Lumentum (LITE) investor relations material

Industry trends and market drivers

• AI-driven demand is causing an unprecedented surge in optical networking, with hyperscalers investing heavily in capacity through 2028 and beyond.

• The shift from human-generated to machine-generated data is transforming data center traffic patterns, requiring non-blocking, low-latency, high-bandwidth optical connectivity.

• Optical technologies are increasingly integral to compute, not just communication, with optics enabling AI scalability.

• The total addressable market (TAM) for optical components is projected to grow from $18 billion to over $90 billion in five years, driven by scale-up, scale-out, and OCS adoption.

• More than half of data center traffic is expected to shift to optical scale-up domains within five years.

Technology and product evolution

• Indium phosphide capacity is being rapidly expanded, with an 8x increase in EML output since FY2023 and a further 50% increase planned by end of 2026.

• New Greensboro fab acquisition will significantly boost capacity, targeting UHP lasers and EMLs, with production expected by 2028.

• Optical circuit switches (OCS) leverage decades of MEMS and WSS expertise, offering low latency, high reliability, and wavelength-agnostic operation.

• High-speed EML lasers remain the preferred solution for new speed nodes, with the world's first 400G EML module demoed.

• CPO, transceivers, high-speed lasers, and OCS are identified as the four key pillars for future optical networking.

Business performance and financial outlook

• Multi-year, multi-billion-dollar OCS agreement closed with a major customer, supporting robust revenue growth through 2027.

• Cloud transceiver business is improving, with 1.6T shipments and vertical integration of lasers expected to enhance margins starting summer.

• Optical scale-out and scale-up products are sold out through 2027, with demand outpacing supply despite capacity expansions.

• Quarterly revenue targets are $1.25 billion in 9–12 months and $2 billion in 18–24 months, with operating margins expected to reach 40%.

• NVIDIA’s $2 billion investment strengthens the balance sheet and supports strategic CapEx and M&A, with half allocated to capacity expansion.