?

Speaker #2: The first couple of those are more is the same kind of ELS, high-powered laser. And then maybe followed by a couple that are integrated where the optical engine of a mid-power laser is integrated inside the optical engine and it's all one unit.

Speaker #2: So I would say the ones that we have the best line of sight on and that are sooner are more of the high-powered laser type, very consistent with what we've been talking about for our largest CPO customer.

Speaker #2: With that said, I wanted Lupen maybe to give a few seconds of color, because I think there's a little bit of a mischaracterization. We think that these mid-powered lasers that are going inside the OE—there's a lot of things going on there in terms of differentiation.

Speaker #2: You want to give two seconds on that?

Speaker #5: Yeah, definitely. Thanks, Michael. So definitely it is to do the kind of the NPO optical engine, right? Imagine each NPO at about 6.4 terabits of bandwidth, which is really equivalent to four times that of what we could do with a CC module.

Wupen Yuen: Yeah. Definitely. Thanks, Michael. So definitely it is to do the NPO optical engine, right? Imagine each NPO has about 620.4T of bandwidth, which is really equivalent to four times that of a local CC module. The level of integration and the power density that is required and efficiency required to fit everything into a small optical engine is immense. Therefore, you need really the best laser technology and the best efficiency in order to really fit everything in a small package. So Lumentum's advantage here really is to leverage our 400 megawatt kind of design principle and leverage the high efficiencies of the intrinsic design process and scale it to an application around 150, 200 megawatt range that enables application. This is actually based on our ultra-high power technology that we uniquely position to address this market.

Speaker #5: The level of integration, the power density required, and the efficiency required to fit everything into a small optical engine is immense. Therefore, you really need the best laser technology and the best efficiencies in order to fit everything into a small package.

Speaker #5: So Lumentum's advantage here really is to leverage our 400 mW design principle and leverage the higher efficiencies of the intrinsic design process, and scale it to an application around the 150–200 mW range that could enable the application.

Speaker #5: This is actually based on our ultra-high power technology that we are uniquely positioned to address in this market. And we believe that by the late 2027 to 2028 timeframe, that NPO will hit the market to enable optical scale-up.

Wupen Yuen: We believe that by late 2027, 2028 timeframe, that NPO will hit the market enabling us to be able to scale up, and this becomes an interesting opportunity for us to increase our laser business.

Speaker #5: And this becomes an interesting opportunity for us to increase our laser business.

Speaker #2: Thanks, Joe.

Michael Hurlston: Thanks, Joe.

Speaker #4: Thank you, Michael. Thank you, Lupen.

Joseph Cardoso: Thank you, Michael. Thank you, Wupen.

Speaker #5: Thank you.

Wupen Yuen: Thank you.

Speaker #1: Your next question comes from the line of Simon Leopold with Raymond James. Your line is now open. Please go ahead.

Operator 2: Your next question comes from the line of Simon Leopold with Raymond James. Your line is now open. Please go ahead.

Operator: Your next question comes from the line of Simon Leopold with Raymond James. Your line is now open. Please go ahead.

Speaker #6: Thanks for taking the question. The first thing I wanted to ask is, to what extent were you able to reprice backlog with your customers?

Simon Leopold: Thanks for taking the question. First thing I wanted to try to ask is, to what extent were you able to reprice backlog with your customers, and how did that affect this quarter's gross margin as well as your gross margin outlook? Then I have a quick follow-up.

Speaker #6: And how did that affect this quarter’s gross margin as well as your gross margin outlook? And then I’ve got a quick follow-up.

Speaker #2: Yeah. Thanks, Simon. Look, we did reprice a little bit. I think most of our sort of LTAs are more forward-looking in terms of the price impact.

Michael Hurlston: Yeah. Thanks, Simon. Look, we did reprice a little bit. I think most of our LTAs are more forward-looking in terms of the price impact. We saw some benefit, as Wajid said in his prepared remarks, on the gross margin line on pricing. We think that that still has some room to play through. But I would say the long pole this quarter was more on mix, where we were shipping a lot more of our high-mix components. I think, as we said, we would expect that to continue to play through as well. So we think we have some room to run on the gross margin line, Simon.

Speaker #2: We saw some benefit, as Wajid said in his prepared remarks, on the gross margin line from pricing. We think that still has some room to play through.

Speaker #2: But I'd say the long pole of this quarter was more on mix, right? Where we were shipping a lot more of our high-mix components, and I think, as we said, we'd expect that to continue to play through as well.

Speaker #2: So, we think we have some room to run on the gross margin line, Simon.

Speaker #6: Great, appreciate that. The other thing I've been hoping to ask you about is, we've been hearing more about Chinese-based companies coming to market with new indium phosphide fabs.

Simon Leopold: Great. Appreciate that. The other thing I have been hoping to ask you about is, we have been hearing more about Chinese-based companies coming to market with new indium phosphide fabs. What is your take on this developing and future competition? Thank you.

Speaker #6: What's your take on this developing and future competition? Thank you.

Speaker #2: Yeah. Look, I mean, I think we're hearing the same thing. We obviously haven't seen any impact on our numbers as yet, and I don't expect there to be any impact.

Michael Hurlston: Yeah, look, I think we are hearing the same thing. We obviously have not seen any impact on our numbers as yet. I do not expect there to be any impact. We think we have differentiation, obviously, on EMLs. We are very strong there. Any high-end mid-power lasers that are necessary for NPO and CPO, again, very strong differentiation there. Even in CW, we have been surprised at our ability to price up, given what we said in the prepared remarks, that customers are seeing far better yields given our ability to deliver consistent performance on our lasers. They just simply do not deviate. The width of the spec is very narrow, and that results in far better transceiver yields for the customers that we have actually started shipping CW lasers to.

Speaker #2: We think we have differentiation, obviously, on EMLs—we're very strong there. And these high-end, mid-power lasers that are necessary for NPO and CPO, again, very strong differentiation there.

Speaker #2: And then, even in CW, we've been surprised at our ability to price up, given what we said in the prepared remarks—that customers are seeing far better yields given our ability to deliver consistent performance on our lasers.

Speaker #2: They just simply don't deviate. The width of the spec is very narrow, and that results in far better transceiver yields for the customers that we've actually started shipping CW lasers to.

Speaker #2: And so as a result, we are able to command a nice price premium that we'd expect to sustain as these Chinese if these Chinese guys come online.

Michael Hurlston: As a result, we are able to command a nice price premium that we expect to sustain if these Chinese guys come online. I caution people also, I think some of these Chinese laser suppliers are not delivering in the market today, so there is no recourse when they throw out these big numbers. We have not seen anything like that to date in terms of their output.

Speaker #2: A caution people also I think people are some of these Chinese laser suppliers are not delivering in the market today. So they have every there's no recourse when they throw out these big numbers.

Speaker #2: We have not seen anything like that to date in terms of their output. Thank you, Simon. Thanks, Simon.

Simon Leopold: Thank you very much.

Michael Hurlston: Thanks, Simon.

Speaker #1: Your next question comes from the line of Mike Genovese with Rosenblatt Securities. Your line is now open. Please go ahead.

Operator 2: Your next question comes from the line of Mike Genovese with Rosenblatt Securities. Your line is now open. Please go ahead.

Operator: Your next question comes from the line of Mike Genovese with Rosenblatt Securities. Your line is now open. Please go ahead.

Speaker #7: Great, thanks. Hey, really good to see the guide for a triple-digit OCS revenue quarter. I think in the current quarter, I think, is what you said.

Mike Genovese: Great. Thanks. Hey, really good to see the guide for a triple digit OCS revenue quarter, I think in the current quarter, I think is what you said. Could you just confirm that? Also, the question is, any comment on when we could expect to see that happen for ultra-high powered CW scale-out lasers where we get a triple digit quarter?

Michael Genovese: Great. Thanks. Hey, really good to see the guide for a triple digit OCS revenue quarter, I think in the current quarter, I think is what you said. Could you just confirm that? Also, the question is, any comment on when we could expect to see that happen for ultra-high powered CW scale-out lasers where we get a triple digit quarter?

Speaker #7: So could you just confirm that? But also, the question is, any comment on when we could expect to see that happen for ultra-high-powered CW scale-out lasers, where we'd get a triple-digit quarter?

Speaker #2: Yeah, Mike. Again, first, I want to thank you for the support of the company and for really following our details really well. Yeah, you got it right.

Michael Hurlston: Yeah, Mike. Again, first, I want to thank you for the support of the company and really following our details really well. Yeah, you got it right. In the guide, which is the first quarter, we expect our first triple digit OCS revenue quarter. We would expect to be meaningfully above the three-digit mark. We are executing well on OCS, as I said. For ultra-high powered lasers, we have said, hey, we expect by the end of the year to be sort of in the $50 million mark. I think the Q3 is when you would see the first triple digit quarter for ultra-high powered lasers. We are executing. We are shipping today. We had good shipments in the reported quarter Q4. We would expect that to build somewhere in the $50 million range by the end of the calendar year, and then to really meaningful impact in fiscal Q3.

Speaker #2: So, in the guide—which is the first quarter—we'd expect our first triple-digit OCS revenue quarter. We'd expect to be meaningfully above the $100 million mark.

Speaker #2: We're executing well on OCS, as I said. And then for ultra-high-powered lasers, we have said, hey, we'd expect by the end of the year to be sort of in the 15 million mark.

Speaker #2: I think the third quarter is when you'd see the first triple-digit quarter for ultra-high-powered lasers. So, we are executing. We're shipping today. We had good shipments in this reporting quarter before.

Speaker #2: We'd expect that to build somewhere in the 50 million dollar range by the end of the calendar year. And then to really meaningful impact in fiscal Q3.

Speaker #7: Great. Perfect. And then finally, for Greensboro, is there any update on the expectation for half of the capacity of Greensboro being there in calendar '28, and the other half in calendar '29?

Mike Genovese: Great. Perfect. Then finally for Greensboro, is there any update on the expectation for sort of half of the capacity of Greensboro being there in calendar 2028, the other half in calendar 2029? Is that still the schedule? I know it is early, but any kind of color you could give us on the progress there would be great. Thank you.

Michael Genovese: Great. Perfect. Then finally for Greensboro, is there any update on the expectation for sort of half of the capacity of Greensboro being there in calendar 2028, the other half in calendar 2029? Is that still the schedule? I know it is early, but any kind of color you could give us on the progress there would be great. Thank you.

Speaker #7: Is that still the schedule? And I know it's early, but any kind of color you could give us on the progress there would be great.

Speaker #7: Thank you.

Speaker #2: Yeah. Look, progressing super well. I'm actually very pleased that the team that we got in Greensboro is first rate. As you know, we inherited a fully functioning fab.

Michael Hurlston: Yeah, look, progressing super well. I am actually very pleased. The team that we got in Greensboro is first rate. As you know, we inherited a fully functioning fab. The switch that we need to throw is to convert it from gallium arsenide to indium phosphide. That is well underway. Some of the long pull items, reactors, and things like that, our team has gotten out in front of. I think we continue to say first revenue out of that in early 2028, and ramping through calendar 2028 into kind of a full pitch by the end of 2028 and into 2029. So really no change in that light.

Speaker #2: So, the switch that we need to throw is to convert it from gallium arsenide to indium phosphide. That is well underway. Some of the long pole items—reactors and things like that—our team has gotten out in front of.

Speaker #2: I think we continue to say revenue—first revenue—out of that in early 2028, and ramping through calendar 2028 into kind of a full pitch by the end of 2028 and into 2029.

Speaker #2: So, really no change in that, Mike.

Speaker #7: Great, thanks for taking the questions.

Mike Genovese: Great. Thanks for taking the questions.

Michael Genovese: Great. Thanks for taking the questions.

Speaker #5: Thank you so much, Mike.

Kathy Ta: Thank you so much, Mike.

Kathryn Ta: Thank you so much, Mike.

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

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

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

Speaker #4: Thank you for taking my question and congrats on the strong results as well. Michael, I was kind of double-clicking on the OCS. I was hoping perhaps you can refresh us.

Atif Malik: Thank you for taking my question, and congrats on the strong results as well. Michael, I was kind of double-clicking on the OCS. I was hoping perhaps you can refresh us. I know this quarter you mentioned it hit triple digits, but if you can refresh us on the USD 400 million plus OCS guide for H2 2026. Are you running well ahead of it, or just any update on that side? Perhaps tied to that, how should we think about your key OCS customers build versus buying from you calculus? Do you expect Lumentum to eventually absorb most of their internal programs? If so, any timeline in mind?

Speaker #4: I know this quarter you mentioned it hit triple digits, but if you could refresh us on the $400 million-plus OCS guide for the second half of 2026.

Speaker #4: Are you running well ahead of it, or is there any update on that side? And perhaps tied to that, how should we think about your key OCS customers—building versus buying from you—calculus?

Speaker #4: Do you expect Lumentum to eventually absorb most of their internal programs? If so, do you have any timeline in mind?

Speaker #2: Yeah, Pavel. Look, what I'd say is we're definitely tracking to the $400 million. I would not say tracking ahead. I mean, we've definitely, as you know, had some problems early on in the ramp with supply chain.

Michael Hurlston: Yeah, Atif, look, what I'd say is we're definitely tracking to the $400 million. I would not say tracking ahead. We've definitely, as you know, had some problems early on in the ramp with supply chain. We're out of that now. I think we're executing, as I said, to plan. We are plus or minus about where I would've expected to be for the guide, right? That contributes, takes a dent out of the $400 million, and that leaves us some room to run in the Q4 calendar. Relative to one customer that apparently has an internal source of supply, we are, I think, executing extremely well. I think they'll continue to use an internal version, but I think as they ship more and more OCSs, we will absorb the vast majority of that.

Speaker #2: We're out of that now. I think we're executing, as I said, to plan. We are plus or minus about where I would have expected to be for the guide, right?

Speaker #2: So that contribution takes a dent out of the $400 million, and that leaves us some room to run in the fourth quarter—the fourth calendar quarter.

Speaker #2: Relative to one customer that apparently has an internal source of supply, we are, I think, executing extremely well. I don't think we—I think they'll continue to use an internal version.

Speaker #2: But I think as they ship more and more OCSs, we will absorb the vast majority of that. So, I would expect that sometime in early 2027, we cross over and become the number one supplier.

Michael Hurlston: I would expect sometime in early 2027 that we cross over and be the number one supplier and actually have momentum from there in terms of our OCS shipments. I think we surprised the customers. We are continuing to ship to a number of different customers. Our execution back on track. But most importantly, like on software and things like that, where I'd expect us to have more difficulty, Atif, we've done well. I think our customers in general, if you talk to them, would say we've been an incredibly strong supplier.

Speaker #2: And actually have momentum from there in terms of our OCS shipments. So we're definitely—I think we surprised the customers. We are continuing to ship to a number of different customers.

Speaker #2: Our execution is back on track, but most importantly, on software and things like that, where I'd expect us to have more difficulty pop up.

Speaker #2: We've done well, so I think our customers in general, if you talk to them, would say we've been an incredibly, incredibly strong supplier.

Speaker #4: No, that's great to hear. And Michael, for my follow-up, I'm just curious if there are any updates on the supply-demand kind of imbalance. I believe last quarter you mentioned 30% plus—where are we now, and how do you see that improving, or how do you see that going into fiscal 2027 and beyond?

Atif Malik: No, that's great to hear. Michael, for my follow-up, just curious, any update on the supply-demand kind of imbalance? I believe last quarter you mentioned 30% plus. Where are we now, and how do you see that improving, or how do you see that going into fiscal 2027 and beyond?

Speaker #2: Yeah, so I would say on EML, probably no change, right? I don't think that it's gone up, but it hasn't come down either. We're still shipping behind customer demand on EML.

Michael Hurlston: Yeah. I would say on EML, probably no change, right? I don't think that it's gone up, but it hasn't come down. We're still shipping behind customer demand on EML. I think what surprised us is high-powered lasers. High-powered lasers, again, there's been a lot of noise in the system on what's happening on various co-package and near-package opportunities. We are way behind, our shipments, unfortunately on high-powered lasers. If one vector has really changed since the last time you and I talked, I'd say it's your high-powered lasers, and we are very much further behind. The demand signal has increased, and we are very much further behind relative to our ability to supply.

Speaker #2: I think what's surprised us is high-powered lasers, right? High-powered lasers again, there's been a lot of noise in the system on what's happening on various co-packages and near-package opportunities.

Speaker #2: We are way behind on our shipments, unfortunately, on high-powered lasers. So, if one vector has really changed since the last time you and I talked, I'd say it's the ultra-high-powered lasers.

Speaker #2: And we are very much further behind. The demand signal has increased, and we are very much further behind relative to our ability to supply.

Speaker #3: Yeah. I think, just to clarify, right? Yeah, just to clarify. The execution of the ramp is on track, right? We're further behind because the demand has accelerated.

Wupen Yuen: Yeah, I think just to clarify, our execution of the ramp is on plan. We are further behind because the demand has accelerated, as Michael said in the prepared script.

Speaker #3: That was what Michael said in the prepared script.

Speaker #4: Yeah, no, that's very helpful. Thank you.

Atif Malik: Yeah. No, that is very helpful. Thank you.

Speaker #2: Hey, Pavel, thanks a lot. I appreciate it.

Michael Hurlston: Hey, Atif, thanks a lot. Appreciate it.

Speaker #5: Thank you, Pavel. Thank you, Pavel.

Kathy Ta: Thank you, Atif.

Kathryn Ta: Thank you, Atif.

Speaker #1: Your next question comes from the line of Christopher Roland with Susquehanna. Your line is now open. Please go ahead.

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

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

Speaker #6: Hey, guys. Fantastic quarter, and thanks for the question. My question—in your press release, it sounds like you were selling not just ELS lasers, but perhaps ELS modules as well.

Christopher Rolland: Hey, guys. Fantastic quarter, and thanks for the question. My question, in your press release, it sounds like you are selling not just ELS lasers, but perhaps ELS modules as well. I was wondering if you could speak a little bit more about that opportunity, and what the economics look like, beyond just lasers and for the full module.

Speaker #6: And I was wondering if you could speak a little bit more about that opportunity and what the economics look like beyond just lasers and for the full module.

Speaker #2: Yeah, Chris. Yeah. No, we again first appreciate how much time you're spending on the company. Yeah, we got our first ELS module order, right, which from an ASP standpoint is meaningfully higher than the set of lasers that we ship in.

Michael Hurlston: Yeah, Chris. Again, first, appreciate how much time you are spending on the company. We have got our first ELS module order, right? From an ASP standpoint is meaningfully higher than the set of lasers that we ship in. So we are very excited about the revenue opportunity. Small to start, right? We said that we would be shipping sometime mid-year, early H2 2027, to be honest. A little bit later. We felt like we see more opportunity on scale-out applications than we have to date. But we are very pleased to be participating in the early phases of scale up with both lasers and now with the ELS module. As I said a minute ago, the ELS module, meaningfully higher from an ASP standpoint, but the margins are not quite as good. Above corporate average, but not quite as good as the lasers.

Speaker #2: So, we're very excited about the revenue opportunity. Small to start, right? And we said that we'd be shipping sometime mid-year, early second half of 2027, to be honest.

Speaker #2: A little bit later, we felt like we'd see more opportunity on sort of scale-out applications than we have to date. But we're very pleased to be participating in the early phases of scale-up with both lasers and now with the ELS module.

Speaker #2: As I said a minute ago, the ELS module is meaningfully higher from an ASP standpoint, but the margins are not quite as good. They are above corporate average, but not quite as good as the lasers.

Speaker #2: So we're trading a little bit of margin to get some revenue bump. We think—I think Simon asked earlier in the call—we think we have enough drivers on the margin side that we can keep the margin vector moving, but help our revenue acceleration.

Michael Hurlston: We are trading a little bit of margin to get some revenue bump. I think Simon asked earlier in the call, we think we have enough drivers on the margin side that we can keep the margin vector moving, but help our revenue acceleration.

Speaker #3: And also, just to add, if you recall, we've positioned our ELS module to really enable customers who don't know how to deal with individual laser chips.

Wupen Yuen: And also just to basically add, right? If you recall that we have positioned our ELS module to be really enabling the customers who do not know how to deal with individual laser chips. This is really a very first step for us to take to ship to one customer and then go from there to enable other end users to use the ELS to enable their CPO and MPO systems.

Speaker #3: So this is really the very first step for us—to ship to one customer and then go from there to enable other end users to use the ELS to enable their TPO and NPO systems.

Speaker #6: Excellent. Thank you, Wupeng. And thank you, Michael. Maybe as a follow-on, I think, Michael, you've talked about—I think it's the 1.6T cycle or 200-gig per lane.

Christopher Rolland: Excellent. Thank you, Wupen, and thank you, Michael. Maybe as a follow on, I think, Michael, you have talked about, I think it is the 1.6T cycle or 200 gig per lane, and perhaps CW and SiPho working into the supply chain maybe earlier, and being a larger part of transceiver shipments ultimately. I guess first of all, where are we on that? Is this on the SiPho CW side accelerated even faster than you originally spoke about? Can you describe the difference in economics for you between CW lasers and EMLs, which would be, I think, larger because they contain the modulators as well? That would be great.

Speaker #6: And perhaps CW and CIFO working into the supply chain maybe earlier and being a larger part of transceiver shipments ultimately. I guess, first of all, where are we on that?

Speaker #6: Is this on the CIFO, CW side, accelerated even faster than you originally spoke about? And can you kind of describe the difference in economics for you between CW lasers and EMLs, which would be, I think, larger because they contain the modulators as well?

Speaker #6: That would be great.

Speaker #2: Okay, Chris. Yeah, good question. I'll give some commentary, and then I'll have Wupeng comment as well. So, first, there's been no slowdown in our EML demand.

Michael Hurlston: Okay, Chris. Yeah, good question. I will give some commentary and then have Wupen comment as well. So one, no slowdown in our EML demand. I think it was Atif that asked a minute ago, we see still a significant supply-demand imbalance on our EMLs. As Kathy put in the prepared remarks, we are still very much on track to increase our EML output year over year. But even at the end of the year, we would expect to be significantly behind demand. So no slowdown at all in the demand that we are seeing from EML. We acknowledge, and we have said this before, that we would expect, and are seeing CW lasers take a significant portion of transceiver output. Silicon photonics is a viable solution at 1.6T.

Speaker #2: I mean, we are—I think it was Papa that asked a minute ago—we still see a significant supply-demand imbalance on our CW and our EMLs.

Speaker #2: As Kathy mentioned in the prepared remarks, we're still very much on track to increase our EML output year over year. But even at the end of the year, we expect to be significantly behind demand.

Speaker #2: So, no slowdown at all in the demand that we're seeing. From EML, we acknowledge—and we've said this before—that we would expect, and are seeing, CW lasers take a significant portion of transceiver output.

Speaker #2: Silicon photonics is a viable solution at 1.6T. Of course, we've also said—and it also seems to be bearing out—that as we think about 3.2T, silicon photonics loses some of its advantages.

Michael Hurlston: Of course, we have also said, and it also seems to be bearing out that as we think about 3.2T, silicon photonics loses some of its advantages, and we would expect the EML to come back in a meaningful way. What I comment is, a little bit of a shift in stance is that we are allocating some of our output now because we are actually doing quite a bit better in Japan than we expected in terms of output. What we are doing as part of that is allocating some of this excess output to CW lasers, and we are now shipping CW lasers in a relatively meaningful way in this 200 gig per lane silicon photonics opportunity. What has also changed for us is we have significantly reduced the die size of our CW laser.

Speaker #2: And we'd expect to see EMLs come back in a meaningful way. What I'd comment is a little bit of a shift in stance is that we are allocating some of our output now because we're actually doing quite a bit better in Japan than we expected in terms of output.

Speaker #2: And so, what we're doing as part of that is allocating some of this excess output to CW lasers, and we're now shipping CW lasers in a relatively meaningful way in this 200-gig-per-lane silicon photonics opportunity.

Speaker #2: What's also changed for us is we have significantly reduced the die size of our CW laser. So before, when you and I talked, we said, “Hey, probably from a margin standpoint, EML is better.” Now we've brought things much more in line.

Michael Hurlston: So before, when you and I talked, we said, "Hey, probably from a margin standpoint, EML is better." Now we have brought things much more in line. CW lasers are smaller. They are better performing. We are commanding a significant price premium, as I said to you in a previous question, against what we view as the market price because of the performance of these lasers. As such, the margin opportunity is still better on EMLs. But that gap has closed considerably, I think, since the last time we talked. Wupen, do you want to talk a little bit about the dynamic that you are seeing on CW and EML?

Speaker #2: CW lasers are smaller and better performing. We are commanding a significant price premium, as I said in a previous question, over what we view as the market price because of the performance of these lasers.

Speaker #2: And as such, the margin opportunity is still better on EMLs, but that gap has closed considerably, I think, since the last time we talked. Wupeng, do you want to talk a little bit about the dynamic that you're seeing on CW and EML?

Speaker #3: Yeah, Michael. Yeah, I think that's all very accurate, right? Just a couple of things to add to that. Number one, if you look at the application today, there's a lot of 200-gig per lane volume that's on 800 gig.

Wupen Yuen: Yeah, Michael. Yeah. I think that was all very accurate. Just a couple of things to add to that. Number one, if you look at the application today, there is a lot of 200G per lane volume that is on 800G. In that, we actually see a much higher EML share versus the other laser share. Michael talked about dynamics. I think this will both continue. EML will remain a very important player in 100G per lane. But as 1.6T ramps up, I think we will see more scheduled lasers. As Michael talked about, our new design of 200G CW laser is much more efficient, therefore smaller, to give us a much better gross margin profile.

Speaker #3: And then in that, we actually see a much higher EML share versus the CW laser share. So Michael talked about dynamics. I think this will continue.

Speaker #3: EML will remain a very important player in 200G per lane. But as 1.6T ramps up, I think we will see more CW lasers. As Michael talked about, our new design of 200G CW laser is much more efficient—therefore smaller—and gives us a much better gross margin profile.

Speaker #3: Another thing also of note—really dynamic here—is that in a constrained environment, we also see customer behavior: wherever they can get the laser source, they will use that solution to support their build-out.

Wupen Yuen: Another thing also of note, these dynamics here, is that in a constrained environment, we also see customers' behavior as wherever they can get a laser source, they will use that solution to support their build-out. So the dynamic of EML CW lasers is not only a technical one, but also a supply versus demand situation.

Speaker #3: So the dynamic of EML CW lasers is not only a technical one, but also a supply versus demand situation.

Speaker #6: Thanks for the transparency, and again, congrats on the update.

Christopher Rolland: Thanks for the transparency, and again, congrats on the update.

Speaker #2: Chris, thank you. Appreciate everything.

Michael Hurlston: Chris, thank you.

Kathy Ta: Thank you, Chris.

Kathryn Ta: Thank you, Chris.

Michael Hurlston: Appreciate everything.

Speaker #1: Thank you, Chris.

Kathy Ta: Thank you, Chris.

Kathryn Ta: Thank you, Chris.

Speaker #5: Your next question comes from the line of Vijay Rakesh with Mizuho. Your line is now open. Please go ahead.

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

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

Speaker #7: Yeah, hi Michael and Ajit. Good quarter and guide here. Just a quick question on the 200-gig per lane EML and CW. Looks like that's ramping very nicely.

Vijay Rakesh: Yeah. Hi, Michael and Wajid. Good quarter and guide here. Just a quick question on the 200G per lane EML and CW. Looks like that is ramping very nicely. Is it fair to assume both the 200G EML and CW laser should be accretive to your margins? When do you see this 1.60 crossover? It looks like it is already greater than 25% revenues, but when do you see that crossing over with data at V, I guess? And a follow-up.

Speaker #7: Is it fair to assume both the 200-gig EML and CW laser should be accretive to margins? And when do you see this 1.6T crossover?

Speaker #7: Looks like it's already greater than 25% of revenues, but when do you see that crossing over with the 800 gig, I guess? And a follow-up.

Speaker #2: Yeah, Mr. Rakesh, good to hear from you, my friend. Look, no change really in the forecast on the crossover. What we said is, and I think you're referring to 200-gig per lane lasers.

Michael Hurlston: Yeah. Mr. Rakesh, good to hear from you, my friend. Look, no change really in the forecast on the crossover. What we said is, and I think you are referring to 200G per lane lasers. We have said that for us, we would expect 200G EMLs to be the majority volume shipments by the middle of 2027. We just said in the prepared remarks that now at 200G per lane, EMLs are 25% of our mix. We would expect it to be 50% or more of volume by mid-year of 2027. So we seem to be tracking to that. No real change in that. I think generally speaking, yeah, you are right. Lasers are one of our better businesses, and the lasers are corporate creative, whether it is CW or EML.

Speaker #2: We have said that, for us, we'd expect 200-gig EMLs to be the majority volume shipments by the middle of 2027. We just said in the prepared remarks that now 200-gig-per-lane EMLs are 25% of our mix.

Speaker #2: We'd expect it to be 50% or more of volume by mid-year 2027, so we seem to be tracking to that. No real change in that.

Speaker #2: I think, generally speaking, yeah, you're right. Lasers are one of our better businesses, and the lasers are more than our corporate creative, whether it's CW or EML.

Speaker #2: And as I said to Chris a minute ago, we've closed the margin gap quite considerably since our last call on EMLs versus CW by shrinking the die size of the CW laser.

Michael Hurlston: As I said to Chris a minute ago, we have closed the margin gap quite considerably since our last call on EMLs versus CW by shrinking the die size of the CW laser. So EMLs are still better, but we have closed the margin gap quite considerably.

Speaker #2: So, EMLs are still better, but we've closed the margin gap quite considerably.

Speaker #7: Got it. Thanks. Very helpful. And then, on the operating leverage side, Wajid, it looks like solid improvement there year on year. You're already at your 40% target.

Vijay Rakesh: Got it. Thanks, very helpful. Then on the operating leverage side, Wajid, it looks like solid improvement there year-on-year. You are already at your 40% target. How should we think about it as we go through fiscal 2027? Thanks.

Speaker #7: How should we look at it, and how should we think about it as you go through fiscal '27? Thanks.

Speaker #3: Yeah, thanks, Vijay. So the guideline that we have given at $2 billion of revenue was 38% to 42%. Like Michael said in his prepared remarks, we're already at the midpoint of that at much lower revenue levels.

Wajid Ali: Yeah. Thanks, Vijay. The guideline that we had given at $2 billion of revenue was 38% to 42%. Like Michael said in his prepared remarks, we are already at the midpoint of that at much lower revenue levels. With gross margins improving as we approach $2 billion, we will see some improvement on the operating margin line as well that corresponds to those gross margin improvements. Think of the 42% outlier more as a midpoint, with the range probably moving up 100 to 200 basis points versus what we showed at OFC.

Speaker #3: And so, with gross margins improving, as we approach $2 billion, we'll see some improvement on the operating margin line as well that corresponds to those gross margin improvements.

Speaker #3: So think of the 42% outlier more as a midpoint, with the range probably moving up 100 to 200 basis points versus what we showed at OFC.

Speaker #7: All right. Thank you.

Vijay Rakesh: All right. Thank you.

Speaker #1: Thanks so much, Vijay.

Kathy Ta: Thanks so much, Vijay.

Kathryn Ta: Thanks so much, Vijay.

Speaker #5: Your next question comes from the line of George. Now open—please go ahead.

Operator 2: Your next question comes from the line of George Notter with Wolfe Research. Your line is now open. Please go ahead.

Operator: Your next question comes from the line of George Notter with Wolfe Research. Your line is now open. Please go ahead.

Speaker #8: Hi guys, thanks very much. Congrats on all the success here. I wanted to ask about indium phosphide substrate supply. I was really intrigued by the deal you signed this quarter with AXT.

George Notter: Hi, guys. Thanks very much. Congrats on all the success here. I guess I wanted to ask about indium phosphide substrate supply. I was really intrigued by the deal you guys signed in the quarter with AXT, because I think a quarter ago, you actually said that you were doing pretty well on indium phosphide substrate, and so it feels like there is a bit of a change here. I guess I am wondering what you guys are seeing longer term here in terms of your need for more indium phosphide substrate. As I extrapolate that, kind of look at Greensboro and are you making more progress towards filling the rest of that facility looking forward? Thanks a lot.

Speaker #8: Because I think a quarter ago you actually said that you were doing pretty well on indium phosphide substrate, and so it feels like there's a bit of a change here.

Speaker #8: I guess I'm wondering what you guys are seeing longer term here in terms of your need for more indium phosphide substrate. And as I extrapolate that and kind of look at Greensboro, are you making more progress towards filling the rest of that facility, looking forward?

Speaker #8: Thanks a lot.

Speaker #2: Hey, George. Yeah, look, I would agree. I mean, I think what we tried to hint at in a previous question is the ultra-high-powered laser demand has surprised us.

Michael Hurlston: Hey, George. Yeah, look, I would agree. I think what we tried to hint to in a previous question is the ultra-high-powered laser demand has surprised us, and that cuts across a couple of customers. What we are trying to do, I think, really in the last 3 months, is secure even more substrate supply. We were doing well. We felt like we had, given the baseline of demand that we were seeing from ultra-high powered, and then of course the EMLs and CW lasers that go into our scale-out products, we felt pretty good, right, as you said. But I think we have seen a pretty big surge in demand, as we said, and in order to respond to that, we went out and we found additional substrate help from AXT. They have been a great partner.

Speaker #2: And that cuts across a couple of customers. So what we're trying to do, I think really, in the last three months, is secure even more substrate supply.

Speaker #2: We were doing well. We felt like we had, given the baseline of demand that we were seeing from ultra-high-powered and then, of course, the EMLs and CW lasers that go into our scale-out products, we felt pretty good, right?

Speaker #2: As you said, I think we've seen a pretty big surge in demand, as we mentioned. In order to respond to that, we went out and found additional substrate help from AXTI.

Speaker #2: They've been a great partner of Wupen's. We've worked with them for a good number of years, and we think we're going to need their help, just given the surge in demand.

Michael Hurlston: Wupen has worked with them for a good number of years, and we think we are going to need their help just given the surge in demand. So that is what drove that deal. If this vector continues, we are probably going to need to look for more help on substrate. We feel we are good at this moment. We are probably pretty comfortable just given our lead arrangement with a Japanese supplier and now the announced deal with AXT. But given the rate of change in the demand vector that we are seeing, that may not be true a quarter or 2 from now either.

Speaker #2: So that's what drove that deal. If this vector continues, we're probably going to need to look for more help on substrate. We feel we're good at this moment.

Speaker #2: We're probably pretty comfortable just given our lead arrangement with the Japanese supplier and now the announced deal with AXTI. But given the rate of change in the demand vector that we're seeing, that may not be true a quarter or two from now, either.

Speaker #8: Got it. And then, do you think it's likely that we could see you sign some LTAs for more of the capacity in Greensboro? Is that a possibility?

George Notter: Got it. Do you think it is likely that we could see you sign some LTAs for more of the capacity in Greensboro? Is that a possibility? Thanks.

Speaker #8: Thanks.

Speaker #2: Yeah, look, we're looking to do that. I think we've sort of reported consistently that we have capacity in Greensboro. We have room there. And Wupen has been out talking to a number of customers about helping them with their laser demands, which are, again, changing minute by minute as everybody starts to look to adopt near-packaged or co-packaged solutions.

Michael Hurlston: Yeah, look, we are looking to do that. I think we have sort of reported consistently that we have capacity in Greensboro. We have room there, and Wupen has been out talking to a number of customers about helping them with their laser demands, which are, again, changing minute by minute as everybody starts to look to adopt near package or co-package solutions. So I would expect that we would have some things to talk about over the next couple of quarters relative to new arrangements in Greensboro that speak to more of the capacity we have there.

Speaker #2: And so I would expect that we'd have some things to talk about over the next couple of quarters relative to new arrangements in Greensboro that speak to more of this capacity we have there.

Speaker #8: Thank you.

George Notter: Thank you.

Speaker #1: Thanks so much, George.

Kathy Ta: Thanks so much, George.

Kathryn Ta: Thanks so much, George.

Speaker #2: Thanks, George.

Michael Hurlston: Thanks, George.

Speaker #5: Your next question comes from the line of Tom O'Malley with Barclays. Your line is now open. Please go ahead.

Operator 2: Your next question comes from the line of Tom O'Malley with Barclays. Your line is now open. Please go ahead.

Operator: Your next question comes from the line of Tom O'Malley with Barclays. Your line is now open. Please go ahead.

Speaker #6: Hey guys, thanks for taking the question, and great to be on the call. My first is on the MPO side, where we spent a little more time in the preamble talking about the technology.

Tom O'Malley: Hey, guys. Thanks for taking the question, and great to be on the call. My first is on the NPO side, where you spent a little more time on the preamble, talking about the technology. I was curious, when you look at ASIC and GPU roadmaps, when you see the intersection of NPO, does that need to be with a new generation of silicon, or can you intersect an existing ramp, ala if you were to see a big customer today ramping in the beginning of next year, were you able to ship NPO solutions where they originally started off as electrical-only solutions just for the timing aspect of your ramp? That would be super helpful.

Thomas O'Malley: Hey, guys. Thanks for taking the question, and great to be on the call. My first is on the NPO side, where you spent a little more time on the preamble, talking about the technology. I was curious, when you look at ASIC and GPU roadmaps, when you see the intersection of NPO, does that need to be with a new generation of silicon, or can you intersect an existing ramp, ala if you were to see a big customer today ramping in the beginning of next year, were you able to ship NPO solutions where they originally started off as electrical-only solutions just for the timing aspect of your ramp? That would be super helpful.

Speaker #6: I was curious, when you look at ASIC and GPU roadmaps, when you see the intersection of NPO, does that need to be with a new generation of silicon, or can you intersect an existing ramp? For example, if you have a big customer today ramping in the beginning of next year, would you be able to ship NPO solutions where they originally started off as electrical-only solutions, just for the timing aspect of your ramp?

Speaker #6: That would be super helpful.

Speaker #2: Yeah, Tom, super to speak to you again. We really appreciate this chat, as always, Tom, as always. Look, I think what we're seeing now is an inflection in the ASICs and in the 400G speed, and that's driving the need for NPO and CPO.

Michael Hurlston: Yeah, Tom, super to speak to you again. We really appreciate this chat as always, Tom. Look, I think what we are seeing now is an inflection in the ASICs and in the SerDes speed, and that is driving the need for NPO and CPO. I do not know, and Wupen can comment a little bit on this. I do not think there are existing TPUs, XPUs, GPUs that are shipping that have a fast enough SerDes speed that we could suddenly plop in an NPO or CPO solution, which I think is what you are asking. But as these new generations come online, really seeing silicon in mid 2027 toward the end of 2027 and early 2028, all those new silicon solutions, again, GPUs, XPUs, TPUs, all seem to be driving SerDes speeds that are consistent with the adoption of NPO or CPO. Wupen, any color you can add for Tom?

Speaker #2: I don't know, and Wupen can comment a little bit on this. I don't think there are existing TPUs, XPUs, or GPUs that are shipping that have a fast enough 800G speed that we could suddenly plop in an NPO or CPO solution, which I think is what you're asking.

Speaker #2: But as these new generations come online, really seeing silicon in mid-2027, toward the end of '27 and early '28, all those new silicon solutions—again, GPUs, XPUs, TPUs—all seem to be driving 800G speeds that are consistent with the adoption of NPO or CPO.

Speaker #2: Wupen, I mean, any color you can ask for, Tom.

Speaker #3: No, thank you, Michael. I think that's very accurate. Really, I don't think, Tom, we are not seeing kind of the ritual bit of NPO onto the current XPUs.

Wupen Yuen: No, thank you, Michael. I think that is very accurate. I do not think, Tom, we are not seeing the retrofit of MPO onto the current XPUs. What we are seeing is really like what Michael talked about, there is a broad momentum towards the 2028 ramp of MPO and CPO and redriven by optical scale-up. This is beyond just the XPU itself. This also goes into a rack-based multi-rack system that requires optical scale-up, right? Therefore, we believe there is going to be a new processor, new racks, and there is a 2028 event for optical scale-up from the industry's evolution point of view.

Speaker #3: What we're seeing is, really like Michael talked about, there is broad momentum towards the '28—kind of the '28 ramp of NPO and CPO—and really driven by optical scale-up.

Speaker #3: So it's not—this is beyond just the XPU itself; this also goes into a rack-based, multi-rack system that requires optical scale-up, right? And therefore, we believe this is going to be a new processor, new racks, and it's a 2028 event for optical scale-up from the industry's evolution point of view.

Speaker #6: Super helpful. And on the other side of things, on OCS, you talked about intra-OCS. I was curious, is the competitive dynamic there similar for you guys in terms of the timing?

Tom O'Malley: Super helpful. On the other side of things, on OCS, you talked about in-tray OCS. I was curious, is the competitive dynamic there similar for you guys? In terms of the timing, is that in your current TAM, or would that be additive to the TAM? When do you see that intersecting, in terms of that technology hitting the market? Thank you very much.

Thomas O'Malley: Super helpful. On the other side of things, on OCS, you talked about in-tray OCS. I was curious, is the competitive dynamic there similar for you guys? In terms of the timing, is that in your current TAM, or would that be additive to the TAM? When do you see that intersecting, in terms of that technology hitting the market? Thank you very much.

Speaker #6: Is that in your current TAM, or would that be additive to the TAM? And when do you see that intersecting, in terms of that technology hitting the market?

Speaker #6: Thank you very much.

Speaker #2: Yeah, Tom, additive, right? So, it's anything that Kathy's presented at OFC—it's above and beyond that. It's a very new set of opportunities. We've come to find out there are a number of different folks that are looking at this kind of approach.

Michael Hurlston: Yeah, Tom. Additive, right? So anything that Kathy has presented at OFC, it is above and beyond that. It is a very new set of opportunities. We have come to find out there are a number of different folks that are looking at this kind of approach, and it is all very additive. It would hit for us 2028 timeframe, Tom. It is not something that is super imminent, but it is imminent enough that we are working on it aggressively. It requires a lot of redesign from our engineers. We are the only guy shipping. I know a lot of people are talking about OCS and a lot of startups. For us to be now at $100 million and beyond types of quarters, we are the only ones that have a track record outside of a contract manufacturing relationship with a large OCS user.

Speaker #2: And it's all very additive. It would hit for us in the '28 timeframe, Tom. It's not something that's super imminent, but it's imminent enough that we're working on it aggressively.

Speaker #2: It requires a lot of redesign from our engineers, but look, we're the only guys shipping. I mean, I know a lot of people are talking about OCS and a lot of startups. For us to be now at $100 million and beyond types of quarters, we're the only ones that have a track record outside of a contract manufacturing relationship with a large OCS user.

Speaker #2: So we're really the only merchant supplier today of OCS, and by virtue of that, we're going to get every single call and have the first look, I think, at every single opportunity out there.

Michael Hurlston: So we are really the only merchant supplier today of OCS, and by virtue of that, we are going to get every single call and have the first look, I think, at every single opportunity out there.

Speaker #6: Great results. Thanks, John.

Tom O'Malley: Great results. Thanks again.

Thomas O'Malley: Great results. Thanks again.

Speaker #2: Thanks, Tom.

Michael Hurlston: Thanks, Tom.

Speaker #1: Thanks so much, Tom. And Matthew, it looks like we have time for just one more question.

Kathy Ta: Thanks so much, Tom. Matthew, it looks like we have time for just one more question.

Kathryn Ta: Thanks so much, Tom. Matthew, it looks like we have time for just one more question.

Speaker #5: Great. Your next and final question will come from the line of Ruben Roy with Stifel. Your line is now open. Please go ahead.

Operator 2: Great. Your next and final question will come from the line of Ruben Roy with Stifel. Your line is now open. Please go ahead.

Operator: Great. Your next and final question will come from the line of Ruben Roy with Stifel. Your line is now open. Please go ahead.

Speaker #7: Yeah, great. Thanks for sticking me in here. Michael, maybe just to drill into the pump laser commentary a bit—you’re growing quite nicely. I think you said 80% year-over-year for the second, a good 70% quarter.

Ruben Roy: Yeah, great. Thanks for sticking me in here. Michael, maybe just to drill into the pump laser commentary a bit. You are growing quite nicely. I think you said 80% year-over-year for the second consecutive quarter, and fourfold increase coming, still effectively sold out. Can you talk a little bit about where you are in the Rose Orchard ramp and what exit capacity looks like? Then you talked about some long-term supply agreements that you are putting into place for scale across. Can you characterize maybe high level what the structure of those agreements are and the duration?

Speaker #7: And the fourfold increase coming, still effectively sold out. Can you talk a little bit about where you are in the resort ramp and what actual capacity looks like?

Speaker #7: And then you talked about some long-term supply agreements that you're putting into place for scale across. Can you characterize, maybe at a high level, what the structure of those agreements is and the duration?

Speaker #2: Yeah, Ruben, thanks for that last question. We really always appreciate your questions. I think this is an area of incredible strength for us, which I really think is underappreciated.

Michael Hurlston: Yeah, Ruben, best for last. We really always appreciate your questions. This is an area of incredible strength for us, which really, I think is underappreciated. We have very large market share here, and what we have done is really worked hard with, for example, a lot of the NEMs, the network equipment manufacturers, to form strategic partners. We are super pleased with how people have come to work with us on helping offset some of the CapEx, and it is considerable that we have to put out to ramp in Rose Orchard, you got it right, and to then bring that into our Thailand manufacturing for packaging and test. We formed a series of arrangements that, for the most part, are 3-year arrangements. Those arrangements, as our normal arrangements, have pricing built into them. There are pricing levers that we can exercise if certain conditions are met.

Speaker #2: We have a very large market share here, and what we've done is really worked hard with, for example, a lot of the NEBs, the network equipment manufacturers, to form strategic partners.

Speaker #2: And we're super pleased with how people have come to work with us on helping offset some of the capex. And it's considerable that we have to put out to ramp in Rose Orchard.

Speaker #2: You got it right. And to then bring that into our tile and manufacturing for packaging and tests, we formed a series of arrangements that, for the most part, are three-year arrangements.

Speaker #2: And those arrangements, as our normal arrangements, have pricing built into them. There are pricing levers that we can exercise if certain conditions are met.

Speaker #2: So, we think we have some room there on the price line, but these are giving us a lot of surety in terms of that demand not evaporating.

Michael Hurlston: We think we have some room there on the price line. These are giving us a lot of surety in terms of that demand not evaporating. In most instances, I think they are take or pay. Wupen, you can comment since you have been middle of that. We feel really, really good about where we are sitting, Ruben, on the pumps. Again, rough order, we are somewhere between 70% and 80% share. We believe we have a technology roadmap that our customers want to engage in that will afford us the opportunity to work on price to further increase output. This is a darn exciting area for us. Wupen, any additional color?

Speaker #2: And most instances, I think they're take-or-pay. Wupen, you can comment since you've been in the middle of that. But we feel really, really good about where we're sitting, Ruben, on the pumps again, rough order.

Speaker #2: We're somewhere between 70 and 80 percent share, and we believe we have a technology roadmap that our customers want to engage in. That will afford us the opportunity to work on price and to further increase output.

Speaker #2: But this is a darn exciting area for us. Wupen, any additional comment?

Speaker #3: Great. No, thank you. That's great.

Wupen Yuen: Great. No, thank you. That is great.

Speaker #7: Thanks, Michael. That's really helpful. For the last 30 seconds here, a lot of discussion on NPO. My quick follow-up on that is: are the discussions, engagements, that type of thing associated with some of the open or standards-based NPO—kind of the, yeah, I guess, the standards-based NPO versus custom?

Ruben Roy: Thanks, Michael. That's really helpful. For the last 30 seconds here, a lot of discussion on NPO. My quick follow-up on that is, are the discussions, engagements, that type of thing associated with some of the open or standards-based NPO, I guess the standard-based NPO versus custom. I'm just wondering if there's a better alternative for you given your technology and positioning. Does it matter, I guess?

Speaker #7: And I'm asking, I'm just wondering if there's a better alternative for you, given your technology and positioning. Does it matter, I guess?

Speaker #2: Yeah, look, and I'll have Wupen comment just in the interest of time. I mean, there are OCIs, right, different standards that are coming out that are talking about the way the interface between the ASIC and the optical engine, for example.

Michael Hurlston: Look, I'll have Wupen comment just in the interest of time. There are OCI, different standards that are coming out that are talking about the way the interface between the ASIC and the optical engine, for example. That's great for us because that opens up switch opportunities, for example, that may not be open to us before. The standards-based approach opens up optical TAM. We are engaged, to be honest with you, in both. There are a lot of custom, very specific types of implementations that our customers are driving to. That's really going to be our first wave of NPO engagement, Ruben. Any color?

Speaker #2: That's great for us, because that opens up switch opportunities, for example, that may not have been open to us before. So the standards-based approach opens up optical TAM, but we are engaged, to be honest with you, in both, right?

Speaker #2: There are a lot of custom, very specific types of implementations that our customers are driving to, and that's really going to be our first wave of NPO engagement, Ruben.

Speaker #2: Any color?

Wupen Yuen: Little bit of color. I think just to extend what Michael just talked about. There's actually two things. One is that today, the physical level, the optical level, they're all so-called fast and narrow, 200 gig per lane, massive lanes. The next generation, as Michael talked about, would be OCI and SA-based. So that's on the optical side. On the form factor side is very much proprietary. Everybody has a different design. Again, we talked about earlier, matched to their rack design, their system design, and that actually is different from customer to customer. Again, optically, they are vendor-based, but on the implementation side, they are different between different customers.

Speaker #3: A little bit of color, I think, just to the extent of what Michael just talked about, right? There are actually two things. One is that today, at the physical level, the optical level, they're all so-called fast and narrow.

Speaker #3: 200 gigs per lane, massive lanes. And the next generation, right, as Michael talked about, would be like OCI, MSA-based. So, that's on the optical side.

Speaker #3: But on the phone, the faster side is very much proprietary, right? Everybody has a different design. Again, we talked earlier about mass to their rack design, their system design.

Speaker #3: And that actually is different from customer to customer, right? So again, optically, they are kind of standards-based, but then on the implementation side, they're different between different customers.

Speaker #7: Excellent. Thank you.

Ruben Roy: Excellent. Thank you.

Speaker #1: Thanks so much, Ruben.

Kathy Ta: Thanks so much, Ruben.

Kathryn Ta: Thanks so much, Ruben.

Speaker #5: Thank you for your questions. I will now turn the call back to Kathryn for closing remarks.

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

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

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

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

Speaker #5: This concludes today's call. Thank you for attending. You may now disconnect.

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.

Operator 1: This event has now concluded.

Operator: This event has now concluded.