Lumentum (LITE) Q4 FY2026 Earnings Call: Q&A Summary

Q: Given the company is tracking to hit the $1.25 billion revenue target early and is running ahead of margin targets, how should investors think about the next set of financial targets considering new opportunities like ELS, NPO, and OCS?

A: Michael Hurlston, President and CEO, stated that new financial targets will be provided at the next OFC. He noted that the company is running ahead on revenue and operating margins, and that new opportunities like NPO, CW lasers, and OCS are incremental and were not fully factored into previous discussions.

Q: Can you provide details on NPO timing, customer architecture choices, and how content compares to CPO?

A: Michael Hurlston explained that lead CPO customer shipments for scale-up are expected in the second half of calendar 2027 for 2028 deployment, with NPO opportunities in a similar timeframe. High-powered lasers are the immediate focus, with mid-power lasers integrated into optical engines as a follow-on. Wupen Yuen, President, Global Business Units, added that NPO requires immense power density and efficiency, which plays to Lumentum's design strengths.

Q: To what extent was the company able to reprice backlog, and how did that affect gross margins?

A: Michael Hurlston noted that while some backlog was repriced, product mix was the primary driver of gross margin improvement this quarter. He expects continued room for margin expansion.

Q: What is your take on the developing competition from Chinese-based indium phosphide fabs?

A: Michael Hurlston stated that the company has not seen any impact on its numbers. He emphasized Lumentum's differentiation in EMLs and high and mid-power lasers, noting that customers see better transceiver yields with Lumentum's CW lasers, which allows for price premiums.

Q: Can you confirm the triple-digit OCS revenue quarter, and when can we expect the same for ultra high-powered CW scale-out lasers?

A: Michael Hurlston confirmed that the first quarter guidance includes a triple-digit OCS revenue quarter. He expects ultra high-powered lasers to reach triple-digit quarterly revenue in fiscal Q3.

Q: Is there an update on the Greensboro facility capacity ramp?

A: Michael Hurlston reported that the facility conversion from gallium arsenide to indium phosphide is progressing well, with first revenue expected in early 2028 and a ramp through 2028 and 2029.

Q: What is the update on the $400 million OCS guide and the customer build versus buy calculus?

A: Michael Hurlston confirmed the company is tracking to the $400 million goal. He expects Lumentum to become the number one supplier for key customers by early 2027 as they shift from internal programs to Lumentum's solutions.

Q: What is the update on the supply and demand imbalance?

A: Michael Hurlston and Wupen Yuen stated that the EML supply and demand imbalance remains unchanged. However, demand for high-powered lasers has accelerated, leaving supply further behind.

Q: Can you speak more about the ELS module opportunity and the economics beyond just lasers?

A: Michael Hurlston and Wupen Yuen noted that the first ELS module order has been received. The ASP is higher than individual lasers, though margins are slightly lower than the corporate average. It serves as a way to enable customers who do not want to handle individual chips.

Q: What is the status of the 1.6T cycle and 200 gig per lane, and how do CW and EML economics compare?

A: Michael Hurlston and Wupen Yuen stated that EML demand remains strong. While CW lasers are taking a portion of output, Lumentum has reduced die size, which has closed the margin gap with EMLs.

Q: Are 200 gig per lane EML and CW lasers accretive, and when do you see the 1.6T crossover?

A: Michael Hurlston stated that 200 gig per lane EMLs are expected to be the majority volume by mid-2027. He reiterated that lasers are accretive and the margin gap between CW and EML has closed considerably.

Q: How should we think about operating leverage going through fiscal 2027?

A: Wajid Ali, EVP and CFO, noted that the operating margin range is likely moving up 100 to 200 basis points from previous targets as gross margins improve.

Q: Why did the company sign a deal with AXT for indium phosphide substrates?

A: Michael Hurlston explained that ultra-high-powered laser demand surged, requiring additional substrate supply. AXT is a partner to help meet this demand.

Q: Is it likely the company will sign long-term agreements for Greensboro capacity?

A: Michael Hurlston confirmed that the company is actively discussing new arrangements with customers for Greensboro capacity.

Q: Can NPO intersect existing silicon ramps?

A: Michael Hurlston and Wupen Yuen stated that they are not seeing retrofits on current chips. New silicon generations in late 2027 and 2028 will drive NPO and CPO adoption.

Q: What is the competitive dynamic for in-tray OCS, and is it additive to the TAM?

A: Michael Hurlston confirmed it is additive to the TAM. It is a 2028 timeframe opportunity, and Lumentum is currently the only merchant supplier.

Q: What is the update on the pump laser ramp and the structure of long-term agreements?

A: Michael Hurlston and Wupen Yuen noted that the pump laser business has 70% to 80% market share. Three-year agreements are in place with pricing levers to help offset CapEx.

Q: Are NPO engagements standards-based or custom?

A: Michael Hurlston and Wupen Yuen stated that the company is engaged on both. Standards-based approaches open up new TAM, but the first wave of NPO will be custom implementations specific to customer rack designs.