Lumentum (LITE) Morgan Stanley Technology, Media & Telecom Conference 2026 summary

Strategic partnerships and industry developments

• Announced a $2 billion investment and multi-billion dollar purchase commitment from NVIDIA, reflecting a long-term partnership focused on high-powered lasers for optical scale-out and scale-up applications.

• Identified and are negotiating for a new fabrication facility to expand indium phosphide capacity, supported by NVIDIA's investment.

• Industry shift from telecom-driven to hyperscaler-driven demand, with timescales now measured in months and volumes in millions.

• Capacity expansion plans include a fifth indium phosphide fab, with existing capacity expected to increase by 20% over the next two quarters, yet demand continues to outpace supply through at least 2028.

• Strategic focus on co-packaged optics (CPO), optical circuit switches (OCS), and scale-across applications, with reduced emphasis on industrial lasers.

Operational and product roadmap

• Fabs are now purposefully allocated by technology: Japan for EMLs and CW lasers, UK shifting to CPO and photodiodes, and San Jose dedicated to CPO.

• EML capacity is fully sold out across 100G and 200G, with no immediate need to shift to CW lasers except for internal use.

• CPO identified as the highest volume opportunity, especially as optics increasingly replace copper in data center racks.

• OCS revenue forecast for the last two quarters of the year tripled from $100 million to $400 million, driven by three customers and new use cases like spine switch replacement.

• Reliability improvements in lasers, leveraging undersea pump technology, address historical concerns with CPO and support broader adoption.

Business strategy and market positioning

• Transceiver business growth now exceeds previous $1 billion cap, with focus on three main customers to balance volume and margin.

• Pulling back from fully integrated ZR modules, focusing instead on high-margin components like narrow linewidth lasers and pump lasers.

• OCS and component businesses remain high-margin and differentiated, even as some customers pursue vertical integration.

• M&A remains a strategic option, but current growth drivers reduce immediate need; focus is on execution and potential component acquisitions.

• Secured a 7-year supply agreement for indium phosphide substrates outside China, mitigating geopolitical risks and ensuring long-term supply for Japanese fabs.