Lumentum(LITE) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1, revenues surged more than 58% year-over-year, reaching $533 million, the highest revenue in a single quarter in the company's history [5][15] - Non-GAAP gross margin for Q1 was 39.4%, up 160 basis points sequentially and 660 basis points year-over-year [15] - Non-GAAP operating margin was 18.7%, up 370 basis points sequentially and 1,570 basis points year-over-year [15] - Cash and short-term investments increased by $245 million to $1.12 billion during Q1 [17] Business Line Data and Key Metrics Changes - Components revenue was $379 million, up over 18% sequentially and 64% year-over-year, driven by strong demand in data centers [8][17] - Systems revenue was $155 million, down 4% sequentially but up 47% year-over-year, with cloud transceiver revenue remaining flat [11][17] - The company initiated CW laser deliveries for 800-gig transceiver manufacturers, marking a significant milestone [9] Market Data and Key Metrics Changes - Over 60% of total revenue now comes from cloud and AI infrastructure, driven by hyperscale customers [5] - Shipments of narrow linewidth laser assemblies for data center interconnect grew over 70% year-over-year [10] - The company expects significant increases in shipment volumes in the second half of calendar 2026 as adoption accelerates [10] Company Strategy and Development Direction - The company has reorganized to report financials as a single reportable segment, allowing for quicker responses to market changes [7] - Three major drivers of future growth have been identified: cloud transceivers, optical circuit switches, and co-packaged optics [6] - The company aims to leverage its leadership in optics for scaling AI compute and anticipates sustained growth in cloud applications [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in surpassing $600 million in quarterly revenue by June 2026, with a Q2 outlook of approximately $650 million [6] - The company highlighted a broad-based improvement in demand across all segments, with transceivers expected to contribute significantly to revenue growth [65] - Management noted that the demand-supply imbalance has increased, with a shortfall of 25%-30% relative to total customer demand [70][71] Other Important Information - The company expects to see revenue layering benefits from new 800-gig and 1.6T products ramping in future quarters [12] - The company is focused on expanding manufacturing capacity to support cloud and AI customers, with $76 million invested in CapEx during Q1 [17] Q&A Session Summary Question: Can you discuss the confidence in sustaining growth in transceivers? - Management highlighted improved execution and participation in early customer ramps, expecting to ship 1.6T transceivers by mid-next year [25] Question: What does the 40% increase in capacity for data comm chips mean for revenue? - Management indicated that the increase would lead to higher output and a shift towards 200 gig lasers, contributing to revenue growth [27][28] Question: How is the continuous wave laser output being targeted? - The company is shipping CW lasers to other customers and plans to use them in its own transceivers by mid-2026 [34] Question: What is the competitive environment for narrow linewidth lasers? - Management noted strong market share and limited competition, with a focus on ramping laser capacity [36][37] Question: How is the supply-demand imbalance for EML characterized? - The demand-supply mismatch has increased, with a shortfall of 25%-30% relative to customer demand [70][71] Question: What milestones are expected for the OCS business? - Management expects to ramp to $100 million quarterly by December 2026, with hardware generally qualified and ongoing software development [82]