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    LITE
    Earnings call· Mar 2025(Q3 FY25)

    Lumentum Holdings Q3 FY25 earnings call LITE

    May 6, 2025 Source

    Executive summary

    Lumentum Q3 FY25 — Strong Cloud & Networking Growth Drives Revenue and Margin Beat

    Lumentum exceeded Q3 FY25 revenue and EPS guidance, driven by robust demand in its Cloud & Networking segment, particularly from hyperscale customers and EML chip shipments. The company is actively managing supply chain shifts and tariff impacts while maintaining confidence in its medium-term financial targets, including a $500 million quarterly run rate by calendar year-end.

    Highlights

    5

    • Revenue of $425.2 million and non-GAAP EPS of $0.57 both exceeded the high end of guidance.

    • Cloud & Networking segment revenue grew 8% sequentially and 16% year-over-year to $365.2 million.

    • Non-GAAP gross margin improved by 290 basis points sequentially to 35.2%.

    • Non-GAAP operating margin improved by 290 basis points sequentially to 10.8%.

    • Cloud transceiver revenue is expected to grow over 50% sequentially in Q4 FY25.

    Concerns

    3

    • Industrial Tech segment revenue decreased 5% sequentially.

    • Q4 FY25 guidance includes an estimated 100 basis point reduction in overall company gross margin due to higher material costs and tariffs.

    • Supply constraints for telecom products (pumps, tunables, CDM) are expected to continue for at least the next couple of quarters.

    Guidance & targets

    14
    CategoryTargetConfidence
    Net Revenue
    $440 million to $470 million
    high materiality
    High
    Non-GAAP Operating Margin
    13% to 14%
    high materiality
    High
    Non-GAAP Diluted Net Income Per Share
    $0.70 to $0.80
    high materiality
    High
    Non-GAAP Annual Effective Tax Rate
    16.5%
    medium materiality
    High
    Cloud & Networking Segment Revenue
    up sequentially
    medium materiality
    High
    Industrial Tech Segment Revenue
    down sequentially
    medium materiality
    High
    Overall Company Gross Margin
    sequential improvement
    medium materiality
    High
    EML Business Growth
    more than double
    high materiality
    High
    Co-Packaged Optics (CPO) Revenue
    meaningful revenue
    medium materiality
    Medium
    Overall Cloud Transceiver Revenue Growth
    over 50% sequentially
    high materiality
    High
    Quarterly Revenue Run Rate
    exceed $500 million
    high materiality
    High
    Gross Margins
    above 40%
    high materiality
    High
    Operating Margins
    greater than 20%
    high materiality
    High
    Quarterly Revenue
    $750 million
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Cloud & Networking
    Fueled by robust demand from hyperscale cloud customers and favorable product mix due to increased datacom laser shipments.
    Segment profit increased 380 basis points sequentiallySegment profit increased 540 basis points year-on-year
    		$365.2 million16%8%20%
    Industrial Tech
    Decreased sequentially on lower revenue, but increased year-on-year on higher revenue. Impacted by ongoing macroeconomic headwinds and seasonal decline in 3D sensing.
    		$60 million14%-5%4.3%

    Operational metrics

    23
    Non-GAAP gross margin
    35.2%up 290 basis points sequentially; up 650 basis points year-on-year
    Q3 FY25
    Non-GAAP operating margin
    10.8%up 290 basis points sequentially; up 1100 basis points year-on-year
    Q3 FY25
    Non-GAAP operating profit
    $46.1 million
    Q3 FY25
    Adjusted EBITDA
    $71 million
    Q3 FY25
    Non-GAAP operating expenses
    $103.4 millionup $5.1 million from Q2; down $2.4 million from year ago quarter
    Q3 FY25

    Demonstrates disciplined cost management even with investments in cloud opportunities and payroll fringe reset.

    Non-GAAP SG&A expense
    $40.1 million
    Q3 FY25
    Non-GAAP R&D expense
    $63.3 million
    Q3 FY25
    Interest and other income
    $2.9 million
    Q3 FY25

    On a non-GAAP basis.

    Non-GAAP net income
    $40.9 million
    Q3 FY25
    Non-GAAP diluted net income per share
    $0.57
    Q3 FY25
    Fully diluted share count
    72.2 million
    Q3 FY25

    On a non-GAAP basis.

    Cash and short-term investments balance
    $867 milliondecreased by $30 million sequentially
    Q3 FY25
    Inventory levels
    increased sequentially
    Q3 FY25

    To support expected growth in Cloud & Networking revenue.

    Capex
    $59.5 million
    Q3 FY25
    Cloud & Networking segment profit
    20%increased 380 basis points sequentially; increased 540 basis points year-on-year
    Q3 FY25

    On higher revenue and favorable product mix.

    Industrial Tech segment profit
    4.3%decreased sequentially; increased year-on-year
    Q3 FY25

    Decreased sequentially on lower revenue and increased year-on-year on higher revenue.

    Overall company gross margin reduction
    100 basis points
    Q4 FY25

    Estimated reduction included in Q4 FY25 guidance.

    Cloud and AI market growth
    >25%CAGR
    next 5 years

    Driven by accelerating convergence of optics and electronics.

    EML chipset shipments
    record
    Q3 FY25
    Narrow-linewidth lasers shipments
    fifth sequential quarter of shipment growth
    Q3 FY25

    Essential to ZR and ZR+ module deployments.

    Industrial Tech R&D sites closed
    2
    Q3 FY25

    As part of portfolio rationalization.

    Industrial Tech exploratory product areas stopped
    3
    Q3 FY25

    As part of portfolio rationalization.

    Data center interconnect products capacity increase
    50%
    by end of CY25

    From Thailand facility for tunables.

    Industry KPIs

    5
    MetricValueDetails
    Orders backlog qualitydemand is still outstripping supply
    Segment growth margin targetsabove 40% (gross margins); greater than 20% (operating margins)%
    Ai cloud infrastructure ordersrecord
    Revenue mix by product customer typeCloud & Networking: $365.2 million; Industrial Tech: $60 millionUSD
    Design wins product cycle transitionsmultiple customers

    Product announcements

    1
    ProductTypeDetails
    R300 Optical Circuit Switch (OCS)launch

    Capital programs

    2
    Wafer fab expansionunderway
    Period spend: $59.5 million

    Benefit: higher volumes of EMLs and other indium phosphide lasers and photodetectors; increasing equipment capacity for indium phosphide wafer production to support EML chip manufacturing

    Our wafer fab expansion remains on track, supporting higher volumes of EMLs and other indium phosphide lasers and photodetectors. In addition, we are ramping production in CW lasers for silicon photonics transceiver applications in the quarter.

    Thailand manufacturing campus expansionunderway
    Period spend: $59.5 million

    Benefit: expanding clean room capacity; accelerating optical transceiver production

    In Q3, we invested $59.5 million in CapEx primarily focused on expanding clean room capacity at our Thailand manufacturing site and increasing equipment capacity for indium phosphide wafer production to support EML chip manufacturing.

    Risks & headwinds

    3
    Macroeconomic volatilitynear-term

    ongoing macroeconomic volatility

    Mitigation: build resilience through a globally diversified manufacturing footprint, a flexible supply chain and active engagement with customers

    Tariffs and export controlsQ4 FY25 and ongoing

    estimated 100 basis point reduction in overall company gross margin for Q4 FY25

    Mitigation: moving production from China into our Nava facility in Thailand; speaking to our customers about how we work through the pricing impact

    Supply constraints for telecom productsnext couple of quarters

    tight supply situation for next -- at least the next couple of quarters

    Mitigation: increasing production capacity by 50% over the remaining part of this calendar year for tunables; continue to run capacity, continue to get more supply

    What to watch in Q4 FY25

    5

    Cloud transceiver revenue growth

    Q4 FY25
    Currentflat on quarter
    Targetover 50% sequential growth

    Why it matters

    Significant growth driver for the company, indicating successful ramp of new customer programs and overcoming past execution issues.

    In Q4, we expect our overall cloud transceiver revenue to grow over 50% sequentially.

    Q&A highlights

    8

    Is the $500M quarterly revenue target by CY25 still on track, or could it be achieved earlier?

    Michael Hurlston confirmed the company is "very much on track" for the $500 million quarterly run rate by the end of the calendar year, without specifying an earlier achievement.

    “We're still very much on track for the $500 million by the end of the year.”

    asked by Joseph Cardoso · answered by Michael E. Hurlston

    2 min read7 chapters

    Detailed Narrative

    01

    CEO's Strategic Vision and Targets

    Michael Hurlston, in his first 90 days as CEO, outlined a path to accelerate revenue growth, improve margins, and focus spending. He reiterated targets of $750 million quarterly revenue, gross margins above 40%, and operating margins greater than 20%, expressing confidence in their achievability given the market's 25%+ CAGR driven by optics-electronics convergence.

    02

    Cloud & Networking Segment Performance

    The segment's revenue grew 8% sequentially and 16% year-over-year, fueled by hyperscale cloud customers. EML chipset shipments set another record, on track to more than double by end of CY25. The company is ramping 200-gig EMLs and is well-positioned for 800-gig and 1.6T transceivers for AI workloads.

    03

    Wafer Fab Expansion and CW Lasers

    Lumentum's wafer fab expansion is on track to support higher volumes of EMLs and other indium phosphide products. They are also ramping production of CW lasers for silicon photonics transceiver applications, aiming to increase their mix as capacity grows and extend their serviceable market.

    04

    Co-Packaged Optics (CPO) and OCS

    The company has an ultrahigh-power laser for CPO solutions, with early production units shipped and meaningful revenue expected in H2 CY26. They also introduced the R300 optical circuit switch (OCS) for AI clusters, with beta samples being qualified by multiple hyperscalers and early production volumes expected by end of CY25.

    05

    Transceiver Production and DCI/Long-Haul Demand

    Lumentum is accelerating optical transceiver production in Thailand, expecting shipments to a second hyperscale customer in June and expanding offerings to its largest cloud customer. Overall cloud transceiver revenue is projected to grow over 50% sequentially in Q4. DCI and long-haul transmission solutions are also seeing growing demand, with narrow-linewidth laser shipments marking their fifth sequential quarter of growth.

    06

    Industrial Tech Segment Rationalization

    Industrial Tech revenue decreased 5% sequentially but was up 14% YoY. The company has rationalized the portfolio by closing two R&D sites and stopping development in three exploratory product areas, expecting increasing profit in this segment over the next few quarters. Ultrafast laser shipments held steady at near-record levels, driven by solar cell manufacturing.

    07

    Tariff Impact and Supply Chain Resilience

    The company acknowledges macroeconomic volatility🌐, tariff dynamics, and export controls as near-term challenges. They have built resilience through a globally diversified manufacturing footprint (e.g., moving production to Thailand), a flexible supply chain, and active customer engagement, focusing on pricing, disciplined spending, and execution.

    AI-generated summary of the company’s earnings call. Not investment advice.